The Money Mustache Community

Learning, Sharing, and Teaching => Investor Alley => Topic started by: Jazzpolice on December 19, 2014, 07:25:43 PM

Title: HELP! What kind of funds to buy with after tax $$$?
Post by: Jazzpolice on December 19, 2014, 07:25:43 PM

Hello advanced investors!
Please help a newbie figure out what is a good place to put after tax savings into.  No debt & maxed my 403b & IRA so what would you suggest would be the best option after that?  Is there a strategy to putting money into certain funds over others based on tax implications?  I'm curious if I just invest after tax monies monthly into index funds with dividends & have the dividends reinvested, does it still get messy at tax time and do I need to pay taxes on those earnings even if I'm not withdrawing?  Sorry if it's a dumb question…I'm kind of new at this.  Thank you in advance to all your insight.

Title: Re: HELP! What kind of funds to buy with after tax $$$?
Post by: Le Barbu on December 19, 2014, 08:29:42 PM

Once a year, you will get a statement for tax filling with the revenue split (dividends, cap gain) no matter the dividends are reinvested or not. Personnaly, I would not use DRIP (automated rebuying) in taxable account because it mess the average cost basis (ACB) calculations. Best investments for taxable accounts are the one with growth and avoid interests

Title: Re: HELP! What kind of funds to buy with after tax $$$?
Post by: Holyoak on December 20, 2014, 06:25:01 AM

I think this may be helpful:

https://bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement (https://bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement)

For me, Vanguard low cost, low turnover index funds work for me.  Good luck!

Title: Re: HELP! What kind of funds to buy with after tax $$$?
Post by: Eric on December 20, 2014, 10:16:53 AM

You pay taxes on your dividends (reinvested or not).  No other taxes until you sell.  It's really not a mess.  Your brokerage will send you a 1099-Div form with all that you earned throughout the year and you just plug it into the proper slot on your 1040.

Holyoak's link is a great one to determine which funds to place where for maximum tax efficiency, but honestly, when you're just starting, it hardly matters just based on the size of your balance.

Title: Re: HELP! What kind of funds to buy with after tax $$$?
Post by: Jazzpolice on December 20, 2014, 09:51:35 PM

Thanks everyone for your helpful replies!  It's getting clearer and clearer the more I read and I especially like the bogleheads link. Much appreciated!

Title: Re: HELP! What kind of funds to buy with after tax $$$?
Post by: Psychstache on December 21, 2014, 06:34:47 PM

If you choose to buy any international index funds, it is best to hold those in a taxable account. You will get a small tax credit for foreign taxes paid within the fund.