Author Topic: Taxable Investment Account?  (Read 6257 times)

kudy

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Taxable Investment Account?
« on: October 21, 2012, 12:22:24 PM »
I have a traditional IRA, roth IRA, and 401k, and I am comfortable with how contributions and investing works within these accounts.  One thing I've realized I am a little fuzzy on is a taxable investment account.

I am assuming I could open an investment account at any investment house, including the much recommended vanguard, but I have a few vague concerns:
  • do most accounts and/or funds have minimum investment amounts?
  • do people routinely pay transaction fees to buy/sell in a taxable account?
  • do most places have a wide range of funds/ETFs/REITs, etc. to choose from?

I guess I just need to know what the best route to get started is for someone who doesn't have a huge amount for an initial investment - also, how to take advantage of free/cheap trades, and a wide selection of good investment choices.  I won't likely have much to contribute to this account regularly, but I'd like to have the account open and ready for cases when I do.

TheDude

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Re: Taxable Investment Account?
« Reply #1 on: October 21, 2012, 01:06:49 PM »
I'm a big Vanguard fan so you take that into account as I answer your questions.

Minimums often apply to vanguard index funds but I dont not believe for the ETFs. There are also minimums requried to get of a yearly service fee (but I believe its a pretty low number)

If you buy Vanguard ETFs or index funds you do not pay to buy and sell. There maybe some time limits on this but I dont know as I am a buy and hold investor.

Vanguard has the best range of EFTs/index funds inmho.

icefr

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Re: Taxable Investment Account?
« Reply #2 on: October 21, 2012, 05:30:49 PM »
Caveat to what TheDude said: Vanguard doesn't charge the $20 annual fee if you receive online statements.

You definitely don't pay any fees to buy and sell, but there are redemption fees on some funds if you redeem before a certain number of months (e.g. 3).

I'm a huge fan of Vanguard as well. What I did was saved up the $3,000 fund minimum in a normal savings account and then bought shares of the fund once I had $3,000. Trying to have as few funds as possible (I follow the 3-fund approach of Bogleheads) makes the fund minimums less annoying. For example, I only have one fund in my taxable account, two in my Roth IRA, and then three in my 401(k).

The catch with a taxable account is that to move to another brokerage firm / change fund allocations, you end up paying capital gains taxes. So if it was me, I would wait until I had the $3,000 saved up and go with Vanguard.

RadicalPersonalFinance

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Re: Taxable Investment Account?
« Reply #3 on: October 21, 2012, 06:51:05 PM »
  • do most accounts and/or funds have minimum investment amounts?
  • do people routinely pay transaction fees to buy/sell in a taxable account?
  • do most places have a wide range of funds/ETFs/REITs, etc. to choose from?

Don't rely on forums like this for tax advice.  Work with your tax advisor.

However, you're not asking the right questions if, indeed, you're trying to figure out the taxation of various investments.  The answers to your questions are the same whether or not you are investing using a taxable account or a tax-deferred account.

Remember that IRAs, 401(k)s, etc. are NOT investments.  They are "umbrellas" which shelter your investments from current income taxation.

It sounds like you are interested in investing in a portfolio of stock mutual funds and bond mutual funds.  Therefore, you need to understand how individual stocks and bonds are taxed. 

Individual stocks are taxed based on how long you hold them at either a short-term capital gain or a long-term capital gain.  (You might also have a capital loss, which you can use to offset other investment income.)

Bond income is generally taxed as ordinary income.

The mutual fund that you own will pass along the tax gains/losses to you based on the holdings of the fund.  But, all of the gains/losses will flow through.

ETFs = it depends.

Read the prospectus of any fund you are considering and it will lay out for you the tax strategy of the fund.

kudy

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Re: Taxable Investment Account?
« Reply #4 on: October 21, 2012, 07:24:28 PM »
Quote
Don't rely on forums like this for tax advice.  Work with your tax advisor.

I wasn't actually asking about taxation, but thank you for the information, I didn't know how taxes would work either.

I guess I was just under the impression, for whatever reason, that there may be more fees (transaction/maintenance) or minimums I am not used to working with inside the "retirement account" world.  I guess the retirement & taxable accounts are more similar than I thought, if you're buying the same types of funds.

Because I don't currently have my IRAs or my 401ks with Vanguard, I am just unfamiliar with their (or any other broker's) specifics.  It sounds like Vanguard has $3,000 minimums on a lot of funds, which I sort of expected, although I have seen other places waive their fund minimum requirements if you set up a regular transfer into the account.  Does vanguard have a minimum balance to open an account? I was under the impression they did.  The only reason I was considering *not* going with them is I may not meet the minimum.

It also sounds like Vanguard has a yearly fee for small fish like me, but that it's waived with electronic statements - that's awesome, thanks for the info!

The only reason I am asking is, I expect to have a pile of already taxed cash to invest after my refinance goes through, but I am holding the cash in case I need it to buy down my principal after the appraisal.  If I do have the cash, I'll probably not contribute to that account regularly, because I am not yet maxed out on my 401k.

kudy

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Re: Taxable Investment Account?
« Reply #5 on: October 21, 2012, 07:27:47 PM »
Double posting here... the other consideration I have is to possibly split any leftover stockpile between my prosper and lending club accounts, but I am not sure yet.

Another afterthought... it is scary for me to pull the trigger on 17K/year going into my 401k - it seems so permanent, being a retirement account, even with the methods people have for pulling money out.  My biggest fear is that they will change the rules (make it so you can't do the 5 year Roth IRA pipeline) and that I won't be able to get money out without a penalty in early retirement.

mushroom

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Re: Taxable Investment Account?
« Reply #6 on: October 22, 2012, 03:11:11 AM »
I've been using Scottrade for years and have had a great experience with them. Great customer service, easy to use website where you can do pretty much everything online, only a minimum of $500 to open, and low fees including no account maintenance fees.

jpo

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Re: Taxable Investment Account?
« Reply #7 on: October 22, 2012, 11:59:46 AM »
I've been using Scottrade for years and have had a great experience with them. Great customer service, easy to use website where you can do pretty much everything online, only a minimum of $500 to open, and low fees including no account maintenance fees.
Also no DRIP in retirement accounts, which is what prompted me to leave Scottrade. Other than that it was a good experience.

Jamesqf

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Re: Taxable Investment Account?
« Reply #8 on: October 22, 2012, 12:35:44 PM »
If you're jst looking at a mutual fund investment, the answers are

  1) Yes on minimum purchase, the amount depends on the fund.  Most of mine (with T. Rowe Price) seem to have $2500 minimum to open, and $100 minimum per transaction.

  2) No to transaction fees.  Generally there is an annual fee ($20 typical) if the account is less than $10K.  Also there may be a fee for too many round-trip transactions in a given period, to deter people from trying market timing.