What do higher earners invest in?

[Falke401]

What to people here that make $200K+ do to help with taxes and investing?  I am trying to help someone I know find some resources of ideas of what to do with extra money and where to invest in retirement/help with the tax bourdon. 

So far I have been helping with her 401K and Vanguard on places to invest.  (Mostly VTSAX/Index Funds as of now)

[2Birds1Stone]

Maximizing all available tax advantaged space.
401k
tIRA
403b
457
HSA
Deferred Comp

Tax efficient investment placement.
REIT's/Bonds in tax deferred/tax sheltered
Total Stock/International Stock in Taxable

Tax optimization in life
Move to a no State Tax state
Negotiate 1099 contracts vs w-2 employment
Take advantage of spousal contributions to tax deferred accounts


Have Kids, make less money, take on a large mortgage etc etc

[dividendman]

I guess I fall into that group. I didn't think I would need to do anything differently...

I do my taxes on turbotax. I rent a very cheap place with a roommate in silicon valley. I don't own a house or do any fancy investing things. I don't have any loans either.

I just junk all of my money into VTI, VEU, BND (50%, 30%, 20% respectively).

Um... yeah, and max out 401k, back-door roth...

Crap. You make me feel like I should be doing fancy investing things!

[honeybbq]

2B1S basically hit the nail on the head. Invest in everything you can that is tax advantaged.

You could backdoor roth, too, if you feel that is a good choice.

I live in a state with no income tax, so contributing to a 529 doesn't help me but we did contribute when we lived in a different state.

Lots of after tax brokerage accounts, basically; we slough about 4k a month to it.

Don't forget lots of life insurance, umbrella insurance, and AD&D, etc to protect yourself.

[ysette9]

When I just saw the title of this thread I thought "VTSAX/VTIAX!". ha hah.

Seriously though. One challenge your coworker may run into at that income level is running into 401(k) contribution limits imposed on highly compensated employees. My husband and I run into this each year now. For me practically speaking it means I can't do a backdoor ROTH conversion because I am limited to what ends up being the federal $18K limit for tax deferment. By that point you have probably already run into the Roth IRA contribution limits. These are all good problems to have, but it means that he/she may just end up dumping a lot of money into a taxable Vanguard account.

[TheAnonOne]

At this point just VTSAX for any money left over after maxing both of our IRA's and both of our 401ks

I might go for something more complex at some point, but part of having this income level is the security it has in allowing you to be a bit more risky. So for now at least... 100% stocks.

[tonysemail]

a good lawyer ;)

[runningthroughFIRE]

While I realize that this was suggested sarcastically, don't buy a house just for the fucking mortgage deduction.  Otherwise reasonably intelligent people do this, and it makes no sense.  (I tax plan with some people, and it ticks me off having to talk them through this over and over) /rant

High income people should do exactly the same as everyone else: max out your tax advantaged space, then throw the rest into a diversified index fund or two and call it a day.  Split between stocks and bonds with some international exposure thrown in if you want.  You might bump up against contribution limits, but the end result is the same.  You don't need a fancy investment strategy to build wealth.

[zombiehunter]

For long term investing, there's not a major difference between investing at high vs low tax rates - you just save as much as you can and wait a long time.

However, for shorter and medium term savings, there are tax-exempt bonds, like Vanguard VTEB (low yields, probably in the 1.5-2.5% range), plus a one year appreciation of about 5% (not tax exempt).

If you live in a high-tax state, there are also CA muni bond etfs, that are exempt from both federal and state taxes.

I live in NY and put some medium-term savings in a Vanguard Taxable account split between VT (equities including international funds) + VTEB + NYF (iShare NY Tax Exempt Bond).  The NYF has a longer history than VTEB, and has paid about 2.5% in yield over the past year.  At 28% federal + 6.5% state + 3.5% city taxes, that's effectively a juice of about 38%, turning the 2.5% into roughly 3.45%, tax free, with the possibility of ETF appreciation. 

CA has something similar:  https://www.ishares.com/us/products/239731/ishares-california-amtfree-muni-bond-etf

[OlyFish]

I max out 403b, 457, and HSA first. Then I invest in taxable accounts (two low cost index funds to the tune of about $1500 a month) and put a lot towards student loan payoff and expedited mortgage payoff (about $6k a month on those). I usually put less into 457 in beginning of year and increase it once I am done paying social security for the year, so I end up getting the same amount in my post tax paycheck year round.

[woopwoop]

The blog whitecoatinvestor.com has some good advice for high earners, especially the self-employed. Check it out!

[Libertea]

Here's what I do, with all amounts yearly.

403(b) and 457 ($36,000, pre-tax)
Back door Roth ($5500, after tax with earnings tax-free)
US Savings Bonds, EE and I-bonds ($20,000, after tax with earnings tax-deferred)
Brokerage Account (variable amount, taxable)
529 Plans (~$8500/year, after tax with earnings tax-free if used for approved purposes)

Your friend should consider consulting a fee-only certified financial planner, especially if she isn't very knowledgeable about managing money, or she doesn't have a good handle on what her financial goals are.  It's hard to give someone advice in the latter case especially, because choosing the best "tools" for a job depends on what she wants to use them to build.