When Should I Open a Taxable Account?

[abds]

Many people don't count 529s toward their retirement savings. It is a savings of sorts, but really shouldn't be accounted towards NW.

It makes no sense to count the money in 529s toward retirement, as that savings is for your kids, not you.

True that a 529 isn't retirement, however one could definitely argue it should be counted toward net worth, as it's still your money. If you had to take it out and use it, you could. Counted toward your net worth in an emergency scenario, it's of course not as valuable as it looks on paper because of taxes and penalties, but the same would be true of your taxable accounts and retirement accounts as well.

[Lordosis]

True that a 529 isn't retirement, however one could definitely argue it should be counted toward net worth, as it's still your money. If you had to take it out and use it, you could. Counted toward your net worth in an emergency scenario, it's of course not as valuable as it looks on paper because of taxes and penalties, but the same would be true of your taxable accounts and retirement accounts as well.

Here we go again!

[Tangler]

Sorry if my first post was a little critical.
I do agree you have a great shovel, I also agree that it is probably too late to talk you into living “more” like a resident. (I am not advocating for a full on Dave Ramsey beans and rice), but consider this.
You are taking some big risks with all this debt.
Debt = risk. 1.2 million in debt is not insignificant and it would scare me tremendously. I am concerned that our whole nation is too fond of debt (low interest rates, easy rapid online purchasing of consumer artifacts). There are functional MRI scans that show buying with credit does not “hurt” and it all feels like Monopoly money.

The quote the white coat investor in put in his first book:

“It is a rule . . . in all the world that interest is to be paid on borrowed money. May I say something about interest? Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels . . . it has no love, no sympathy; it is as hard and soulless as a granite cliff. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands nor orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.“

J. Reuben Clark Jr.

You found the right forum. You are asking the right questions. You have a monster shovel. You will win.

[Tim]

Here we go again!

In an emergency, anything goes. I might pawn the wife’s jewelry. Pawn Stars is educational.

[barelybarefoot]

Hey, I don’t think you’ve screwed up at all. You’re a sole breadwinner, have 4 kids and live in HCOL and $700k was a more recent salary. You still put away $65k/y for 5 yrs, bought a house, had an EF of $70k and was working on paying off debts. PS I’d separate out mortgage amount from the ‘debts’ just so we know how much of debt is going towards an asset. Just FYI my mortgage is your entire debt load and we do not make as much as you.

i’d recommend starting with insurance, make sure term and disability is solid. Have umbrella as well. Then, simplify your finances. One brick and mortar, one online savings and limit credit cards so you can track cash flow.

Folks on this forum are expecting something like this from you:
1) 700k gross or
2) 420k net (if CA), so how about 25% net (for now) to retirement, 25% to debt pay-down or increasing net worth and 50% to spend on everything else just to start?
so at least $105 retirement
then $105 to debt and increasing net worth (practice loan, student loan, family loan, build up EF, 529s (say $2k/mo or $500/kid).
then spend the rest ($220k) but spend it intentionally.
so have saving accounts for all variable spending so you at least know where it’s going. If you have online Ally/Marcus you can have a list of savings account. Make one for vacation, home projects, new car, yearly costs (property taxes etc). If you have no where to assign that money it should go into retirement to bring it eventually up to that ‘ideal’ 20% of gross or $140k. And if you get to that number then send the rest to net worth building (more to debts, 529, personal taxable). People here don’t feel you really have $210k of needs per year, but my housing costs alone are $110kyr (PITI, utilities) in HCOL. It’s awful but even with this we slowly were able to get to the 20% gross for retirement so we spend the rest guilt free. Remember, $140k/yr for 27y is 3.8 MM just in contributions alone. That’s still a ton of money and I hope you do not need more than $200k/y in retirement at age 65!!!

now if you want to b FIRE and not work until 65, will then you really need to cut the spending more....

[Hank]

When should you open a taxable account?

As soon as 20% of gross income towards retirement exceeds the tax advantaged retirement account contributions you’re allowed to make per year.

[Lordosis]

When should you open a taxable account?

As soon as 20% of gross income towards retirement exceeds the tax advantaged retirement account contributions you’re allowed to make per year.

I think this is where a lot of people get stuck. At least this is where I got stuck. SO I just paid down debt as a way to delay having to figure out what to do. Then I found WCI and learned about back door roths, 457s, and Taxable accounts.

I wonder how many people just save in their 401K/403B and not much else just because lack of knowledge?

[Hank]

I think this is where a lot of people get stuck. At least this is where I got stuck. SO I just paid down debt as a way to delay having to figure out what to do. Then I found WCI and learned about back door roths, 457s, and Taxable accounts.

I wonder how many people just save in their 401K/403B and not much else just because lack of knowledge?

I wonder how many people buy whole life policies instead of open a taxable brokerage account because they let the tax “tail” wag the investment “dog”?

[Dicast]

Welcome to the forum!

I would say 529 vs retirement (taxable) really depends on your actual living expenses and what you want to spend many years from now in retirement.

If you can throw $500 a month per kid into a 529 I don’t see a problem. I would hope that you could do that and put even more to a taxable account.

You should be fine as long as the debts can help service themselves.

If this was mostly house and car debt it might be a problem.

[adventure]

I'd echo:

Welcome to the forum!

I'd agree:

I would try to pay off the family loan ASAP.

I'd say... on day 1. At least open the account, with $100, then you can learn how it works, etc. Then I agree with Hank (and others).

When should you open a taxable account?

As soon as 20% of gross income towards retirement exceeds the tax advantaged retirement account contributions you’re allowed to make per year.

Ortho here just took a 30-50% cut in pay this year... have you? I might consider adding to that emergency fund, etc.

[OrthopodFamily]

I'd echo:



Ortho here just took a 30-50% cut in pay this year... have you? I might consider adding to that emergency fund, etc.

Yes, my group's partners took a huge cut in base pay to make payroll for employees. I should be made whole by bonus payments as I have brought in the same as last year despite COVID. I can make big distributions to taxable and debt payoff in the last few months of this year.

My mortgage debt, since it's been asked a couple of times, is just under $800k. No car debt.

I understand that 529s are not retirement, but it's an expense I am going to pay from one account or another. That's why I was considering putting money there before retirement. I see the distinction now.

And, I checked in with my accountant on what we should budget per month to send at least 20% to taxable. Righting my course.