Author Topic: taxable accounts  (Read 3340 times)

tracipam

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taxable accounts
« on: January 11, 2014, 12:10:02 PM »

Hi all!

Last year I filled up my 401K and Roth IRA and saved a bit extra that's been sloshing around in a savings account.  This year, I intend to continue to fill up my 401K and Roth IRA but anticipate having a reasonable amount of money accumulating (probably 20-25K all told, by the end of the year) and I need to figure out what to do with it, now and moving forward.

This is the first time I've played with taxable accounts, so I wanted to get any wisdom/suggestions from the crew before I jump in.  I was just reading through the boggleheads article that someone suggested on this forum previously (http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement) and wanted to make sure I'm not missing anything as I figure out what to do next. 

If I am understand right, the general idea is to keep things with high turnover (bond funds, REIT funds) in my tax protected accounts, but most other investments (index funds, international, domestic and otherwise) are probably OK to go into a taxable account.  Am I understanding that right? 

If anyone can suggest any other sources of information (books, blogs, articles, etc) or has other recommendations on where/what to invest in, I'd appreciate it! 

Thanks!

ender

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Re: taxable accounts
« Reply #1 on: January 11, 2014, 12:14:20 PM »
So I literally had the exact question recently on Bogleheads recently.

You might find the thread worth while to read :)

tracipam

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Re: taxable accounts
« Reply #2 on: January 11, 2014, 12:29:49 PM »
Awesome!  Thanks, enderland!

ShavinItForLater

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Re: taxable accounts
« Reply #3 on: January 11, 2014, 01:15:25 PM »
To minimize taxes, you want your taxable accounts to be more weighted towards things that don't produce high short term capital gains and dividends, because those things will generally be taxed at higher rates, and sooner, than gains that are treated as long term capital gains.  Yes, things with a lot of turnover will produce short term capital gains, and REIT funds are generally going to have high dividend rates, so those are examples of things that might be better off in a tax advantaged account where you don't pay the taxes until later (in traditional 401k/IRAs) or ever (in Roth 401k/IRAs).  Bond funds would be another example since they pay regular interest income every year.

Index funds work pretty well in taxable accounts, since the makeup of the index doesn't change very frequently, so the fund itself doesn't often sell shares except when you do.  The exception might be an index fund that is specifically designed for income, high dividends, etc. 

If you have a very high income and are in one of the very highest tax brackets, there are also some funds that are specifically designed to minimize taxes (tax managed portfolios would be a term to search for), but if you're not in those really high tax brackets it's probably not worth it over a straight index fund.  Another exception would be if you were going to invest in a municipal bond or muni bond fund, which pays tax free interest--since there would be no taxes, it would be better to hold those in a taxable account and put something else in the tax advantaged account.  That's another type of investment that makes more sense for those paying very high tax rates.

ender

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Re: taxable accounts
« Reply #4 on: January 11, 2014, 02:18:32 PM »
Awesome!  Thanks, enderland!

Here is a link to the overall breakdown of my investments, too, if you are curious, that I posted earlier today as well :)

tracipam

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Re: taxable accounts
« Reply #5 on: January 12, 2014, 11:18:50 AM »

Thanks, both of you!  That all seems to agree pretty well.  Now I just need to work out the details and take the plunge, I guess!  I'll make sure to keep anything high-dividend or turnover out of my taxable and see how it goes.  I'm not yet in the super-high-income or muni arena.... maybe in a few years once I've got the basics down. :-)  I appreciate your help!