When do you invest in taxable brokerage account?

[browne497]

I'm curious as to how people go about moving money into their taxable brokerage account. I max out my TSP (401K) and every January I throw in my annual max contribution into my Roth IRA. From there, I don't find I need too much cash for emergencies or anything, but I do like to have at least my next year's IRA contribution saved in my savings account and an additional $1000 in my checking account as a buffer. I find that I'm always slow to move money into my taxable brokerage account though. Currently I'm sitting on $17K in cash with no major purchases planned for at least a year and a half, if not longer if I can remain living where I am and not have to move for work (military).

Are there certain rules of thumb that you all follow when deciding to put money into your taxable brokerage account? Do you dollar cost average your IRA instead of a single contribution?

[NotJen]

When I was accumulating, it was basically every pay day.

- "Check" (DD) minus 401k max contribution hits account
- Pay all bills
- Keep $1000 buffer in checking (I had a separate EF, which I never had to use so it was fully funded before I started contributing to a taxable account)
- Contribute to IRA up until max
- Everything extra in taxable brokerage

[GilesMM]

Keep as much cash as you need to feel comfortable and invest the rest. Don’t overdo the cash as it drags on your returns.

[merula]

I front-load my tax-advantaged accounts, and then push excess cash (i.e. over and above paying the bills and my emergency fund) into my taxable account on a monthly basis when I do my budgeting.

So, in practice:
-401k contribution % is set as high as I can stand in January and typically maxes out with a bonus paid in February
-Next up is IRA contributions for me and my non-working spouse until that's maxed out too (usually April/May)
-After that I put enough in a 529 account to get my state's tax benefit (at this point I think we've over-saved for college, so that's why I'm doing the minimum, but in past years I had a yearly contribution target)
-Last 4-5 months of the year contributions go to the taxable account

The other note is that I've structured my asset allocation so that equities and international bonds are in tax-advantaged accounts and I have most of my bond allocation in the taxable account (currently VTMFX, but I'm coming up on rebalancing).

[ATtiny85]

We have an automatic investment set up at Vanguard. Have had it set up for about 30 years (not always at Vanguard). 100% of that goes into VTSAX. It is an amount that drags down our checking account, but not overly so. We are fortunate and the monthly amount has increased 100x over those three decades! We then do a much larger investment late in the year once our bonuses are paid, since we do not rely on bonuses for any living expenses AND our bonuses account for about 45% of our pay. We do a little calculating and leave enough in the checking account to make sure property taxes and a couple other bigger known expenses will be covered in the next year, then the rest is sent to VTSAX.

401k is at a set percentage, originally set at an amount to max in November. Our company match continues to be paid even after the max is reached, as long as you don't change your contribution amount to something below the match. I suspect that has bitten a person or two over the years. My spouse now hits the max in about July due to some promotions. Me, I am $20 away, so 1 Nov paycheck will do it, though it now includes catch-up.

I have thought many times that turning off that automatic investment will be as shocking to me as the first time I click "sell, send to checking" in the system. Will be facing that wonderful thing soon!

[ChpBstrd]

Let's start with the ideal situation. Suppose you have enough income and low enough expenses to do the following:

-max out your 401k ($23k)
-max out your Roth ($7k)
-park the rest of your savings in a taxable brokerage account
-invest all 3 accounts in a stock-heavy portfolio, such as 100% VTI or 80/10/10 VTI/BND/GLD.

For a W2 wage earner under age 50, this is about as good as it gets. You're maximizing both tax shelters. Money that piles up in the taxable account can be used for major future expenses, such as a new HVAC, car replacement, or roof replacement. Until those expenses become necessary, this account earns an aggressive portfolio's rate of return.

In the event of an income disruption like a job loss and 6-12 months unemployment, the taxable account can either serve as an emergency fund OR send money to the Roth so you don't miss the opportunity to contribute that year. If your income disruption corresponds to a bear market, you might enjoy tax loss harvesting as part of your process of moving cash to the Roth. Then buy a similar fund in the Roth and never pay taxes on the future gains from investments bought for cheap during a bear market.

For those of us not saving over $30k per year, I think this ideal situation is still instructive. You want to max out your 401k first and foremost, to minimize taxes. But those with early retirement intentions may also want to build up a decent Roth balance to obtain flexibility over their taxable income in retirement and to keep their Roth ladder conversions in the low brackets.

I see a taxable account as helping to compromise between these goals, it's an emergency fund, a planned expense fund, a staging ground for Roth deposits in the bad times when earnings are insufficient to optimize IRAs, and an overflow container in the good times when earnings are far exceeding expenses. There's no one way to use a taxable account because it is a multipurpose tool with different applications depending on what's going on.

[Radagast]

Once every 3 months I move money in excess of $10,000 from checking to the brokerage account, and invest per my asset allocation in whatever I hold in taxable that is lowest portion of target (out of US large cap stocks eg SCHX, developed county large cap stocks eg VEA, tax exempt bonds eg VWAHX, and Series I savings bonds).

[GilesMM]

Let's start with the ideal situation. Suppose you have enough income and low enough expenses to do the following:

-max out your 401k ($23k)
-max out your Roth ($7k)
-park the rest of your savings in a taxable brokerage account
-invest all 3 accounts in a stock-heavy portfolio, such as 100% VTI or 80/10/10 VTI/BND/GLD.

For a W2 wage earner under age 50, this is about as good as it gets. You're maximizing both tax shelters. Money that piles up in the taxable account can be used for major future expenses, such as a new HVAC, car replacement, or roof replacement. Until those expenses become necessary, this account earns an aggressive portfolio's rate of return.

In the event of an income disruption like a job loss and 6-12 months unemployment, the taxable account can either serve as an emergency fund OR send money to the Roth so you don't miss the opportunity to contribute that year. If your income disruption corresponds to a bear market, you might enjoy tax loss harvesting as part of your process of moving cash to the Roth. Then buy a similar fund in the Roth and never pay taxes on the future gains from investments bought for cheap during a bear market.

For those of us not saving over $30k per year, I think this ideal situation is still instructive. You want to max out your 401k first and foremost, to minimize taxes. But those with early retirement intentions may also want to build up a decent Roth balance to obtain flexibility over their taxable income in retirement and to keep their Roth ladder conversions in the low brackets.

I see a taxable account as helping to compromise between these goals, it's an emergency fund, a planned expense fund, a staging ground for Roth deposits in the bad times when earnings are insufficient to optimize IRAs, and an overflow container in the good times when earnings are far exceeding expenses. There's no one way to use a taxable account because it is a multipurpose tool with different applications depending on what's going on.

I thought the 2024 backdoor Roth max was $69,000 for those under 50.

[Much Fishing to Do]

I actually used to have my net paycheck (post 401k deductions etc) deposited directly into my investment account's MM at VG (confused payroll at first but they figured it out).  The MM is always paying better than my checking account so any day a dollar sits in the MM instead is good, and I always had variable pay so liked to 'pay myself' (move money to my checking spending account) my budgeted spend at the beginning of each month, keeping a set buffer in the checking so I didn't have to worry about that.

I viewed the money that stayed in that MM as my emergency fund, and whenever it got significantly higher than i wanted would buy more VT or something.  I didn't really have a set schedule as again my pay fluctuated so much, and at times I'm sure I even mini-timed the market ("I saw the market dropped 2% today, I should true up that MM...").

I'm working less now, spending pretty much matches paycheck after deductions and and even if/when not would rather build more cash now so that's all changed, the only investments added at this point are just those deducted to max the 401k.

[ChpBstrd]

Let's start with the ideal situation. Suppose you have enough income and low enough expenses to do the following:

-max out your 401k ($23k)
-max out your Roth ($7k)
-park the rest of your savings in a taxable brokerage account
-invest all 3 accounts in a stock-heavy portfolio, such as 100% VTI or 80/10/10 VTI/BND/GLD.

For a W2 wage earner under age 50, this is about as good as it gets. You're maximizing both tax shelters. Money that piles up in the taxable account can be used for major future expenses, such as a new HVAC, car replacement, or roof replacement. Until those expenses become necessary, this account earns an aggressive portfolio's rate of return.

In the event of an income disruption like a job loss and 6-12 months unemployment, the taxable account can either serve as an emergency fund OR send money to the Roth so you don't miss the opportunity to contribute that year. If your income disruption corresponds to a bear market, you might enjoy tax loss harvesting as part of your process of moving cash to the Roth. Then buy a similar fund in the Roth and never pay taxes on the future gains from investments bought for cheap during a bear market.

For those of us not saving over $30k per year, I think this ideal situation is still instructive. You want to max out your 401k first and foremost, to minimize taxes. But those with early retirement intentions may also want to build up a decent Roth balance to obtain flexibility over their taxable income in retirement and to keep their Roth ladder conversions in the low brackets.

I see a taxable account as helping to compromise between these goals, it's an emergency fund, a planned expense fund, a staging ground for Roth deposits in the bad times when earnings are insufficient to optimize IRAs, and an overflow container in the good times when earnings are far exceeding expenses. There's no one way to use a taxable account because it is a multipurpose tool with different applications depending on what's going on.

I thought the 2024 backdoor Roth max was $69,000 for those under 50.

I was thinking the OP was asking about how to manage a taxable account on an ongoing basis, not in a special circumstance like doing a massive backdoor Roth conversion because your income is too high to contribute through the front door.

[Scandium]

Set up auto-investing with Vanguard every payday. Started with a high as I think reasonable amount, and increase it whenever I can. "Invest till it hurts". It basically comes out of my paycheck, like 401k.

[pdxvandal]

I try to auto-invest every two weeks into a brokerage although during non-payday weeks ... so that I am investing in the market every week of the year, even if a much smaller amount. I typically do half in VTSAX for long-term growth and half in VTMFX (50% bonds) for shorter-term needs. I do like Merula's approach to max pre-tax and Roth then work on brokerage later in the year.

[Telecaster]

The investment order thread is very helpful.

[leevs11]

For a first step, just push all $17k over into the account to sit in the cash position. No harm there. That's making a higher interest % than your checking account anyway.

Then start dropping $1k into your ideal asset allocation each week until the $17k is gone.

Keep adding more every paycheck.

[leevs11]

I front-load my tax-advantaged accounts, and then push excess cash (i.e. over and above paying the bills and my emergency fund) into my taxable account on a monthly basis when I do my budgeting.

So, in practice:
-401k contribution % is set as high as I can stand in January and typically maxes out with a bonus paid in February
-Next up is IRA contributions for me and my non-working spouse until that's maxed out too (usually April/May)
-After that I put enough in a 529 account to get my state's tax benefit (at this point I think we've over-saved for college, so that's why I'm doing the minimum, but in past years I had a yearly contribution target)
-Last 4-5 months of the year contributions go to the taxable account

The other note is that I've structured my asset allocation so that equities and international bonds are in tax-advantaged accounts and I have most of my bond allocation in the taxable account (currently VTMFX, but I'm coming up on rebalancing).

Why do you keep bonds in taxable?

[kenner]

For me I have basically everything with tax advantages/discounts set to max out (HSA, 401K, backdoor+megabackdoor Roth, ESPP) and my emergency fund has been stable for years, so taxable investments are theoretically the icing on the cake, but it's icing I prefer to keep since if I decided to quit my job tomorrow that's what I'd be using for the first couple years to get the Roth ladder started and then possibly longer depending on how I decide to do income control.  Before I hit my retirement number I was pretty draconian about having my budget set and ensuring that almost everything extra went automatically to the taxable account (2x deposits a month, one after each paycheck cleared), but since then I've relaxed a little...I still have the 2x/mo auto-investments set up, but I'm a lot more inclined to skip one or a couple if there's an extra trip I want to take or something like that.  But having the habit of an automatic investments helps because you just don't have to think about it--it's just another bill that gets paid at the same time(s) each month.  Plus the advantages of dollar cost averaging over the course of the year and all of that.

[SpareChange]

I invest in pretax accounts until I'm out of the 22% bracket. Rest goes to my brokerage account, which is all stock. Fixed income goes in Pretax.

[merula]

Why do you keep bonds in taxable?

It keeps the yearly tax impact low and relatively stable. I'm close to the 22%/24% tax bracket, so I want to make sure that I'm keeping as much as I can in the 22% bucket. VTMFX is a tax-managed fund.

[Scandium]

Why do you keep bonds in taxable?

It keeps the yearly tax impact low and relatively stable. I'm close to the 22%/24% tax bracket, so I want to make sure that I'm keeping as much as I can in the 22% bucket. VTMFX is a tax-managed fund.

In what way? It's always been my understanding that equites in taxable is better than bonds, simply because capital gains tax is 15%, while bond payments are taxed at income tax rate, 22%/24% in your case.

Not familiar with VTMFX, seem like it's a 48/52% equities/municipal bonds. But those are only exempt from state tax, if you live in the state the bonds are from? A bit too conservative for me. I simply set 10-15% bonds in my 401k. Also makes rebalancing easier.
I do have my EF in a treasury bond fund, to avoid the 5% state income tax.

[GilesMM]

Why do you keep bonds in taxable?

It keeps the yearly tax impact low and relatively stable. I'm close to the 22%/24% tax bracket, so I want to make sure that I'm keeping as much as I can in the 22% bucket. VTMFX is a tax-managed fund.

In what way? It's always been my understanding that equites in taxable is better than bonds, simply because capital gains tax is 15%, while bond payments are taxed at income tax rate, 22%/24% in your case.

Not familiar with VTMFX, seem like it's a 48/52% equities/municipal bonds. But those are only exempt from state tax, if you live in the state the bonds are from? A bit too conservative for me. I simply set 10-15% bonds in my 401k. Also makes rebalancing easier.
I do have my EF in a treasury bond fund, to avoid the 5% state income tax.

https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

[merula]

To be clear, my portfolio is not all VTMFX; that fund's AA is not reflective of my overall AA.

I'm in the accumulation phase, so LTCG isn't at all my issue. I was getting intermittently dinged with a significant amount of unqualified dividends when I was in a target date fund. The bond rate is the same, but I'm paying much less because of the tax-focused management of that fund, even with much higher assets in taxable.

[Must_ache]

For a first step, just push all $17k over into the account to sit in the cash position. No harm there. That's making a higher interest % than your checking account anyway.
Then start dropping $1k into your ideal asset allocation each week until the $17k is gone.
Keep adding more every paycheck.

I don't get this at all.  Dollar cost averaging is market timing.  If you think the market is going up, you shouldn't wait to invest.  But I would save up and keep buying more stock with every $1K or $5K of new money.

If you have a $17K emergency fund, I would invest most or all of it in something boring like VT or VOO and have the rest (maybe $2K-$5K) as savings.  Once your exceed your modest savings goal, you buy stock with the excess once a month.  If the economy started to go into the tank, you are well within your right to sell and be cautious.  Personally I would not have 3-6 months sitting around in cash or a CD at this stage but keep it liquid so you can adjust if a recession hits full force.

My brokerage account is $279K I invest in a number of funds and stocks.  I try to put other stuff in the tax advantaged accounts, so the stocks in my brokerage might be a bit more conservative, more dividend payers to minimize the tax.

[Scandium]

To be clear, my portfolio is not all VTMFX; that fund's AA is not reflective of my overall AA.

I'm in the accumulation phase, so LTCG isn't at all my issue. I was getting intermittently dinged with a significant amount of unqualified dividends when I was in a target date fund. The bond rate is the same, but I'm paying much less because of the tax-focused management of that fund, even with much higher assets in taxable.

Still not sure I understand.. OK, the "lower dividend payouts" part of VTMFX makes sense, though not sure it's that much better than VTI. In my experience most of that yield is qualified, and relatively low. I was more questioning why have bonds in taxable at all? 22%/25% is higher than 15%, no matter what.

I'd also argue that even in accumulation phase LTCG is still an issue. And paying 24% tax on bonds yielding 5% is definitely an issue (e.g. $100k in bonds will cost $1200 in tax)