Author Topic: VTSAX brokerage account?  (Read 1132 times)

megan1104

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VTSAX brokerage account?
« on: August 24, 2019, 08:29:35 AM »
I'm planning on opening a VTSAX brokerage account. What are rules to live by? In other words, is there a sweet spot for taking money out of the account as far as taxes and penalties?

terran

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Re: VTSAX brokerage account?
« Reply #1 on: August 24, 2019, 09:04:18 AM »
A brokerage account is an account in which you can buy investments. VTSAX is one such investment. You might also have a workplace retirement plan like a 401(k) or another tax advantaged retirement plan like a traditional IRA or Roth IRA where you can also buy VTSAX or something like it. Here's a good summary of the order in which you should put money in certain accounts: https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153. A brokerage account is the same as the taxable account in step 8.

If you wish to buy VTSAX, opening your brokerage account at Vanguard is probably best as VTSAX is run by Vanguard and will therefore always trade in Vanguard brokerage accounts without added fees. Fidelity, Scwhab, Etrade, and TD Ameritrade would also be fine options as they have similar investment options that trade without extra fees, but they're more "dangerous" as they also have more bad investment options than Vanguard does. If you know or learn a bit you'll be fine with any of them though.

You will pay taxes on the amount of gain you have in any investment at the time that you sell. This is called capital gains tax. Investments that you hold for more than one year will receive preferential capital gains tax rates. Possibly 0% depending on how much you earn in total (from both income from your job and other sources, and the capital gains). These are called long term capital gains taxes. Gains on investments held for one year or less are taxed at the same rate your regular income. These are short term capital gains taxes.

Investments will also generally pay dividends. These can be both qualified and non-qualified which have different tax rates like long and short term capital gains. Here's some information on that: https://www.fidelity.com/tax-information/tax-topics/qualified-dividends. Suffice it to say owning the investment longer makes it more likely your dividends are qualified and cost less in taxes.

You should not own an investment like VTSAX if you expect to need that money in the next 5 years. Stock investments are for long term investing.

You may want to consider other investments in addition to VTSAX. VTSAX is a fund that owns a representative sample of all the publicly traded companies in the US stock markets. You may want to consider a similar fund representing the entire US bond market, the entire international stock market except the US, or other various investment options. https://www.bogleheads.org/wiki/Asset_allocation would be a good place to start looking into that.

Once you've considered what accounts you want to put money in from the investment order link and what investments you want to buy in the asset allocation link, you might want to look at https://www.bogleheads.org/wiki/Tax-efficient_fund_placement to consider which investments you should buy in which accounts.

However, if you discover from the investment order link that you aren't yet ready for a brokerage/taxable account and should instead be putting all your investable money in tax advantaged retirement accounts, then you can skip the tax efficient fund placement link until you're ready to also put money in a brokerage account. If that's the case, you could probably even skip the asset allocation link and just invest in a target date fund your retirement accounts for now just to get started without putting too much though into it. Getting started sooner rather than later is the most important part.


megan1104

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Re: VTSAX brokerage account?
« Reply #2 on: August 24, 2019, 10:59:43 AM »
Thanks. I should have prefaced by saying we already max out all of our retirement, tax-deferred accounts. We are looking for what the "next steps" should be now that we have extra cash to invest. Specifically, we'd like to grow $ in a brokerage account to perhaps one day dump onto our mortgage, should we choose to pay it off or down.

I appreciate the reply!

BlueHouse

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Re: VTSAX brokerage account?
« Reply #3 on: August 28, 2019, 08:31:42 AM »
Thanks. I should have prefaced by saying we already max out all of our retirement, tax-deferred accounts. We are looking for what the "next steps" should be now that we have extra cash to invest. Specifically, we'd like to grow $ in a brokerage account to perhaps one day dump onto our mortgage, should we choose to pay it off or down.

I appreciate the reply!

Can I just say, I love seeing that second sentence.  It's awesome when someone new is here and they're already doing so much amazing! 

ecchastang

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Re: VTSAX brokerage account?
« Reply #4 on: August 28, 2019, 08:56:49 AM »
Thanks. I should have prefaced by saying we already max out all of our retirement, tax-deferred accounts. We are looking for what the "next steps" should be now that we have extra cash to invest. Specifically, we'd like to grow $ in a brokerage account to perhaps one day dump onto our mortgage, should we choose to pay it off or down.

I appreciate the reply!

Can I just say, I love seeing that second sentence.  It's awesome when someone new is here and they're already doing so much amazing!
Agreed!

DavidAnnArbor

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Re: VTSAX brokerage account?
« Reply #5 on: August 30, 2019, 07:44:38 PM »
Yes dump the extra cash in a Vanguard brokerage account and invest it in VTSAX.
Be aware that in the short term equities are volatile.

Indexer

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Re: VTSAX brokerage account?
« Reply #6 on: August 31, 2019, 07:54:33 AM »
Hopefully the money will be in there for awhile given that stocks can be volatile in the short term. I wouldn't put money you might need within 12 months into a stock fund. In terms of how to invest in a taxable account, VTSAX or the ETF version of the same fund, VTI, are great options. They are very tax efficient investments, which make them great for a taxable account, for 2 reasons.

1. Dividends tend to be qualified so you will likely pay a lower tax rate on these dividends than you would other sources of income.
2. Both are highly unlikely to distribute capital gains each year. The gains stay inside the fund until you sell it so you can delay taxes on the gains until you need the money.