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Maxed out Taxed Deferred investments- What now??
Old 10-17-2006, 08:50 PM   #1
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Maxed out Taxed Deferred investments- What now??

We max out our 401K plans and my wife and I make $200K. What specifically do you all invest in once you have maxed out taxed deferred options?
Municipal bonds
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Re: Maxed out Taxed Deferred investments- What now??
Old 10-17-2006, 09:07 PM   #2
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Re: Maxed out Taxed Deferred investments- What now??

It really depends on the amount of money you are talking about. That being said, according to the Vanguard Diehards here is a list of securities in approximate order of their tax-efficiency. (Least tax-efficient at the top.):

Hi-Yield bonds
TIPS
Taxable bonds
REIT stocks
Stock trading accounts
Small-Value stocks
Small-Cap stocks
Large Value stocks
International stocks
Large Growth stocks
Most stock index funds
Tax-Managed funds
EE and I-Bonds
Tax-Exempt bonds

personally, I have a great deal of my portfolio in a non tax advantaged account. I keep Hi-Yield bonds, TIPS, Taxable bonds, REIT Index fund, and small caps in my 401K and IRA's - the rest goes to my regular account.

hope that helps.
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Re: Maxed out Taxed Deferred investments- What now??
Old 10-17-2006, 09:14 PM   #3
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Re: Maxed out Taxed Deferred investments- What now??

Thanks Alex.

I'll be receiving $30,000 each January for the next ten years due to a deferred compensation plan that will start paying out this January. We also have $2000 per month we can invest in as well.
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Re: Maxed out Taxed Deferred investments- What now??
Old 10-17-2006, 09:21 PM   #4
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Re: Maxed out Taxed Deferred investments- What now??

Quote:
Originally Posted by Foodeefish
We max out our 401K plans and my wife and I make $200K. What specifically do you all invest in once you have maxed out taxed deferred options?
Municipal bonds
Maxing out your 401K doesn't necessarily mean you have maxed out all your tax sheltering options. If either of you work for a state university or similar, do you have a 457 plan available? That's shelter for another $20k. A variable annuity properly structured can give your Roth-like protection, albeit at somewhat higher expense than direct investments.

But if you really are maxed out, I agree with munis for our fixed investments and tax managed or at least low transaction index equity funds for the rest. Nice problem to have, but it does sting to pay those taxes.

On the bright side, those nonsheltered funds can really come in handy in FIRE as you bide time til SS and watch your sheltered money grow.
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Re: Maxed out Taxed Deferred investments- What now??
Old 10-17-2006, 09:41 PM   #5
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Re: Maxed out Taxed Deferred investments- What now??

Quote:
Originally Posted by Foodeefish
Thanks Alex.

I'll be receiving $30,000 each January for the next ten years due to a deferred compensation plan that will start paying out this January. We also have $2000 per month we can invest in as well.
You may want to structure your tax advantaged accounts to hold your bond allocation, Reits, and small caps.

Personally, I like the flexibility of a cash account. Sure you have to pay some taxes, but you can use the money at any time without penalty. Additionally, when you are ready to FIRE, your withdrawals are only taxed on the gains. So if you take, lets say 100K out to live on, you only pay taxes on the investment profits, not the principal. Also, I am not a fan of annuities unless you have several hundred thousand dollars of cash set aside for emergencies. Annuity surrender fees have quite a bite....
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Re: Maxed out Taxed Deferred investments- What now??
Old 10-17-2006, 09:44 PM   #6
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Re: Maxed out Taxed Deferred investments- What now??

A lot of folks here invest in stocks and preferably stocks with dividend growth....since taxes on these are favorable for taking as income in retirement....lots of dividend stock ETF and index funds talked about here....
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Re: Maxed out Taxed Deferred investments- What now??
Old 10-17-2006, 10:12 PM   #7
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Re: Maxed out Taxed Deferred investments- What now??

We invest in mutual funds and exchange-traded funds to fill out our asset allocation. These are in so-called "after-tax" accounts.

There are no taxes on unrealized capital gains, so even these after-tax accounts are tax-deferred in that sense. And when one converts those unrealized gains to realized capital gains, the tax rate is just 15% or less.

If the mutual funds or exchange-traded funds pay qualified dividends, then those are taxed at only 15%.

We make more than $200K a year and pay between $30K to $35K a year in income taxes depending on our itemized deductions. There is no advantage to us to invest in tax-free municpal bonds because we net more money by investing in corporate bonds and just paying the taxes on the bond income.

I cannot imagine investing in an annuity because it might cost more in taxes.
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Re: Maxed out Taxed Deferred investments- What now??
Old 10-18-2006, 03:20 AM   #8
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Re: Maxed out Taxed Deferred investments- What now??

after a while it dosnt pay to do anymore tax sheltering if its not deductable.

depending on your income you can pay a 5% or 15% capital gain tax instead of regular income taxes later on from a tax sheltered account.

for us i dont want anymore tax defered investments as our min. distribution is becoming way to high later on too.
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Re: Maxed out Taxed Deferred investments- What now??
Old 10-18-2006, 05:19 AM   #9
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Re: Maxed out Taxed Deferred investments- What now??

Quote:
Originally Posted by mathjak107
after a while it dosnt pay to do anymore tax sheltering if its not deductable.

depending on your income you can pay a 5% or 15% capital gain tax instead of regular income taxes later on from a tax sheltered account.

for us i dont want anymore tax defered investments as our min. distribution is becoming way to high later on too.
I don't claim any particular foresight on this, but once I maxed out my
"Tax deferred" investments (pretty late), I was able to hold off
taking the money (combination of factors, mostly draconian spending
cuts) and then figured out how to keep income low enough to
eliminate fed. income taxes all together.
Real serendipity!

JG
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Re: Maxed out Taxed Deferred investments- What now??
Old 10-18-2006, 11:17 AM   #10
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Re: Maxed out Taxed Deferred investments- What now??

Quote:
Originally Posted by Foodeefish
We max out our 401K plans and my wife and I make $200K. What specifically do you all invest in once you have maxed out taxed deferred options?
Municipal bonds
What about IRAs or a tax deferred annuity.

My strategy has been to split my investments 50/50 between before tax and after tax investments as I want to have the flexibility of a good bit of money in regular mutual fund accounts. I work for a state university so I have access to a state retirement plan, a 403b and a 457. So if I maxed out my tax deferred opportunities I'd be putting $50k away each year. I consider this too much to put taxed deferred (if you could), that might sound stupid, but I don't want to lock everything up unitl I'm 59 1/2. The state mandates that you max out the state fund, then I put some into a 403b so that my before tax savings is about the same as my after tax. I know that this is probably not the ultimate in return/tax efficiency, b ut I've got some living to do before I hit
59 1/2.
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Re: Maxed out Taxed Deferred investments- What now??
Old 10-18-2006, 11:24 AM   #11
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Re: Maxed out Taxed Deferred investments- What now??

Quote:
Originally Posted by nun
university so I have access to a state retirement plan, a 403b and a 457.
...
I don't want to lock everything up unitl I'm 59 1/2.
I'm also at a state university.

In case you weren't aware, you are allowed to take dollars out of a 457 before 59.5 as long as you have terminated employment with the employer the plan is with. That's the main reason I'm maxing out my 457 instead of my 403b. My 457 offers decent investment selections though, which needs to be weighed in that decision as well.
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Re: Maxed out Taxed Deferred investments- What now??
Old 10-18-2006, 11:54 AM   #12
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Re: Maxed out Taxed Deferred investments- What now??

Quote:
Originally Posted by mja
I'm also at a state university.

In case you weren't aware, you are allowed to take dollars out of a 457 before 59.5 as long as you have terminated employment with the employer the plan is with. That's the main reason I'm maxing out my 457 instead of my 403b. My 457 offers decent investment selections though, which needs to be weighed in that decision as well.
Thanks I hadn't realised a 457 could be tapped without penalty as soon as you leave employment. The reason I went with the 403b was that I could get it at the carrier I have for my other investments which makes for easy tracking.
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