Say Fidelity was your chosen custodian. You would have two accounts with Fidelity that both show up under the same login. One would be a Roth IRA "bucket" and the other would be a brokerage or taxable accout "bucket". In the Roth IRA you could hold both VTSAX and VTI (the mutual fund and ETF). You could also hold VTSAX and/or VTI in the brokerage account and whatever is in that account would be subject to the rules of a taxable account (ie you may pay tax on realized gains and dividends.
Broken down beautifully, I completely understand. This leads to my next question...instead of 2 accounts, $24k in one (Roth) and $50k in another (index), wouldn't it be more powerful to have one account of $74k to throw in? Wouldn't that compound more quickly? Or am I ignoring the component of risk?
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Before we start getting all confused, let's agree on some terminology here.
These are
investments:
Index Funds - VTSAX is one such investment
Managed Mutual Funds
Individual companies - Apple, Exon, etc.
Stock Options
These are
accounts:
Roth IRA
Traditional IRA
Rollover IRA
SEP IRA
401(k)
Brokerage Account
Accounts can hold many different investments. Some accounts limit your selection of investments. A 401(k) typically has a few dozen options allowed by your employer, and usually does not hold individual companies.
So once you put your 24K in a Roth account, you need to select an investment. Let's say you select VTSAX. You also have another $50K you're going to put in a brokerage account. Then you'll need to select an investment. Let's say you again select VTSAX. You have $74K total. Say VTSAX increases 10% next year. You'll now have $81,400 total in these accounts. $26,400 in the Roth, and $55,000 in the brokerage account.
You're asking if you would get better results if you had 74K in the same account instead of multiple accounts. The answer is no, because the performance of VTSAX is not influenced by where you keep your shares. $74,000 in one account would grow to the same $81,400
The reason you would keep multiple accounts is because the best accounts are shielded from taxes, but have limits to how much you can put in them each year.
The shielding from taxes is advantageous to your returns: VTSAX pays dividends each year. When those dividends hit inside your Roth account you get to keep everything. When those dividends hit inside a brokerage account, you have to pay taxes on them. So if you had $74K in a Roth account, you would be better off than if you had $74K in a brokerage account, because of the tax shielding. But you can't put that much in a Roth account today. You're limited to $6,000 in 2021 in an account for you, and $6,000 in 2021 in an account for your spouse. Then you can put in $6,000 in the account for you in 2022, and $6,000 in the account for your spouse in 2022.
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This is such a GREAT explanation. This makes total sense, thank you very much! The different "buckets" of where you hold your money was confusing, but this cleared it up. Greatly appreciate it!