Tax strategy help after reaching savings target

[goldenmustache2]

Not sure if this makes more sense under Case Studies or here, but figure it’s more specific to tax strategies:

Age:  Husband 34, Wife 28
Kids:  None yet, probably in the next couple years
Location:  California (High cost of living area)
Income:  346K (Husband: 126K, wife: 220K)
Cash Savings:  ~200K (Set aside for near-term house downpayment)
Retirement / Tax Advantaged Accounts (all of the 401ks, RIRA, and HSA are in a mix of S&P500 Index and International Index Funds):
H 401k:  390K
W 401K:  115K
H RIRA:  92K
W RIRA: 19K
HSA: 5K
H Pension (Estimated lump sum payout):  30K
Net worth total:  ~850K
We are saving about 120K per year after-tax, with another ~40K in tax-advantaged.  Total savings rate is around 46%

Our goal since marriage a few years back has been saving for a house downpayment in expensive California.  I know having 200k sitting in a savings account isn’t great, but it gives me peace of mind since we plan to buy soon.

Other considerations are that I plan to FIRE in the next 5-10 years (probably closer to 10), while my wife may continue working.  With the house downpayment out of the way, the only other major expenses I project are kids, but that’s not a one-off expense like a downpayment.

Now that we have the downpayment, I’m finally ready to start saving in a taxable investment account again.  But that gets to the question – what makes sense at this point?  Should I just start putting all after-tax savings into a taxable account in S&P500 / International index funds like the tax-advantaged accounts?  I’ve read about other ways to allocate, but I’m at a loss as far as what makes the most sense.  Bonds?  Treasuries?  All of our tax-advantaged accounts are maxed each year (401k, RIRA, HSA), so I’m looking for advice on how best to allocate future savings.

[clifp]

Given your high tax bracket, and living in CA I'd seriously look at California Tax free Muni bonds.  You can pick some up that have a 3% yield with 5-10 year maturity and pretty low risk, that pretty much equivalent to 5% for taxable fix incomes. I'd look at ladder them so they all come due at 10 year when you are at or near retirement.  Both Vanguard and Fidelity offer low cost mutual funds.

Are you planning in stay in CA after you reach FIRE?  California doesn't give a break for capital gains, so the benefits of an index fund are less than most states.  But it is still perfectly good and tax efficiency place to save money.

[MDM]

Should I just start putting all after-tax savings into a taxable account in S&P500 / International index funds like the tax-advantaged accounts?

You could do much worse than that.

See Tax-efficient fund placement for more thoughts.