Jags,
You want to hold Emergency Stable Fund in a 401k so you can sell in your taxable account and recover it in your 401k...
You're making a lot more work for yourself. Counting on this strategy is simplified by holding the Stable Fund in your taxable account, and sell it if you have an emergency, and not having to worry about selling VTSAX at a loss if you do.
It is no work at all other than initiating 1 sell order and 1 buy order in the event I actually need the money.
Eric,
You have 2 funds, 1 produces minimal growth and minimal dividends, the other produces higher growth and larger dividends.
Fund 1 in a taxable account, will increase your income tax by very little.
Fund 2 in a taxable account, will increase your income tax by much more.
Either one in a 401k will not effect your taxes.
You place the fund that will produce the most income and growth in tax advantaged accounts first (so you pay 0 taxes), while placing lower growth lower income funds in your taxable account (so you pay less taxes).
You seem to be missing the opportunity cost. The opportunity cost of keeping keeping cash in a taxable account making .99% is the 2% or so growth I am losing by not keeping it in the 401k. If I am forced to sell the investment at a gain, the opportunity cost is paying
taxes on a gain I would not have had in the first place.
Example A)
$15000 making 1% in regular savings account, end year 1 have $15150.
Pay taxes on $150 ($40), net $15110 after year 1.
$15000 in 401k makes 10% and is worth $16500 after year 1.
Total amount held after year 1) $31610.00
Emergency! Need 15k either all at once or over time, total account value falls to
$16610.00Example B)
$15000 invested in taxable account mutual fund making 10%, end year 1 have $16500
$15000 in 401k makes 3% and is worth $15450 after year 1.
Total amount held after year 1) $31950
Emergency! Need 15k either all at once or in a lump.
Sell $15000 of taxable investment. Pay LTCG on $1500: $225
Buy $15450 in 401k.
Left with:
$1275 taxable account
$15450 in 401k
Total account value:
$16725