Author Topic: How to invest after retirement accounts are funded for the year? My situation  (Read 1011 times)

lilybluerose

  • 5 O'Clock Shadow
  • *
  • Posts: 47
Hi there! I still have trouble wrapping my head around all of this. I am waiting to hear back from my accountant, but I have a feeling it will be a little while since he is so busy filing taxes atm. Im currently re reading " The simple path to wealth" . Here is my situation.

I am self employed. I own an LLC and file taxes as an Scorp.

With vanguard I have a roth ira and a solo401k

I contributed the max $6500 to the ira, and the max employee contribution of $19500 to the 401k for 2021. I am waiting to hear back from my accountant on how much I can put in to the 401k as an employer contribution.

I have a lot of money just sitting in my ally bank account, because my husband and I were planning on moving sooner than later, but I really dont think its going to be in the cards this year, due to some personal issues going on.

So I would like to start putting some of this money to work for me, vs just letting it sit there, because when we are ready to move, I should have even more saved up, coming in. ( Wont touch our emergency fund)

So is the next option simply buying on vanguard now? The steps as I am thinking are going to buy and sell on vanguard, choosing buy vanguard mutual funds, add another vanguard mutual fund, and put in what I want? Im guessing I have to open a new account on there? I will be starting with VTSAX per the simple path to wealth book. Is this what they mean when they say use a brokerage account to invest, and to utilize non tax benefit accounts? And if so, can I add money to this as often as Id like, and then how do I take it out when I am ready to use the money? I can do that any time with this type of account right?

Im sorry if this was too confusing and lengthy. I basically want to know what is best to do with my money after funding the IRA and 401k for the year. I dont think an HSA will be something I want atm, but maybe down the line. What do you guys do after funding your retirement accounts?

Thank you so much for any guidance.
« Last Edit: March 11, 2021, 04:40:22 PM by lilybluerose »

dandarc

  • Magnum Stache
  • ******
  • Posts: 4864
  • Age: 39
Yeah you've got it. You invest in your tax-advantaged accounts, and when that is exhausted for the year, you invest into taxable accounts. VTSAX is a great fund. Just set up the account at Vanguard - it is easy.

By "I don't think HSA is something I want to do" - I hope that means "I don't want High Deductible Health Insurance". Because if you do have an HDHP for insurance, and you're self-employed, then funding the HSA should be the first thing on your list - if you do it correctly through your SCorp you even avoid FICA tax on that money. HSA is the best tax-advantaged account there is, so long as you're comfortable with the high-deductible insurance required to be eligible for it. But if you're in a situation where the HDHP insurance does not make sense for you, then carry on without the HSA.

dandarc

  • Magnum Stache
  • ******
  • Posts: 4864
  • Age: 39
*I should add - if you don't have employees. I tend to just assume 'self employed' means 'one person business' like I run for myself, but that is certainly not every LLC taxed as an S-Corp.

lilybluerose

  • 5 O'Clock Shadow
  • *
  • Posts: 47
I just really have to look into the HSA further. I have some health issues, so I have an expensive plan that allows me to see all of the doctors I like in network. The deductible is low. There arent many HSA available plans that seem like will work for me, but I really do have to sit down and go over it again to make sure! I would really like to be able to make it work! And yep, one person business, well two as my husband helps some. Thanks so much!

lilybluerose

  • 5 O'Clock Shadow
  • *
  • Posts: 47
So that leaves me with- is it as simple as opening another brokerage account, choosing individual/general savings, and then buying into vtsax? and doing that as often as Id like? And then when I need to utilize the money- (Transferring funds from a Vanguard mutual fund or your settlement fund is done in one step:

From the Vanguard homepage, search "Sell funds" or go to the Sell funds page. Select your bank account from the drop-down menu in step two under “Where is your money going?)

Ty so much, just want to make sure I dont mess anything up


Wintergreen78

  • Pencil Stache
  • ****
  • Posts: 501
You’ve pretty much got it right. I use Fidelity, but I expect the Vanguard site works in about the same way. You open a regular taxable account and transfer money to it. Then buying and selling work just the same as buying and selling in your IRA account.

Just remember, you’ll get taxed on dividends and capital gains from your taxable account, so it really makes sense to keep longer-term investments in the taxable account and investments that pay higher dividends in your IRA or 401k. You’ll get tax forms from Vanguard at the end of the year that you’ll need for doing your taxes.

lilybluerose

  • 5 O'Clock Shadow
  • *
  • Posts: 47
Can you please explain what this means?

"so it really makes sense to keep longer-term investments in the taxable account and investments that pay higher dividends in your IRA or 401k."

Does that just mean that if I do utilize that account it should  be for money that I don't plan on using for a long time? Or that I should use the target fund for that and perhaps vtsax for the ira instead of the target date fund

Is there a better option for saving money? I don't plan on needing it any time soon I don't think! Thanks!

alcon835

  • Pencil Stache
  • ****
  • Posts: 543
Can you please explain what this means?

"so it really makes sense to keep longer-term investments in the taxable account and investments that pay higher dividends in your IRA or 401k."

Does that just mean that if I do utilize that account it should  be for money that I don't plan on using for a long time? Or that I should use the target fund for that and perhaps vtsax for the ira instead of the target date fund

Is there a better option for saving money? I don't plan on needing it any time soon I don't think! Thanks!

For investments you owe taxes when: (1) a dividend is paid and (2) when you sell a stock for a profit.

So if you plan to buy a bunch of dividend paying stocks, you can avoid taxes by doing it in a tax sheltered account (IRA/401k). The best stocks to by in a taxable brokerage are ones that do not pay dividends and that you plan to buy and hold for 1 year or longer. After a year, selling the stock for a profit is taxed less. It's called a "long term capital gains". Anything sold after less than 1 year is considered a "short term capital gain" and is taxed at a much higher rate.

lilybluerose

  • 5 O'Clock Shadow
  • *
  • Posts: 47
Would you say vtsax is a good one for that then?
I just read on the Bogle site that total Stock market funds are great for a taxable account.

Or are target date funds OK for that? More so? I believe I read those are good too for it.

This stuff is so complex!
« Last Edit: March 11, 2021, 09:18:07 PM by lilybluerose »

Billy B. Good

  • 5 O'Clock Shadow
  • *
  • Posts: 33
The Bogleheads show the way on the question of investment funding priorities. Many smart and frugal minds have led to their philosophy.
Check out their Wiki:  https://www.bogleheads.org/wiki/Prioritizing_investments
Edit: For questions of tax efficiency, see the other Bogleheads Wiki:  https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

Yes, it can seem complex. Take it slow. Read it all again and again. It is all getting in, it just may take some time. The effort could be worth hundreds of thousands over the long haul.
« Last Edit: March 11, 2021, 09:24:47 PM by Billy B. Good »

Wintergreen78

  • Pencil Stache
  • ****
  • Posts: 501
Also, if you’ve maxed out your IRA and your 401k and you can still save more, you are doing great! You are in a better position than most people in the country. The little details of optimizing which investment goes where are only details. It sounds like you’ve got the important stuff figured out.

VTSAX works fine for a taxable account. I’d expect target date funds are too. The main thing to remember is that anything you hold for less than 1 year will get taxed at a higher rate, so you don’t want to do too much buying and selling.

alcon835

  • Pencil Stache
  • ****
  • Posts: 543
Would you say vtsax is a good one for that then?
I just read on the Bogle site that total Stock market funds are great for a taxable account.

Or are target date funds OK for that? More so? I believe I read those are good too for it.

This stuff is so complex!

Yes, VTSAX is great. You want to do research on the 80/20 FIRE portfolio (aka the one recommended in the MMM blog "The Shockingly Simple Math Behind Early Retirement" and you also want to research the Three Fund Portfolio.

Basically, read up on both, read about their pros and cons, and then pick one and start investing into Index funds. VTSAX is a great fund for either portfolio and is highly recommended on this forum and used in my own personal portfolio.

lilybluerose

  • 5 O'Clock Shadow
  • *
  • Posts: 47
Ty so much! I wrote this right before bed and had so many dreams about investing and numbers and vanguard accounts lmao. How exciting my life is lol!

I'm going to look into all of that and also read the boglehead book and forum then decide!

bacchi

  • Walrus Stache
  • *******
  • Posts: 6196
With vanguard I have a roth ira and a solo401k

I contributed the max $6500 to the ira,

The max for 2021 is $6000 unless you're over 50, and then it's $7000. Is this a typo or...?

lilybluerose

  • 5 O'Clock Shadow
  • *
  • Posts: 47
Yes I'm sorry! I meant 6000

little stache

  • 5 O'Clock Shadow
  • *
  • Posts: 47
My 2 cents on the HSA - The risk is really if family members need to get to the max of the HDHA. For me, that is 14K before I max out the out-of-pocket for the whole family. That is much more than the annual cost of base insurance + deductible for the employer plan. But that outcome is not likely and we rolled those dice. After the first year of being nervous, we now have multiple years of HDHA deductible earning interest and health care costs are very low on the worry list. We had unplanned surgery that crossed years and they screwed us out meeting the deductible resulting in thousands in added costs. But beyond stuff like that, it has been pretty smooth sailing.