[Split into taxable / non-tax advantage accounts]

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Topic Author
CxInvest
Posts: 3
Joined: Thu Jan 10, 2019 2:33 pm

[Split into taxable / non-tax advantage accounts]

Post by CxInvest » Thu Jan 10, 2019 2:45 pm

[Moved into a new thread from: Fidelity, Schwab, or Vanguard --admin LadyGeek]

Hello all. I'm about to open an IRA and an individual brokerage account.

So I'll keep it brief. I just wanted to pick these brains of those few on the thread here that are talking splitting accounts for tax / non tax advantage accounts. I did all the homework I'm going to do and I landed on Fidelity overall for my needs. That being said, my interest has been piqued with this thread about splitting the two accounts for tax purposes.

I guess what I'm really wanting to know is how big of a difference we are talking here in numbers? I'd rather send them all to one spot for simplicity / self management sake - but since this SHOULD be more or less permanent if all works ok I realize savings on tax structure could definitely add up over 20-30 years (i'm 33).

Yes trying to avoid crunching the numbers and doing all the math myself... Not sure I understand it well enough to figure it out anyway without spending necessarily large amounts of time.

Can ya guys help me out here?

Thank you and great thread!

~ Cx

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ruralavalon
Posts: 14478
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Fidelity, Schwab, or Vanguard

Post by ruralavalon » Thu Jan 10, 2019 5:44 pm

Welcome to the forum :) .

CxInvest wrote:
Thu Jan 10, 2019 2:45 pm
Hello all. I'm about to open an IRA and an individual brokerage account.

So I'll keep it brief. I just wanted to pick these brains of those few on the thread here that are talking splitting accounts for tax / non tax advantage accounts. I did all the homework I'm going to do and I landed on Fidelity overall for my needs. That being said, my interest has been piqued with this thread about splitting the two accounts for tax purposes.

I guess what I'm really wanting to know is how big of a difference we are talking here in numbers? I'd rather send them all to one spot for simplicity / self management sake - but since this SHOULD be more or less permanent if all works ok I realize savings on tax structure could definitely add up over 20-30 years (i'm 33).

Yes trying to avoid crunching the numbers and doing all the math myself... Not sure I understand it well enough to figure it out anyway without spending necessarily large amounts of time.

Can ya guys help me out here?

Thank you and great thread!

~ Cx
To answer your question ("how big a difference") it's hard to avoid looking at the numbers at least a little bit. More information might be useful.

What is your tax bracket, both federal and state?

You are age 33. Do you expect to be in a substantially high tax bracket for most of your working life?

About what portion of your total annual contributions do you expect will be going into your taxable brokerage account?

What State do you pay any state income tax to?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
CxInvest
Posts: 3
Joined: Thu Jan 10, 2019 2:33 pm

Re: Fidelity, Schwab, or Vanguard

Post by CxInvest » Thu Jan 10, 2019 6:36 pm

ruralavalon wrote:
Thu Jan 10, 2019 5:44 pm
Welcome to the forum :) .

CxInvest wrote:
Thu Jan 10, 2019 2:45 pm
Hello all. I'm about to open an IRA and an individual brokerage account.

So I'll keep it brief. I just wanted to pick these brains of those few on the thread here that are talking splitting accounts for tax / non tax advantage accounts. I did all the homework I'm going to do and I landed on Fidelity overall for my needs. That being said, my interest has been piqued with this thread about splitting the two accounts for tax purposes.

I guess what I'm really wanting to know is how big of a difference we are talking here in numbers? I'd rather send them all to one spot for simplicity / self management sake - but since this SHOULD be more or less permanent if all works ok I realize savings on tax structure could definitely add up over 20-30 years (i'm 33).

Yes trying to avoid crunching the numbers and doing all the math myself... Not sure I understand it well enough to figure it out anyway without spending necessarily large amounts of time.

Can ya guys help me out here?

Thank you and great thread!

~ Cx
To answer your question ("how big a difference") it's hard to avoid looking at the numbers at least a little bit. More information might be useful.

What is your tax bracket, both federal and state?

You are age 33. Do you expect to be in a substantially high tax bracket for most of your working life?

About what portion of your total annual contributions do you expect will be going into your taxable brokerage account?

What State do you pay any state income tax to?
Hey Rurulavalon - thanks for the response! I'll try to answer your questions as accurately as possible.

My current Federal is tax bracket is 12% as of now but for the long haul likely 22% and possibly 24%. State is 7% (S.C.)

I think the above should answer your second question.

I'm not exactly sure yet on percentages for total annual contributions, but I'll be maxing the ROTH first and putting essentially everything else that doesn't go to normal bills (i have no debt) or other investments (e.g. real estate related ventures). I know that doesn't give you a % allocation but I really don't have that # just yet. It will just be anything extra not being diversified into other assets / investments.

Just South Carolina for now. Possibly South and North Carolina later on.

Thanks again.

radiowave
Posts: 1996
Joined: Thu Apr 30, 2015 5:01 pm

Re: [Split into taxable / non-tax advantage accounts]

Post by radiowave » Thu Jan 10, 2019 6:49 pm

CxInvest welcome to the forum.

If I read you post correctly, you are asking whether to open just an IRA (I'm assuming a traditional IRA) vs. added a second taxable brokerage account. So I'll answer from that perspective. You have the option to make a personal $5,500 annual contribution to either a traditional IRA (tIRA) OR a Roth IRA (rIRA). The typical feedback here on the forum is to contribute to any 401k, 401a up to the top of the match from your company. The IRAs are separate and you can do either or both (max 5,500). Anything left after than typically goes into a liquid emergency fund, online bank, CDs, etc. then anything left over after than purchase of stock funds in the taxable account. If you have the IRA already set up at Fidelity, I'd go with that until you are ready to contribute into funds on the taxable side. With Fidelity, or most all other brokerages, you can directly link a bank account and transfer funds electronically.

If you were asking whether to have 2 brokerages, e.g. Fidelity and Vanguard, let us know and we can respond to that question as well.
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Topic Author
CxInvest
Posts: 3
Joined: Thu Jan 10, 2019 2:33 pm

Re: [Split into taxable / non-tax advantage accounts]

Post by CxInvest » Thu Jan 10, 2019 7:26 pm

Hey radiowave thanks for chiming in and the warm welcome.

I'm just looking more of a number crunch assessment from those experienced with brokerages such as Fidelity / Schwab vs. a Vanguard. Vanguard seems to have a history / reputation for being more tax friendly which is the only reason I was really considering them for the taxable account as opposed to running both my ROTH and individual brokerage accounts at Fidelity alone (which is where I've already decided my ROTH is headed).

I like simplicity in a complex world. If I can run it all from Fidelity that's fantastic - but money is money and sometimes it adds up. Maybe 5 years of the taxation difference at Vanguard isn't much, but 20-30 years could be (not that I couldn't adjust at some point).

As an aside since you mentioned 401K - yes I'm only interested in matching there for the free money. I'd rather have better investment options that I can manage long term as opposed to the very limited array offered in most 401K's.

Thanks!

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ruralavalon
Posts: 14478
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Fidelity, Schwab, or Vanguard

Post by ruralavalon » Fri Jan 11, 2019 8:17 am

I also like the simplicity and convenience of having all investing accounts at one fund firm. We use Vanguard for all of our investing accounts, just a personal preference.


CxInvest wrote:
Thu Jan 10, 2019 6:36 pm
ruralavalon wrote:
Thu Jan 10, 2019 5:44 pm
Welcome to the forum :) .

CxInvest wrote:
Thu Jan 10, 2019 2:45 pm
Hello all. I'm about to open an IRA and an individual brokerage account.

So I'll keep it brief. I just wanted to pick these brains of those few on the thread here that are talking splitting accounts for tax / non tax advantage accounts. I did all the homework I'm going to do and I landed on Fidelity overall for my needs. That being said, my interest has been piqued with this thread about splitting the two accounts for tax purposes.

I guess what I'm really wanting to know is how big of a difference we are talking here in numbers? I'd rather send them all to one spot for simplicity / self management sake - but since this SHOULD be more or less permanent if all works ok I realize savings on tax structure could definitely add up over 20-30 years (i'm 33).

Yes trying to avoid crunching the numbers and doing all the math myself... Not sure I understand it well enough to figure it out anyway without spending necessarily large amounts of time.

Can ya guys help me out here?

Thank you and great thread!

~ Cx
To answer your question ("how big a difference") it's hard to avoid looking at the numbers at least a little bit. More information might be useful.

What is your tax bracket, both federal and state?

You are age 33. Do you expect to be in a substantially high tax bracket for most of your working life?

About what portion of your total annual contributions do you expect will be going into your taxable brokerage account?

What State do you pay any state income tax to?
Hey Rurulavalon - thanks for the response! I'll try to answer your questions as accurately as possible.

My current Federal is tax bracket is 12% as of now but for the long haul likely 22% and possibly 24%. State is 7% (S.C.)

I think the above should answer your second question.

I'm not exactly sure yet on percentages for total annual contributions, but I'll be maxing the ROTH first and putting essentially everything else that doesn't go to normal bills (i have no debt) or other investments (e.g. real estate related ventures). I know that doesn't give you a % allocation but I really don't have that # just yet. It will just be anything extra not being diversified into other assets / investments.

Just South Carolina for now. Possibly South and North Carolina later on.

Thanks again.
It's good to see that you will be making maximum annual contributions to a Roth IRA.

Do you have a work-based account (like a 401k, 403b, 457, SIMPLE IRA, TSP, etc.)? If so funding that account should probably be the priority ahead of funding a taxable brokerage account. Please see the wiki article "Prioritizing Investments".

It makes a difference how much might be in the potential taxable account. Without some information on probable account size, you can't calculate or or even estimate the dollar impact of the choice of location for the account.

In the 12% tax bracket it may make little difference.

Use the Google search box on this site (upper right, this page) to find the thread "2017 relative tax efficiency". This includes a spread sheet which can give you the relative tax efficiency of traditional mutual funds and ETFs of various companies including Vanguard, Fidelity and Schwab.

You can try various tax rates in the spreadsheet, this changes the result.

At Vanguard the tax efficiency of their traditional mutual funds and their ETFs will be identical.
Last edited by ruralavalon on Fri Jan 11, 2019 8:31 am, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Peter Foley
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Location: Lake Wobegon

Re: [Split into taxable / non-tax advantage accounts]

Post by Peter Foley » Fri Jan 11, 2019 8:30 am

I think it is advisable to the the same brokerage for all acccounts. At some point you may want to do transfers between accounts and a single brokerage with a summary page of all your accounts can make that easier.

I use Schwab. They have had on line access and trading for many years. They have low minimums and a user friendly web site. They also have local offices in major cities if that is an issue.

As mentioned earlier, include your employer based tax deferred account in your planning (401k, 403b). Use your brokerage accounts to compliment the low cost index offerrings that might be offered in a 401k.

Lots of smart, experienced people post here so don't be afraid to ask questions. Welcome!

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