Starting a taxable account

[hadabeardonce]

We're contributing up to the limit to two 403bs, a 457, two Roth IRAs, and a pension, but might have enough left over to start a taxable account this year. I'm working on getting my employer to enable a mega backdoor Roth pipeline, but not holding my breath. Are there things I should know about managing taxable accounts? I've only been messing with retirement accounts and those have been fairly simple.

What's the best way to get started? ETFs don't have a minimum, right? Just do those until we hit the minimum amounts required admiral funds like VTSAX?

[Rob_bob]

The minimum for an ETF is one share, whatever the price may be and must buy full shares.  You want to keep more tax efficient investments in a taxable account.

Other than that there really isn't any difference than a tax differed accounts.

[MDM]

ETFs are fine but not required.  $1000 will also get you into Vanguard target date funds, and the absolute cost difference between admiral vs. investor class is negligible (e.g., ~$5/yr for a $5000 balance).

See Tax-efficient fund placement for some thoughts, but note there are conflicting opinions even within that article.

In short, pretty much what Rob_bob said: not much difference (other than you may pay some tax on dividends, etc.) between taxable vs. tax-deferred accounts.

[tralfamadorian]

What's the best way to get started? ETFs don't have a minimum, right? Just do those until we hit the minimum amounts required admiral funds like VTSAX?

I just use VTI (0.04% expense ratio) and call it good.

[Radagast]

Stocks are most tax efficient. Municipal bonds are acceptable for marginal tax rates over ~30%. Regular bonds are not tax efficient and should be generally minimized here. Exception: Ibonds. Mutual funds at Vanguard are tax efficient, and at other places they are not. ETF's are the only road if you do not invest with Vanguard. I prefer ETF's anyhow because they are more flexible to harvest tax losses and gains, but avoid limit orders except under hypothetical dire circumstances.

I am ok with deviating widely in tax sheltered accounts because I can easily transfer to another company if for-profit-investment-firm suddenly jacks things up. In taxable accounts I prefer Vanguard, because there might be big tax implications if a fund company turns sour and I need to sell and leave.

[hadabeardonce]

See Tax-efficient fund placement for some thoughts, but note there are conflicting opinions even within that article.

Good link - lots to consider. I'll need to re-read that a few times.

Right now our 3 out of 5 of our retirement accounts consist of target date funds and the other two mirror the asset allocation of Vanguard TDFs with admiral funds or similar index funds.

Thanks for all the info.

[appleshampooid]

Stocks are most tax efficient. Municipal bonds are acceptable for marginal tax rates over ~30%. Regular bonds are not tax efficient and should be generally minimized here. Exception: Ibonds. Mutual funds at Vanguard are tax efficient, and at other places they are not. ETF's are the only road if you do not invest with Vanguard. I prefer ETF's anyhow because they are more flexible to harvest tax losses and gains, but avoid limit orders except under hypothetical dire circumstances.

I am ok with deviating widely in tax sheltered accounts because I can easily transfer to another company if for-profit-investment-firm suddenly jacks things up. In taxable accounts I prefer Vanguard, because there might be big tax implications if a fund company turns sour and I need to sell and leave.

What makes Vanguard mutual funds more tax efficient? Theoretically any index fund that does minimal buying and selling and thus has minimal capital gains distributions should be pretty tax efficient, yeah?

[terran]

Stocks are most tax efficient. Municipal bonds are acceptable for marginal tax rates over ~30%. Regular bonds are not tax efficient and should be generally minimized here. Exception: Ibonds. Mutual funds at Vanguard are tax efficient, and at other places they are not. ETF's are the only road if you do not invest with Vanguard. I prefer ETF's anyhow because they are more flexible to harvest tax losses and gains, but avoid limit orders except under hypothetical dire circumstances.

I am ok with deviating widely in tax sheltered accounts because I can easily transfer to another company if for-profit-investment-firm suddenly jacks things up. In taxable accounts I prefer Vanguard, because there might be big tax implications if a fund company turns sour and I need to sell and leave.

What makes Vanguard mutual funds more tax efficient? Theoretically any index fund that does minimal buying and selling and thus has minimal capital gains distributions should be pretty tax efficient, yeah?

I think this is why...

Vanguard has a patent that, as I understand it, allows their mutual funds and ETFs to be exchanged without it being a taxable event. This essentially makes there mutual funds and ETFs different classes of the same investment. Other companies either have a mutual fund or an ETF, but they can't be exchanged.

Typical mutual funds are less tax efficient because, again as I understand it, since mutual funds are bought/sold through the investment company, if lots of mutual fund sales are requested, the mutual fund manager is more likely to have to sell underlying stocks to pay the investors who are selling, thereby realizing gains that will have to be passed on to the mutual fund owners. On the other hand ETFs are bought/sold on exchanges like stocks, so people can sell them without involving the fund manager, so the fund manager doesn't have to sell underlying investments to pay the people selling, but instead only needs to buy/sell to keep the ETF tracking the index.

Put those two points together, that ETFs are more tax efficient, and only vanguard mutual funds can basically be ETFs, and that means only Vanguard mutual funds can be as tax efficient as ETFs.

Here's some more reading on the ETF piece: https://www.investopedia.com/articles/investing/090215/comparing-etfs-vs-mutual-funds-tax-efficiency.asp

[Radagast]

Stocks are most tax efficient. Municipal bonds are acceptable for marginal tax rates over ~30%. Regular bonds are not tax efficient and should be generally minimized here. Exception: Ibonds. Mutual funds at Vanguard are tax efficient, and at other places they are not. ETF's are the only road if you do not invest with Vanguard. I prefer ETF's anyhow because they are more flexible to harvest tax losses and gains, but avoid limit orders except under hypothetical dire circumstances.

I am ok with deviating widely in tax sheltered accounts because I can easily transfer to another company if for-profit-investment-firm suddenly jacks things up. In taxable accounts I prefer Vanguard, because there might be big tax implications if a fund company turns sour and I need to sell and leave.

What makes Vanguard mutual funds more tax efficient? Theoretically any index fund that does minimal buying and selling and thus has minimal capital gains distributions should be pretty tax efficient, yeah?

Terran posted while my phone was losing my first reply.

In practice it means that other fund companies distribute other investors' short and long term capital gains to you every year. Vanguard funds rarely or never do. With short term capital gains none is better than minimal. A lot less irritating too. I only lost a few dollars learning this, but I suffered some serious butthurt far out of proportion to the small value of the extra taxes I paid.

[appleshampooid]

I was aware ETFs were more tax efficient due to the in-kind transfer thing, but didn't know that Vanguard had any special sauce in their index mutual funds.

[hadabeardonce]

https://www.bogleheads.org/wiki/Tax_loss_harvesting
https://www.bogleheads.org/wiki/Asset_allocation_in_multiple_accounts

Managing asset allocation across 8 or 9 accounts is something I'll have to get better at. For each account (mostly) I've been trying to mirror Vanguard's TDF allocation, just because I feel like they've done more research than I have. Here's where Personal Capital says we are:

Code: [Select]

Target Current
Stock US 54.00% 58.20%
Stock Int 36.00% 28.82%
Bond US 7.00% 6.70%
Bond Int 3.00% 2.59%
Cash - 1.02%
Alt - 2.68%
The TDF we're in is just about to hit a glide path cliff, so it's time to move to another TDF or make a change across all the accounts. It's like we have investing class homework and a group project that's due...

I like the second link above, but it could make both of us feel a little uneasy when someone's retirement account is allocated 100% in a particular category, despite the fact that it would create an overall balanced household portfolio. Has anyone else had to explain this stuff to their spouse/significant other?

Currently looking at how to keep a balanced portfolio using regular monthly contributions...

Code: [Select]

Acct Contrib % Asset Total % Sym
403 $18,500.00 26.81% STOCK US 53.62% VTSAX
457 $18,500.00 26.81% STOCK US VTSAX/VTSMX(90/10)
403 $18,500.00 26.81% STOCK INT 34.78% FSGSX
R IRA $ 5,500.00 7.97% STOCK INT VTIAX
R IRA $ 5,500.00 7.97% BOND US/INT VBTLX/VTABX(50/50)
Match $ 2,500.00 3.62% BOND US FXSTX

Total $69,000.00 100.00%
^ Current idea

and then the new taxable account would consist of US stock.

[Radagast]

https://www.bogleheads.org/wiki/Tax_loss_harvesting
https://www.bogleheads.org/wiki/Asset_allocation_in_multiple_accounts

Managing asset allocation across 8 or 9 accounts is something I'll have to get better at. For each account (mostly) I've been trying to mirror Vanguard's TDF allocation, just because I feel like they've done more research than I have. Here's where Personal Capital says we are:

Code: [Select]

Target Current
Stock US 54.00% 58.20%
Stock Int 36.00% 28.82%
Bond US 7.00% 6.70%
Bond Int 3.00% 2.59%
Cash - 1.02%
Alt - 2.68%
The TDF we're in is just about to hit a glide path cliff, so it's time to move to another TDF or make a change across all the accounts. It's like we have investing class homework and a group project that's due...

I like the second link above, but it could make both of us feel a little uneasy when someone's retirement account is allocated 100% in a particular category, despite the fact that it would create an overall balanced household portfolio. Has anyone else had to explain this stuff to their spouse/significant other?

I had formerly been allocating DW's IRA mostly to bonds, but it was becoming too lopsided. Now I am splitting bonds between the two and it will take years before they equalize.

You can jump off to match the Lifestrategy Growth fund when your TDF passes by. That is probably a slightly better choice as you approach and enter FIRE anyhow.

International stock is a little better in taxable accounts because you can get a foreign tax credit, but neither is bad.

[netskyblue]

Following.

I haven't yet seen any clear comparison for VTI vs VTSAX in a buy-and-hold taxable investment scenario.

Everything talks about index ETFs vs actively managed mutual funds (expense ratio difference), or why ETFs are better for traders as opposed to investors.

What I've been able to gather, is you can buy in at a lower amount with the ETF, but you can't reinvest dividends automatically or buy partial shares, so there's more active effort you need to put into it if you're doing something like investing a certain dollar amount per paycheck.

Is that right?

I'm not sure of the tax implications from one to the other, or ease of getting to your money when you want to use it.

[HBFIRE]

I just buy VTSAX and VTIAX in my taxable.  60/40 split.

My bonds are in my retirement accounts, but they make up only ~ 10% of my portfolio right now (I just buy Vanguard Life Strategy Growth Fund).  Plan to increase bond % as I get closer to FI.

Feedback?  Can I improve on this?

[WhatFreshHell]

Following.

I haven't yet seen any clear comparison for VTI vs VTSAX in a buy-and-hold taxable investment scenario.

Everything talks about index ETFs vs actively managed mutual funds (expense ratio difference), or why ETFs are better for traders as opposed to investors.

What I've been able to gather, is you can buy in at a lower amount with the ETF, but you can't reinvest dividends automatically or buy partial shares, so there's more active effort you need to put into it if you're doing something like investing a certain dollar amount per paycheck.

Is that right?

I'm not sure of the tax implications from one to the other, or ease of getting to your money when you want to use it.

I have VTI and it auto reinvests dividends. You just can’t outrigt buy fractional shares.

[Rob_bob]

Following.

I haven't yet seen any clear comparison for VTI vs VTSAX in a buy-and-hold taxable investment scenario.

Everything talks about index ETFs vs actively managed mutual funds (expense ratio difference), or why ETFs are better for traders as opposed to investors.

What I've been able to gather, is you can buy in at a lower amount with the ETF, but you can't reinvest dividends automatically or buy partial shares, so there's more active effort you need to put into it if you're doing something like investing a certain dollar amount per paycheck.

Is that right?

I'm not sure of the tax implications from one to the other, or ease of getting to your money when you want to use it.

I'm with TDAmeritrade and all of my ETFs have dividends reinvested and I get partial shares.  Now I have to buy full shares when I place a buy order so there is always a few left over dollars.

[hadabeardonce]

We decided to stick with a mirrored asset allocation across our retirement accounts, but the taxable account looks like it should certainly be an exception for efficiency. I'm going to propose the idea to my wife when she isn't tired of me talking about financial topics (I bring up the subject too often.)

Tax loss harvesting looks interesting, but I'm trying to wrap my head around how to implement it best. Anyone have tricks to make managing everything simple and avoid wash sales? Physician On Fire had the best guide I've seen: https://www.physicianonfire.com/tax-loss-harvesting-vanguard/

Looks like he/she exchanges between Total Stock Market, S&P 500, and Large Cap Index funds when losses have reached a set amount, like -$500 or -$1000. Mirrored asset allocation looks like it would screw up the whole process as we're buying the same index funds each month in 403b/457/Roth IRA accounts... maybe I need to look at different investments?

Any recommendations?

Gotta balance the advantages of TLH with different funds vs riding out the market in the investments I know and love...


More links I've read on the subject:
https://investor.vanguard.com/investing/taxes/offset-gains-loss-harvesting
https://www.madfientist.com/tax-loss-harvesting/
https://www.gocurrycracker.com/never-pay-taxes-again/
https://www.morningstar.com/articles/439379/taxloss-harvesting-a-tactical-strategy-to-add-incr.html

[ericbonabike]

We're contributing up to the limit to two 403bs, a 457, two Roth IRAs, and a pension, but might have enough left over to start a taxable account this year. I'm working on getting my employer to enable a mega backdoor Roth pipeline, but not holding my breath. Are there things I should know about managing taxable accounts? I've only been messing with retirement accounts and those have been fairly simple.

What's the best way to get started? ETFs don't have a minimum, right? Just do those until we hit the minimum amounts required admiral funds like VTSAX?

I'm just curious...what steps have you taken to get your employer to authorize mega backdoor roth? 

Mine doesn't....I've talked to our investment company (Principal) and they have said that should have been set up when we transferred over about 5 years ago.  Now it would be a huge deal.   I work for a small company and have thought about emailing the CEO...but, this seems like such a low margin benefit.  I'm guessing only a few percent of our employees would have enough excess revenue to contribute. 

[protostache]

We put all of our investments (other than the kid's college funds) into FFNOX (Fidelity Four-in-One Index). It's 85/15 (60% total market US, 25% total developed world market, 15% total US bond) and fits what we want with zero fuss. Whatever tax inefficiency and minimal expense ratio increase above a manual 3 fund portfolio is more than made up for by:

• No chance of me messing up a rebalance or waiting to long to do it
• No opportunity for analysis paralysis. I have a tendency to over analyze investments instead of spending time with my family or on my primary revenue generators
• My wife and/or my kid's trustee can run the portfolio with no decisions or spreadsheets. Just buy when there's extra money and sell when they need cash.

We just moved to this setup a few months ago but I've been super happy with it so far.

[sipsubsonic]

I have decided as well that I am making the move to Vanguard and am opening a taxable account. My intention is to do DIY Tax loss/gain harvesting and rebalancing. I've got enough to start with VTSAX. For 2018 and 2019 I'll be in Tax Gain Harvesting situation, after that will be a tax loss harvesting situation. Just hoping to double check with the community that I have everything straight. From my research I've established the following:

Make sure it is set to cost basis accounting, and no automatic reinvestment of dividends or investment from paycheck.

What I need help with is the timing of doing this.

So each quarter I can manually reinvest my dividends. Each paycheck I can manually invest if necessary. But it seems like over time there will be a ton of "lots" created which can make the tax loss harvesting quite complex to avoid wash sales. How do I determine which MF to reinvest in amongst the "partner" total stock funds?

Tax gain harvesting can only occur after holding for one year (so I would probably do it a final time at the end of 2019).

How often do I tax loss harvest? I don't want to be checking on the stocks more than I have to. I guess everytime I am investing dividends or paycheck money I can see if there is anything to be harvested? Maybe it will be simpler in practice, but if I am switching between three "partner" total stock funds I feel like keeping a rotation going while investing money twice a month and avoiding wash sales could be a challenge...

Could someone with experience reassure me, or correct me?

Thanks!

[hadabeardonce]

We're contributing up to the limit to two 403bs, a 457, two Roth IRAs, and a pension, but might have enough left over to start a taxable account this year. I'm working on getting my employer to enable a mega backdoor Roth pipeline, but not holding my breath. Are there things I should know about managing taxable accounts? I've only been messing with retirement accounts and those have been fairly simple.

What's the best way to get started? ETFs don't have a minimum, right? Just do those until we hit the minimum amounts required admiral funds like VTSAX?

I'm just curious...what steps have you taken to get your employer to authorize mega backdoor roth? 

Mine doesn't....I've talked to our investment company (Principal) and they have said that should have been set up when we transferred over about 5 years ago.  Now it would be a huge deal.   I work for a small company and have thought about emailing the CEO...but, this seems like such a low margin benefit.  I'm guessing only a few percent of our employees would have enough excess revenue to contribute.

I asked the head of our payroll department about allowing mega backdoor Roth contributions and showed the all of the IRS data that allows the process, but she didn't seem open to adding more complexity to our retirement account options. I may have to get 25 people who are interested signed on before they'll really consider it. Given the amount of convincing required, I've kind of given up.
 

We put all of our investments (other than the kid's college funds) into FFNOX (Fidelity Four-in-One Index). It's 85/15 (60% total market US, 25% total developed world market, 15% total US bond) and fits what we want with zero fuss. Whatever tax inefficiency and minimal expense ratio increase above a manual 3 fund portfolio is more than made up for by:

• No chance of me messing up a rebalance or waiting to long to do it
• No opportunity for analysis paralysis. I have a tendency to over analyze investments instead of spending time with my family or on my primary revenue generators
• My wife and/or my kid's trustee can run the portfolio with no decisions or spreadsheets. Just buy when there's extra money and sell when they need cash.

We just moved to this setup a few months ago but I've been super happy with it so far.

Yeah, I may just buy and hold in our taxable account. I was looking for a few investments that would be substantially different from what we're currently invested in to avoid the wash rule, but it becomes a headache since we're investing monthly in almost everything: FSGSX, FSMAX, FXAIX, FXSTX, VASGX, VBTLX, VTABX, VTIAX, VTIVX, VTSAX, VTSMX.

Maybe front loading those retirement contributions would be an option so I could TLH later in the year... or maybe TLH just isn't all that important.

[protostache]

We're contributing up to the limit to two 403bs, a 457, two Roth IRAs, and a pension, but might have enough left over to start a taxable account this year. I'm working on getting my employer to enable a mega backdoor Roth pipeline, but not holding my breath. Are there things I should know about managing taxable accounts? I've only been messing with retirement accounts and those have been fairly simple.

What's the best way to get started? ETFs don't have a minimum, right? Just do those until we hit the minimum amounts required admiral funds like VTSAX?

I'm just curious...what steps have you taken to get your employer to authorize mega backdoor roth? 

Mine doesn't....I've talked to our investment company (Principal) and they have said that should have been set up when we transferred over about 5 years ago.  Now it would be a huge deal.   I work for a small company and have thought about emailing the CEO...but, this seems like such a low margin benefit.  I'm guessing only a few percent of our employees would have enough excess revenue to contribute.

I asked the head of our payroll department about allowing mega backdoor Roth contributions and showed the all of the IRS data that allows the process, but she didn't seem open to adding more complexity to our retirement account options. I may have to get 25 people who are interested signed on before they'll really consider it. Given the amount of convincing required, I've kind of given up.
 

We put all of our investments (other than the kid's college funds) into FFNOX (Fidelity Four-in-One Index). It's 85/15 (60% total market US, 25% total developed world market, 15% total US bond) and fits what we want with zero fuss. Whatever tax inefficiency and minimal expense ratio increase above a manual 3 fund portfolio is more than made up for by:

• No chance of me messing up a rebalance or waiting to long to do it
• No opportunity for analysis paralysis. I have a tendency to over analyze investments instead of spending time with my family or on my primary revenue generators
• My wife and/or my kid's trustee can run the portfolio with no decisions or spreadsheets. Just buy when there's extra money and sell when they need cash.

We just moved to this setup a few months ago but I've been super happy with it so far.

Yeah, I may just buy and hold in our taxable account. I was looking for a few investments that would be substantially different from what we're currently invested in to avoid the wash rule, but it becomes a headache since we're investing monthly in almost everything: FSGSX, FSMAX, FXAIX, FXSTX, VASGX, VBTLX, VTABX, VTIAX, VTIVX, VTSAX, VTSMX.

Maybe front loading those retirement contributions would be an option so I could TLH later in the year... or maybe TLH just isn't all that important.

I've been pushing hard on radically simplifying my family's financial system because I was spending too much time worrying about little things that don't matter much. TLH is one of those. I'll TLH if a large opportunity presents itself, but I'm not going to worry about logistics now. One fund in a spread of accounts, each of which has a legitimate purpose, but all at one broker. One checking account, etc.