Author Topic: Taxable account advice  (Read 5315 times)

Daniel1973

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Taxable account advice
« on: May 01, 2015, 10:17:49 PM »
I am looking for advice for Vanguard funds for my taxable account.  I already have my desired asset allocation in my retirement accounts (401K and Roth) using the three fund approach VTSAX, VTIAX and VBTLX, and I am looking for funds for a taxable account.

I currently have 100% of my taxable accounts in VTI (Vanguard Total Stock Market ETF).  I would like to be in mutual funds so I can setup automatic deposits in a more of a set-it and forget-it approach.

Questions:
1.  Should I avoid bonds in my taxable account?
2.  Should I save up and wait until I have $6000 ($3000 VTSAX and $3000 VGTSX) to contribute more funds to the account?
3.  Should I just save up $3000 and use VASGX and not worry about the fact I will have bonds in a taxable account?
4.  If I used VASGX for now since it would only require $3000, what would be the tax impacts if I wanted to split it into VTSAX and VGTSX once the balance was $6000?

Thank you

MDM

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Re: Taxable account advice
« Reply #1 on: May 01, 2015, 10:26:13 PM »
I am looking for advice for Vanguard funds for my taxable account.
Given your Vanguard positions, http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement seems particularly applicable.  It gives various perspectives regarding placement of your assets.

You might also check the "funds of funds" with $1K minimums, e.g. VFIFX and similar.

Dodge

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Re: Taxable account advice
« Reply #2 on: May 02, 2015, 12:16:18 AM »
This link (same as above) talks about tax efficient placement of funds, and explains why the typical advice for bonds is to not put them in taxable (in short, because bonds pay monthly dividends, which are taxed at a higher rate):

http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement

But then here's a link that says you're better off putting bonds in taxable only!

http://whitecoatinvestor.com/asset-location-bonds-go-in-taxable/

I talk about this a bit in this thread:

http://forum.mrmoneymustache.com/investor-alley/which-vanguard-fund-for-emergency-fund/msg547482/#msg547482

Long story short, just keep things simple, and do whatever makes things easier for you. (Noticing a trend here?)  If it makes you feel better to have bonds in taxable, because they will be a stable investment for you to withdraw to buy a house soon, or to keep the kid's money more diversified, then do it.  If you'd rather avoid a tax bill now, then keep bonds out of taxable.  It really won't make much of a difference over the long run.  The more I read about this, the less it seems to matter, as long as your using Vanguard Total Market index funds, which are very tax efficient anyway.

Keeping this in mind:

1.  Should I avoid bonds in my taxable account? There are plenty of good reasons to have bonds in taxable, and I think the purposeful silo-ing of money for children is a good one.  Keeping things simple is another.  Maximizing your tax-advantaged space by keeping more stocks in those accounts (instead of taxable) is yet another.  I don't think bonds in taxable is something that should explicitly be avoided at all costs.

2.  Should I save up and wait until I have $6000 ($3000 VTSAX and $3000 VGTSX) to contribute more funds to the account?  If the money is to be invested anyway, the sooner you invest it the better.  Don't let the money sit in a bank account until you can save up X amount to invest.  I invest my surplus monthly.

3.  Should I just save up $3000 and use VASGX and not worry about the fact I will have bonds in a taxable account?  That's probably the best choice, keeps things simple, and based on your tax bracket you wouldn't benefit from municipal tax-free bonds anyway.

4.  If I used VASGX for now since it would only require $3000, what would be the tax impacts if I wanted to split it into VTSAX and VGTSX once the balance was $6000?  You can have a big tax bill, or you can have a $0 tax bill, or you can get a negative tax bill (a tax deduction).  No way to tell without being able to predict the markets :)  Why would you want to split it up when you get to $6000?

I know you're new to the investing world, and all the links and information can make things seem crazy and super-complicated.  I stand by my earlier assertion that you're in a GREAT position!  Don't be afraid of making a big mistake here.  The things we're talking about here is small stuff, you've already passed the big hurdles. :)

Trifele

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Re: Taxable account advice
« Reply #3 on: May 02, 2015, 05:17:39 AM »
Small correction -- I believe VTSAX is Admiral Shares and has a minimum of $10,000.  VTSMX is the Total Stock Market Investor Shares with the lower $3k minimum, and the higher expense ratio (0.17)

JasonS

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Re: Taxable account advice
« Reply #4 on: May 02, 2015, 07:02:13 AM »
Best Tax-Efficient Vanguard Fund: Vanguard Total Stock Market Index (VTSMX)
If you want a low-cost, diversified stock mutual fund that is highly tax-efficient, you canít get much better than Vanguard Total Stock Market Index Fund (MUTF:VTSMX).


low expense ratio, low turnover so not a lot of capital gains.  Start with this, diversify into international, small cap, etc when you have more funds to allocate

Daniel1973

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Re: Taxable account advice
« Reply #5 on: May 03, 2015, 07:17:34 PM »
If I do make the decision to combine at least two of my three taxable accounts within Vanguard, since they are all three individual brokerage accounts, can I transfer funds between them? I will have to call and talk to Vanguard tomorrow. If I do this, I could consolidate the two taxable accounts for my children and I would have enough for the Admiral Vanguard Total Stock Market (VTSAX) and I would have enough to open a Vanguard Total International Stock Index fund Investor shares (VGTSX). Sound like a plan for saving for my children in conjunction with their 529s?

Once I have enough, I may do something similar for an investment account for my wife and I, but I will probably start with VTSMX, then add VGTSX later. Simple enough?

Thanks

forummm

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Re: Taxable account advice
« Reply #6 on: May 03, 2015, 07:23:04 PM »
If I do make the decision to combine at least two of my three taxable accounts within Vanguard, since they are all three individual brokerage accounts, can I transfer funds between them? I will have to call and talk to Vanguard tomorrow. If I do this, I could consolidate the two taxable accounts for my children and I would have enough for the Admiral Vanguard Total Stock Market (VTSAX) and I would have enough to open a Vanguard Total International Stock Index fund Investor shares (VGTSX). Sound like a plan for saving for my children in conjunction with their 529s?

Once I have enough, I may do something similar for an investment account for my wife and I, but I will probably start with VTSMX, then add VGTSX later. Simple enough?

Thanks

Yes, you can move funds between accounts that you own.