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  • Taxable account questions

    Hello all!

    As we finished out the earlier part of the year by paying off my student debt, we are starting to look at increasing investments. I've done a lot of reading, but am still not sure how to proceed. I don't believe we need a financial advisor at this point, but just looking for either some good resources or general ideas of where to go moving forward. A little background:

    Both of us working full time. Maxing out 401ks, just opened 529s, will backdoor Roth and max that out as well. We are fully insured (term life, own-occupation disability, etc).

    I have earmarked $2000/month for investment purposes. To be honest, I'm more passive in my approach (aka, not looking at doing stock trading or other less reliable investments). I've looking at mutual funds and ETFs as a starting point. I'd prefer to "set it and forget it" so the money is never in my bank account. I guess my questions are:

    1) Do I need to be investing in multiple different funds at this point? I'm looking for low-fee funds and planning to go all stocks, as we are years from retirement. Should we start with 1 fund and eventually add others down the road?
    2) Obviously this will affect taxes, but we are not actually planning on using the money at any point soon. Do I need to be planning for additional taxes this year, and how can I figure out how much I'll pay in taxes on the investment.

    I'm probably making this harder than it needs to be, just looking for a little bit of direction to start the process.

    Thanks in advance for the help!

  • #2
    Between wanting to be a passive long term investor and earmarking $2k/month, I'd suggest using a mutual fund that tracks the S&P or total stock market. Using a mutual fund will allow you to "auto invest" so you'll never have to look at it or do anything manually on a frequent basis. I suspect that'll be the majority of responses.

    Some of that depends on what brokerage you use. For example, if you're using Fidelity you can select FXAIX for the mutual fund that tracks the S&P and can set up a recurring investment, either $2k/month at once or whatever frequency you'd like.

    Other than that, great job on getting the financial house in order!

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    • #3
      before you start a taxable account it's just worth making sure you have no more tax-advantage space. I'm talking about non-traditional accounts like 457 accounts or whether your or your spouse, or both, have access to the mega backdoor Roth IRA via your 401k plans.

      Otherwise, if I was in your shoes I'd open taxable at VG and VTSAX all my money for now....perhaps add a small international allocation eventually. I'd also consider paying down my mortgage faster, even though mathematically it's more correct to invest rather than pay down the mortgage
      Last edited by JBME; 05-24-2021, 11:21 AM.

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      • #4
        Like above pick a TMI or SP500 fund or etf. But dont forget to turn off auto-reinvestment of dividends and capital gains , so you can tax lost harvest.

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        • #5
          Originally posted by JBME View Post
          before you start a taxable account it's just worth making sure you have no more tax-advantage space. I'm talking about non-traditional accounts like 457 accounts or whether your or your spouse, or both, have access to the mega backdoor Roth IRA via your 401k plans.

          Otherwise, if I was in your shoes I'd open taxable at VG and VTSAX all my month for now....perhaps add a small international allocation eventually. I'd also consider paying down my mortgage faster, even though mathematically it's more correct to invest rather than pay down the mortgage
          Thanks!

          Plan is to pay down mortgage quicker. Most of extra funds going towards other investments. However, we set a goal to have the mortgage gone by the time the oldest leaves for college (9 years). That way, by the time our kids are out of the house, we really have a lot of flexibility/freedom to do what we want!

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          • #6
            Originally posted by Ozarka View Post
            ...I'd suggest using a mutual fund that tracks the S&P or total stock market. Using a mutual fund will allow you to "auto invest" so you'll never have to look at it or do anything manually on a frequent basis...
            Make sure you have/review your IPS and invest in your new taxable account in accordance with your overall desired asset allocation across include all of your accounts.

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            • #7
              VT or VTI.

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              • #8
                Regarding your tax question, if you buy as planned and don’t sell, you’ll receive a 1099-DIV for taxes purposes, which reports your dividend income. You pay taxes on this each tax year, which will be minimal (a few dollars) based on your stated contributions and account size for many years going forward. That tax amount will obviously increase as your account grows.

                A 1099-DIV is similar to getting a 1099-INT from your bank, where you have to pay tax on your interested earned from a checking/savings account.

                Of course, if you start selling from your taxable account for a gain, you’ll then be paying either short or long term capital gains tax. So buy for the long run, which is what you’ve said you will do.

                TLDR if you open a taxable account and don’t sell any shares you will not start paying any new significant amount of tax.

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                • #9
                  Vanguard now has an index fund called VTWAX, which wasn’t available when I started, but I think I’d choose it over VTSAX as it combines international with US stocks.

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                  • #10
                    VTI (US total index) and VXUS (international index) is what I use. I prefer using those two separate equity ETFs instead of one global ETF. A lot more options for similar US or international funds to tax loss harvest from.

                    You can automate monthly transfers from your bank to your brokerage account. You have to manually enter the order to buy ETFs. Takes me 2 min using the Vanguard app.

                    I have not accounted for taxes from my brokerage account during the year but I'm pretty aggressive with my withholding (set it at my marginal rate). My 2020 qualified dividends was ~1.5% of the value in the account. Doubt you will have to worry about taxes unless you invest in active funds with high turnover in their holdings and creating a large tax liability.

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                    • #11
                      Originally posted by Codfish View Post
                      Regarding your tax question, if you buy as planned and don’t sell, you’ll receive a 1099-DIV for taxes purposes, which reports your dividend income. You pay taxes on this each tax year, which will be minimal (a few dollars) based on your stated contributions and account size for many years going forward. That tax amount will obviously increase as your account grows.

                      A 1099-DIV is similar to getting a 1099-INT from your bank, where you have to pay tax on your interested earned from a checking/savings account.

                      Of course, if you start selling from your taxable account for a gain, you’ll then be paying either short or long term capital gains tax. So buy for the long run, which is what you’ve said you will do.

                      TLDR if you open a taxable account and don’t sell any shares you will not start paying any new significant amount of tax.
                      Thanks! This is what I had assumed, but wanted to make sure!

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                      • #12
                        Originally posted by Dusn View Post
                        Vanguard now has an index fund called VTWAX, which wasn’t available when I started, but I think I’d choose it over VTSAX as it combines international with US stocks.
                        An awful lot of international in there. I understand it's global equity market weight (~45%), but that's pretty heavy and I don't know many people looking to essentially split US and international ex-US. Definitely worse ways to invest though.

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                        • #13
                          Originally posted by bovie View Post

                          An awful lot of international in there. I understand it's global equity market weight (~45%), but that's pretty heavy and I don't know many people looking to essentially split US and international ex-US. Definitely worse ways to invest though.

                          Plus the ER is disproportionately high for the ratio. You're better off getting separate VTSAX (ER 0.04) and VTIAX (0.11) vs VTWAX (0.10). It's roughly 60:40. Here's the breakdown from the VG page:
                          10.80% Emerging Markets
                          16.70% Europe
                          11.80% Pacific
                          0.20% Middle East
                          60.30% North America
                          0.20% Other

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