Author Topic: VTSAX for newbie investor?  (Read 16586 times)

xander

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VTSAX for newbie investor?
« on: June 16, 2017, 03:38:11 PM »
Hello all, first time post here other than an introduction in the new user thread.

I have been lurking and reading for a while and have deducted from the blogs that the Vanguard Total Market Index Fund is highly recommended. So before I take the plunge and open a brokerage account with them, I was wanting opinions and thoughts from established mustachians on my savings plan and strategy.

Here are some numbers to paint my current financial picture.

I feel like I'm telling you all private information, but I guess discussing financial figures is what we do here haha.

I am 29, making roughly $55k-$60k a year.
401k balance: $75k (current contributions @$13k a year)
Liquid savings balance in bank: $60k...soon to be $75k once I sell my second vehicle
HSA balance: $1k

My current goal is to hit $100k in my 401k, which shouldn't be too far off at this rate. At that point I will throttle my contributions back and let compounding work it's magic.

In the meantime I am wanting to put a chunk of that liquid savings to work. With the VTSAX in sight, $10k is needed for the initial investment. However my bold side is saying, "You're young! Put $50k in there and don't look back!" Which would leave me with $25k for an emergency fund and let me still sleep like a baby. Once I hit the $100k in my 401k my contributions will then be focused on this fund and start to watch it grow. Also, putting that dollar amount into only one fund seems weird to me comparing it to the diversified portfolio in my 401k. I guess that's normal though.

Does this seem like a good path? Any better ideas/funds to suggest?

Sorry to write an essay as my first post!




Thinkum

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Re: VTSAX for newbie investor?
« Reply #1 on: June 16, 2017, 03:47:01 PM »
VTSAX is the TOTAL Stock Market. It is as diversified as you can get for a domestic fund.

I think your plan sounds great as long as you do not need that $50K in the near term, such as a down-payment for a home, etc. Have you read JLCollins? Check his stock series post: http://jlcollinsnh.com/stock-series/.

omachi

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Re: VTSAX for newbie investor?
« Reply #2 on: June 16, 2017, 04:06:49 PM »
Why so much cash on hand? If you're planning to buy a house soon, cool, but considering sitting on $65k is a lot otherwise. The main thing is to have money in the market as long as possible because of compound interest. Toss $50k in, or maybe more. If you have money in after tax funds, you can sell those if you have to in a major emergency. That lets you keep less of a cash emergency fund.

VTSAX is fairly diverse. The holdings information claims over 3500 different holdings in the one fund. That said, if you're seeking more diversity, diversify. I hold a couple other funds, like an international fund. If you have $50k+ to invest, you can open a three fund portfolio to diversify quite easily.

Any particular reason you're planning to throttle back the 401k contributions? At $55k per year, you're probably in the 25% tax bracket, so not paying tax on the contributions seems to make sense. If you're going to retire early, you may be able to take advantage of a backdoor Roth to pay lower taxes on that money. And any reason why $100k is the magic number? Assuming you invest in after tax funds what you would have invested in the 401k, it's all going to be compounding regardless of where it is. The question is what makes you the most in terms of taxes, fees, and fund selection, plus considerations like whether you need to have the money accessible any time soon.

Also, max out the HSA before the 401k. It acts much the same in terms of retirement money, but you can also get money out tax free for medical expenses. That's a huge win, since you'll have to pay tax on 401k distributions and income tax on money going to after tax investments plus possibly capital gains on after tax earnings.

Mr. Green

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Re: VTSAX for newbie investor?
« Reply #3 on: June 16, 2017, 04:31:46 PM »
VTSMX is the exact same fund with Vanguard, just not Admiral shares so the expense fees are just a tiny bit higher. You can start with VTSMX and when your balance goes over the 10k limit needed for VTSAX Vanguard will give you the option to automatically convert your shares to VTSAX.

SwordGuy

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Re: VTSAX for newbie investor?
« Reply #4 on: June 16, 2017, 05:33:52 PM »
VTSAX is the TOTAL Stock Market. It is as diversified as you can get for a domestic fund.

Actually, it's the (NEARLY) Total (US) Stock Market, which happens to include a bunch of US-based Multi-National Corporations.

I use VTIAX for more international stock exposure.



xander

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Re: VTSAX for newbie investor?
« Reply #5 on: June 16, 2017, 05:36:12 PM »
Why so much cash on hand? If you're planning to buy a house soon, cool, but considering sitting on $65k is a lot otherwise. The main thing is to have money in the market as long as possible because of compound interest. Toss $50k in, or maybe more. If you have money in after tax funds, you can sell those if you have to in a major emergency. That lets you keep less of a cash emergency fund.

VTSAX is fairly diverse. The holdings information claims over 3500 different holdings in the one fund. That said, if you're seeking more diversity, diversify. I hold a couple other funds, like an international fund. If you have $50k+ to invest, you can open a three fund portfolio to diversify quite easily.

Any particular reason you're planning to throttle back the 401k contributions? At $55k per year, you're probably in the 25% tax bracket, so not paying tax on the contributions seems to make sense. If you're going to retire early, you may be able to take advantage of a backdoor Roth to pay lower taxes on that money. And any reason why $100k is the magic number? Assuming you invest in after tax funds what you would have invested in the 401k, it's all going to be compounding regardless of where it is. The question is what makes you the most in terms of taxes, fees, and fund selection, plus considerations like whether you need to have the money accessible any time soon.

Also, max out the HSA before the 401k. It acts much the same in terms of retirement money, but you can also get money out tax free for medical expenses. That's a huge win, since you'll have to pay tax on 401k distributions and income tax on money going to after tax investments plus possibly capital gains on after tax earnings.

Hey omachi, thanks for the reply and questions.

No real reason for having that cash on hand other than saving. I had never really considered putting it in the market until now. Newbie question: The VTSAX is considered an "after tax" fund correct? Simply because it's not designated as a retirement fund? So in that scenario if I needed a random $10k I could sell that much and wire it back to my bank account?

I like the idea of having multiple funds to diversify, thanks for the tip.

My reasoning for throttling back after $100k in my 401k is this. The $100k is just an arbitrary number for me to reach, a savings goal since it will put the account into six figures. In my mind it's like, "I've achieved six figures in my retirement fund, time to lessen those contributions a bit, and start investing in an after-tax fund I can access prior to retirement if I so choose."

I will look into upping my HSA contributions. Since I'm young and healthy I haven't used it much at all...hence the low balance.

xander

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Re: VTSAX for newbie investor?
« Reply #6 on: June 16, 2017, 05:39:09 PM »
VTSMX is the exact same fund with Vanguard, just not Admiral shares so the expense fees are just a tiny bit higher. You can start with VTSMX and when your balance goes over the 10k limit needed for VTSAX Vanguard will give you the option to automatically convert your shares to VTSAX.

I am pondering that fund as well if decide to open the account with less than $10k.

Thinkum

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Re: VTSAX for newbie investor?
« Reply #7 on: June 16, 2017, 06:48:51 PM »
VTSAX is the TOTAL Stock Market. It is as diversified as you can get for a domestic fund.

Actually, it's the (NEARLY) Total (US) Stock Market, which happens to include a bunch of US-based Multi-National Corporations.

I use VTIAX for more international stock exposure.

Indeed.

omachi

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Re: VTSAX for newbie investor?
« Reply #8 on: June 16, 2017, 07:30:27 PM »
Hey omachi, thanks for the reply and questions.

No real reason for having that cash on hand other than saving. I had never really considered putting it in the market until now. Newbie question: The VTSAX is considered an "after tax" fund correct? Simply because it's not designated as a retirement fund? So in that scenario if I needed a random $10k I could sell that much and wire it back to my bank account?
Yes, it's an after tax fund when you use money that you've already paid income tax on to purchase it. A 401k is a pre-tax fund because you haven't paid tax on it (yet). If you had the option to purchase VTSAX in your 401k, it'd be pre-tax. But I'm taking your intention as to use after tax money to open an account at Vanguard and buy VTSAX, so yes, after tax.

With after tax funds, you can sell them when you please. If you have earnings on the shares, those earnings are subject to capital gains taxes. The principal is not subject to tax, since you've already paid tax on it. In an emergency you could sell shares, then pay taxes on the earnings the year after. If you sell at a loss, you can use that loss to offset future taxes.

I like the idea of having multiple funds to diversify, thanks for the tip.
As others have mentioned VTIAX is popular for international exposure. You could put a small amount towards a bond fund of some sort if you wanted. All depends on your tolerances.

My reasoning for throttling back after $100k in my 401k is this. The $100k is just an arbitrary number for me to reach, a savings goal since it will put the account into six figures. In my mind it's like, "I've achieved six figures in my retirement fund, time to lessen those contributions a bit, and start investing in an after-tax fund I can access prior to retirement if I so choose."
You probably already know, but make sure you keep whatever employer match you get.

At your income, you should be eligible for a Roth IRA. This is probably a better option than just after tax investments. You still use after tax money to fund it, but you can withdraw the principal any time you want. At retirement (59.5+) you can then withdraw the earnings tax free as well. That's better than paying tax on earnings at retirement and you can still access your contributions in the meantime. You also won't be hit with taxes on dividends or capital gains from fund managers shuffling things like you would be in an after tax fund.

TryingtoFIREinLAnow

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Re: VTSAX for newbie investor?
« Reply #9 on: June 16, 2017, 08:10:46 PM »
IMHO we tend to think we need "emergency savings at the ready" much more than we ACTUALLY do--the chance that you are going to need $20,000 in cash tomorrow is pretty slim - we live in a pretty safe part of the world, kidnappings are infrequent ; )
You should  put as much as possible into Vanguard ASAP.
I was in much the same position as you a few years ago and I kick myself for thinking I was smarter than.....well everybody on this forum.......I wasn't. Smart investing is boring investing - set up your Vanguard account, set up an automatic transfer and forget about it.

You are on track to be FI pretty darn soon already! Congrats!!

Aggie1999

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Re: VTSAX for newbie investor?
« Reply #10 on: June 16, 2017, 08:28:04 PM »
As others have said, MAX OUT your pre-tax accounts first as long as you have taxable income and qualify to put money in pre-tax. If you reach zero tax liability for the year then start putting money in your Roth 401k and/or Roth IRA up to the limt. A taxable brokerage account should be your last investment account once you have maxed all pre-tax/retirement accounts. Also, regardless of tax liability make sure you are getting the max employer 401k match.

Think hard if you really need to keep 10's of thousands of dollars in a bank account for emergency. If you have a stable job with severance you probably don't need a huge emergency fund. You can always live off credit cards for a month should an emergency arise, stop retirement contributions to pay the credit cards, etc. Last resort you can always withdraw contributions from a Roth account at any time, no penalty.

xander

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Re: VTSAX for newbie investor?
« Reply #11 on: June 17, 2017, 06:58:54 AM »
I appreciate all of this information! I'm getting excited knowing I have some work to do in tailoring my my finances and where everything is going.

Once I am setup with Vanguard I plan on reinvesting my dividends to help build the account up faster. Whether it be manually or automatically (if Vanguard offers that feature). Will I still pay taxes on those dividends if they are immediately put back into the account? Or are they taxed once I "withdraw" them and they are considered cash? That's probably very rudimentary to you all but I still haven't fully gasped it yet.

I am going to research what zero tax liability is. That term is new to me.

mjr

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Re: VTSAX for newbie investor?
« Reply #12 on: June 17, 2017, 07:50:43 AM »
The fund will issue you a distribution which usually will be all dividends, but they can contain a capital gains component.  The statement will tell you.

Dividends are taxable when they are granted to you, regardless of whether or you not have them automatically reinvested.

Aggie1999

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Re: VTSAX for newbie investor?
« Reply #13 on: June 19, 2017, 07:56:45 AM »
I appreciate all of this information! I'm getting excited knowing I have some work to do in tailoring my my finances and where everything is going.

Once I am setup with Vanguard I plan on reinvesting my dividends to help build the account up faster. Whether it be manually or automatically (if Vanguard offers that feature). Will I still pay taxes on those dividends if they are immediately put back into the account? Or are they taxed once I "withdraw" them and they are considered cash? That's probably very rudimentary to you all but I still haven't fully gasped it yet.

I am going to research what zero tax liability is. That term is new to me.

No worries. I was in your same boat 6 months ago with these type of questions. This forum has been very helpful in getting me up to speed.

As "mjr" said, dividends are always taxable, regardless if they or automatically re-invested. The automatic part is just something a brokerage can provide. Has no relation to the tax code. I personally don't do automatic re-investment. By not doing automatic re-investment you can use the funds to help re-balance based on your asset allocation.

Also, remember that all dividends in US funds like VTSAX qualify for long term capital gains which helps greatly with taxes. Someone correct me if I'm wrong on the "all dividends" part.

omachi

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Re: VTSAX for newbie investor?
« Reply #14 on: June 19, 2017, 10:11:18 AM »
One other thing is that at $55-60k gross income, you're in the 25% tax bracket, but not too deep into it. If you use tax advantaged accounts like the 401k and HSA to reduce the income considered for taxes to get down to the 15% bracket, you won't have to pay tax on long term capital gains and qualified dividends in your after tax accounts. 15% bracket tops out at just under $38k, so I think you can get to that with just those two accounts. Health insurance premiums are usually deducted as well.

So that's another way the pre-tax accounts can help reduce your costs, by making re-invested dividends not subject to tax.

ooeei

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Re: VTSAX for newbie investor?
« Reply #15 on: June 19, 2017, 11:27:18 AM »
Just to clarify in case you aren't aware:  VTSAX is a mutual fund.  Mutual funds aren't pre or post tax themselves.  What matters as far as tax status is the type of account you have your mutual fund in. 

Traditional IRA, Traditional 401k/403b, HSA are all tax deferred and tax sheltered.  You won't be taxed on income, you will be taxed on withdrawals.  You pay no capital gains tax in these accounts.

Roth IRA, Roth 401k are post-tax but tax sheltered.  You pay taxes on the income when it goes into the account, and no taxes on withdrawals.  You pay no capital gains in these accounts.

Brokerage/Taxable/Investment/any other account is post tax and not sheltered.   You pay taxes on your income before you put it into the account, and pay capital gains tax on any gains you get.  You pay no taxes to withdraw money (other than capital gains).

You can hold VTSAX or any other mutual fund/ETF/stock/bond in any of these types of accounts, and how it's taxed will be determined by the account.  Your 401k is really the only one where you don't get to pick the investments, but some people do have VTSAX or an equivalent in their 401k options.  If you leave your company you can roll your 401k over to an IRA and then you get to pick the investments.  Pretty much all tax sheltered accounts are locked up until you're 59 1/2, although there are very reasonable ways to get the money out before then.  http://jlcollinsnh.com/stock-series/ is a great resource that someone already mentioned, I highly recommend working your way through it.

xander

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Re: VTSAX for newbie investor?
« Reply #16 on: June 19, 2017, 06:14:44 PM »
Thanks for the clarification ooeei. That better describes the tax status for each account for me.

I am assuming that Vanguard will issue a form at tax time that will outline the total capital gains tax for my account?

TomTX

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Re: VTSAX for newbie investor?
« Reply #17 on: June 19, 2017, 08:05:54 PM »
Here's what I would do:

Max out your HSA, ASAP. Don't waste another tax year. It's by FAR the best use of the money. If you never use it for medical and avoid taxes altogether, you can eventually just treat it like an IRA.

Max out the 401k. Balls to the wall. Together with the HSA, this should get you down into (or at least very close to) the 15% tax bracket.

Set up a Vanguard Roth IRA, $5,500 today in VTSMX (or VTI.) On January 1, put in another $5,500 and convert to VTSAX (or stay in VTI).





ooeei

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Re: VTSAX for newbie investor?
« Reply #18 on: June 21, 2017, 08:49:41 AM »
Thanks for the clarification ooeei. That better describes the tax status for each account for me.

I am assuming that Vanguard will issue a form at tax time that will outline the total capital gains tax for my account?

Yes they will send you a 1099-DIV at tax time that will outline gains/losses for the account.  I don't think they send one for accounts that don't have capital gains taxes (IRA, HSA, 401k, etc), only for the ones where you actually have to pay the tax.

Heroes821

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Re: VTSAX for newbie investor?
« Reply #19 on: June 21, 2017, 09:09:01 AM »
Here's what I would do:

Max out your HSA, ASAP. Don't waste another tax year. It's by FAR the best use of the money. If you never use it for medical and avoid taxes altogether, you can eventually just treat it like an IRA.

Max out the 401k. Balls to the wall. Together with the HSA, this should get you down into (or at least very close to) the 15% tax bracket.

Set up a Vanguard Roth IRA, $5,500 today in VTSMX (or VTI.) On January 1, put in another $5,500 and convert to VTSAX (or stay in VTI).

This is what I was going to say as well.  Please don't "dial back" your 401k contributions at 100k. Dial UP to the 18k limit.

Lobo

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Re: VTSAX for newbie investor?
« Reply #20 on: June 22, 2017, 03:10:58 PM »


Automatic re-investment of dividends is where your compounding comes from.  By not re-investing dividends your cancelling out a crucial component that makes up the total return from these types of funds.

Guide2003

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Re: VTSAX for newbie investor?
« Reply #21 on: June 22, 2017, 09:01:52 PM »
No real reason for having that cash on hand other than saving. I had never really considered putting it in the market until now.
Three other points to consider rather than having a ton of cash on hand:
1) You can float some emergency spending on credit cards for at least a month with no interest
2) If you have a high enough savings rate, simply turning off that faucet the month you have an unexpected expense will go a long way towards paying it
3) You can withdraw all contributions (not capital gains) from Roth IRA's penalty free since you've already been taxed on them. If the emergency is big enough that a month or two of diverting savings and tightening the belt won't cut it, this could be your last resort. That way the money is working hardest for you and there is a barrier to using it for trivial things.

aceyou

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Re: VTSAX for newbie investor?
« Reply #22 on: June 23, 2017, 06:50:11 AM »
I was in a similar position when I found MMM.  I was a natural saver(although not MMM level), and DW and I had a little over 100k in cash. 

Because we were teachers, we have access to a 403 and 457 each, we we could pretax 72k there each year, and 11k into a roth, for a 83k/year total tax shelter. 

We weren't doing ANY of that by the way at that time. 

We decided to start unloading 83k/year into those accounts until our 100k in cash went down to about 15k, then we'd just do as much as we could after that. 

We are 2 years into this and we have are down to about 70k, but now we have about 150k in tax shelters, lets gooo!!!  We think we ca do this for about 3 more years before our cash draws down to 15k.  This has really allowed us to get off to a fast start with the stache.

Maybe you can do something like that.  Set up your Roth and max out your 401k immediately.  This will likely start drawing down your cash each month.  If so, then do this for as long as you can.  If it doesn't cause your cash to draw down, then send a bunch of it to a taxable account. 

How does that sound? 

Blonde Lawyer

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Re: VTSAX for newbie investor?
« Reply #23 on: June 23, 2017, 08:22:02 AM »
I've had so many of the same questions.  This thread was really helpful to me so don't be embarrassed about asking beginner questions.

I also just opened a Vanguard taxable account but that was because I'm sticking part of my emergency fund in there.  I haven't yet decided if that will be all savings over $10k (which I'm already at) or $15k, or another number. We are dual income with fairly stable jobs.  I kept hearing I should open a Roth IRA instead of the taxable account but I didn't think I could withdraw until retirement age.  Now that I know I can, I'll be doing that too.  Wonder if I can transfer the $3k from my newly started Vanguard taxable account to the Roth.

Aggie1999

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Re: VTSAX for newbie investor?
« Reply #24 on: June 23, 2017, 08:33:01 AM »


Automatic re-investment of dividends is where your compounding comes from.  By not re-investing dividends your cancelling out a crucial component that makes up the total return from these types of funds.

Just to be completely clear for newer folks it's not the automatic part that gives ones the compounding. As long as one monitors when dividends come in they can manually purchase other securities with the dividends to achieve the same effect. Doing this allows one to use dividends to help re-balance to their asset allocation. Then they only have one taxable event (the dividends) in a taxable account instead of two (the dividends and a sale later to re-balance).

Of course depending on many other factors the above level of manual work may not be needed to keep one's asset allocation in check.

omachi

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Re: VTSAX for newbie investor?
« Reply #25 on: June 23, 2017, 09:38:23 AM »
I've had so many of the same questions.  This thread was really helpful to me so don't be embarrassed about asking beginner questions.

I also just opened a Vanguard taxable account but that was because I'm sticking part of my emergency fund in there.  I haven't yet decided if that will be all savings over $10k (which I'm already at) or $15k, or another number. We are dual income with fairly stable jobs.  I kept hearing I should open a Roth IRA instead of the taxable account but I didn't think I could withdraw until retirement age.  Now that I know I can, I'll be doing that too.  Wonder if I can transfer the $3k from my newly started Vanguard taxable account to the Roth.

You can contribute up to $5500 to a Roth each year, so it should be no problem to move the taxable $3k of funds to the Roth, provided you haven't made other contributions over $2k to the Roth yet. Income limits still apply. There's a cap for income that limits or excludes contributions (cuts in at $186k filing joint). You also can only contribute earned income, which just means you need at least as much income as you contribute, not that it has to go straight from a paycheck to the Roth.

TomTX

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Re: VTSAX for newbie investor?
« Reply #26 on: June 23, 2017, 11:48:20 AM »
I was in a similar position when I found MMM.  I was a natural saver(although not MMM level), and DW and I had a little over 100k in cash. 

Because we were teachers, we have access to a 403 and 457 each, we we could pretax 72k there each year, and 11k into a roth, for a 83k/year total tax shelter. 

We weren't doing ANY of that by the way at that time. 

We decided to start unloading 83k/year into those accounts until our 100k in cash went down to about 15k, then we'd just do as much as we could after that. 

We are 2 years into this and we have are down to about 70k, but now we have about 150k in tax shelters, lets gooo!!!  We think we ca do this for about 3 more years before our cash draws down to 15k.  This has really allowed us to get off to a fast start with the stache.

Maybe you can do something like that.  Set up your Roth and max out your 401k immediately.  This will likely start drawing down your cash each month.  If so, then do this for as long as you can.  If it doesn't cause your cash to draw down, then send a bunch of it to a taxable account. 

How does that sound?

It's a great plan. Now I just need a pile of cash lying around.... ;)

Blonde Lawyer

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Re: VTSAX for newbie investor?
« Reply #27 on: June 23, 2017, 12:44:42 PM »
I've had so many of the same questions.  This thread was really helpful to me so don't be embarrassed about asking beginner questions.

I also just opened a Vanguard taxable account but that was because I'm sticking part of my emergency fund in there.  I haven't yet decided if that will be all savings over $10k (which I'm already at) or $15k, or another number. We are dual income with fairly stable jobs.  I kept hearing I should open a Roth IRA instead of the taxable account but I didn't think I could withdraw until retirement age.  Now that I know I can, I'll be doing that too.  Wonder if I can transfer the $3k from my newly started Vanguard taxable account to the Roth.

You can contribute up to $5500 to a Roth each year, so it should be no problem to move the taxable $3k of funds to the Roth, provided you haven't made other contributions over $2k to the Roth yet. Income limits still apply. There's a cap for income that limits or excludes contributions (cuts in at $186k filing joint). You also can only contribute earned income, which just means you need at least as much income as you contribute, not that it has to go straight from a paycheck to the Roth.

I thought the income limit was only to get the tax deduction for contributing.  I thought I could still contribute over the limit and not pay taxes on the gains but I couldn't deduct the amount I contributed from my taxes.

FrugalFisherman10

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Re: VTSAX for newbie investor?
« Reply #28 on: June 23, 2017, 01:10:28 PM »
Here's what I would do:

Max out your HSA, ASAP. Don't waste another tax year. It's by FAR the best use of the money. If you never use it for medical and avoid taxes altogether, you can eventually just treat it like an IRA.

Max out the 401k. Balls to the wall. Together with the HSA, this should get you down into (or at least very close to) the 15% tax bracket.

Set up a Vanguard Roth IRA, $5,500 today in VTSMX (or VTI.) On January 1, put in another $5,500 and convert to VTSAX (or stay in VTI).

^ Yep.

Also, read madfientist for some more understanding/mechanics about tax stuff. Like this for example: http://www.madfientist.com/traditional-ira-vs-roth-ira/

omachi

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Re: VTSAX for newbie investor?
« Reply #29 on: June 23, 2017, 04:25:12 PM »
I've had so many of the same questions.  This thread was really helpful to me so don't be embarrassed about asking beginner questions.

I also just opened a Vanguard taxable account but that was because I'm sticking part of my emergency fund in there.  I haven't yet decided if that will be all savings over $10k (which I'm already at) or $15k, or another number. We are dual income with fairly stable jobs.  I kept hearing I should open a Roth IRA instead of the taxable account but I didn't think I could withdraw until retirement age.  Now that I know I can, I'll be doing that too.  Wonder if I can transfer the $3k from my newly started Vanguard taxable account to the Roth.

You can contribute up to $5500 to a Roth each year, so it should be no problem to move the taxable $3k of funds to the Roth, provided you haven't made other contributions over $2k to the Roth yet. Income limits still apply. There's a cap for income that limits or excludes contributions (cuts in at $186k filing joint). You also can only contribute earned income, which just means you need at least as much income as you contribute, not that it has to go straight from a paycheck to the Roth.

I thought the income limit was only to get the tax deduction for contributing.  I thought I could still contribute over the limit and not pay taxes on the gains but I couldn't deduct the amount I contributed from my taxes.

Traditional IRA has a tax deduction that phases out for high incomes and you pay income tax on everything later. Roth IRA has no tax deduction now and an income limit to contribute at all, but you pay no tax on gains after a set age and you can withdraw principal without further tax or penalty, unless the principal was rolled over from a traditional IRA in the past 5 years.

Bicycle_B

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Re: VTSAX for newbie investor?
« Reply #30 on: June 23, 2017, 05:32:57 PM »
Just skimmed the thread, please accept apology if this was previously posted.

@Xander, http://www.madfientist.com/ has state of the art explanations for early retirement tax stuff.  Read his articles on "Roth ladder" and use them to prepare for your future early retirement.  Several posts including mine give relevant tidbits but he puts it all together comprehensively.  From there, plus your expense rate, you can figure out how much $ you need outside of tax-advantaged accounts.