Author Topic: Big Taxable Acct and Low 401K, What Would You Do?  (Read 2279 times)

sabertooth3

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Big Taxable Acct and Low 401K, What Would You Do?
« on: March 19, 2015, 09:34:28 AM »
Like the title says- if you had a large taxable account invested in low-cost index funds with a value of $500k, and you also had a 401k that only had a value of $10k, would it be a better idea to invest in the 401k and get the tax break or would it be better to invest your savings into the already-large taxable account?

Gone Fishing

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Re: Big Taxable Acct and Low 401K, What Would You Do?
« Reply #1 on: March 19, 2015, 09:40:52 AM »
Depends on your goals and timeline, but for most (but not all) ER types it makes the most sense to utilize tax deferred accounts (401(k), 403(b), 457, tIRA, etc) as much as possible.
« Last Edit: March 19, 2015, 09:44:45 AM by So Close »

Numbers Man

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Re: Big Taxable Acct and Low 401K, What Would You Do?
« Reply #2 on: March 19, 2015, 10:02:59 AM »
I would load up on the tax deferred accounts. I'm just curious as to how much taxable income a $500k account generates every year.

Psychstache

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Re: Big Taxable Acct and Low 401K, What Would You Do?
« Reply #3 on: March 19, 2015, 10:29:02 AM »
I had a problem like this a few years ago (smaller no. on the taxable, but same concept). I chose to max out my tax advantaged options and cash out parts of the taxable accounts to make up my periodic budgetary shortfalls (maxing out 457 and 403b left me a running a slightly deficit budget).

Jack

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Re: Big Taxable Acct and Low 401K, What Would You Do?
« Reply #4 on: March 19, 2015, 11:07:47 AM »
When deciding your fund placement (or asset allocation, or just about anything else) going forward, the state of your existing accounts is completely irrelevant.

I mean, your question is like asking "if I screwed up before, does that mean I should keep screwing up instead of doing it correctly?" The answer is always that you should do it correctly, whether you previously screwed up or not!

BlueHouse

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Re: Big Taxable Acct and Low 401K, What Would You Do?
« Reply #5 on: March 19, 2015, 11:50:34 AM »
Do you think you're earning more in the taxable?  If investment return is equal in both, you don't earn more by putting an extra $10K in an account that already has a lot of money in it.  Put it in the 401K

frugalnacho

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Re: Big Taxable Acct and Low 401K, What Would You Do?
« Reply #6 on: March 19, 2015, 12:50:16 PM »
Fund that 401k, so long as you are still paying taxes on your income.

I would calculate where I am in the tax brackets with my income, and then use my taxable account to subsidize my bill paying so I could take advantage of putting my earned income into the 401k to reduce my tax liability.