Taxable accounts

[afdilbert]

First time poster here, but LONG time reader. A little bit of a background. I’m 24 years old make about 70K a year I’m maxed out in both my ROTH IRA/matched 401K, and have around 100k invested. I’m shooting for a ER age of around 47. I currently only have an emergency fund and a CD as far as taxable accounts go and I’m ready to start addressing this. My concern is that all my investments are in retirement accounts with a withdraw date in my 60s so I need to address the 13+ year gap with taxable accounts. As a caveat I’m very risk tolerant, and am currently invested 100% in equities with a 50% US large value index, 25% US small cap index, and 25% international index in my ROTH, and 100% in a S&P 500 index in my 401k. Thanks an advance for any guidance!

 

[ronocnikral]

conventional wisdom is you think about all investment accounts as a whole. Generally, you want a large cap growth index fund, with low turnover in your taxable account. Or, an ETF which doesn't create taxable events when everyone sells. Or, there are some foreign investment credits or something of the like. We hold an international fund in our taxable account.

have you checked out the boglehead wiki? Principles of Tax-Efficient Fund Placement - Bogleheads

and welcome!

 

[ziggy29]

conventional wisdom is you think about all investment accounts as a whole. Generally, you want a large cap growth index fund, with low turnover in your taxable account. Or, an ETF which doesn't create taxable events when everyone sells. Or, there are some foreign investment credits or something of the like. We hold an international fund in our taxable account.

I generally agree in terms of overall asset allocation. Having said that, there are of course strategies for maximizing after-tax returns. You don't hold bond funds in a taxable account, for example, and it's better to hold investments that generate dividends and long term capital gains in the taxable accounts (at least while they have lower than marginal income tax rates).

Even so, if you want to retire at 47, under current laws withdrawals from taxable accounts isn't the only option. You would be able to withdraw Roth *contributions* tax-free, and you could use Rule 72(t) to take SEPP off of your IRAs until age 59 1/2 (rolling 401Ks into IRAs if desired after severing employment). And in reality, I think having all types of investment vehicles -- regular taxable, Roth-style and conventional IRA/401K/403Bs -- gives you the most flexibility and protects you from devastating impacts of future tax law change. Basically you are "diversifying" tax status which reduces risk just as diversifying across asset classes.

 

[Gatordoc50]

First time poster here, but LONG time reader. A little bit of a background. I’m 24 years old make about 70K a year I’m maxed out in both my ROTH IRA/matched 401K, and have around 100k invested. I’m shooting for a ER age of around 47. I currently only have an emergency fund and a CD as far as taxable accounts go and I’m ready to start addressing this. My concern is that all my investments are in retirement accounts with a withdraw date in my 60s so I need to address the 13+ year gap with taxable accounts. As a caveat I’m very risk tolerant, and am currently invested 100% in equities with a 50% US large value index, 25% US small cap index, and 25% international index in my ROTH, and 100% in a S&P 500 index in my 401k. Thanks an advance for any guidance!

You could also consider individual stocks thus eliminating annual capital gains taxes. But I would wait until you had enough to adequately diversify.

 

[LOL!]

Here is the thread for you to read: Bogleheads • View topic - Goal: Retire by 50

It pretty much explains it all. Nice and easy.

 

[pfleming]

First time poster here, but LONG time reader. withdraw date in my 60s so I need to address the 13+ year gap with taxable accounts. As a caveat I’m very risk tolerant, and am currently invested 100% in equities with a 50% US large value index, 25% US small cap index, and 25% international index in my ROTH, and 100% in a S&P 500 index in my 401k. Thanks an advance for any guidance!

I find it cool that you are looking far enough ahead that you know when you can retire.
Why do you state that you will have a 13 year gap? Is there some kind of restriction on your accounts other than standard IRAs? You can actually begin withdrawing from your IRA at any age so long as you withdraw a substantially similar amount each year, withdraw for at least five years or until you turn 59 1/2 whichever is longer. Is the goal to have a larger balance by waiting?

 

[lthenderson]

I think where most people are deceived by SEPP's is that in order to use them for early retirement and maintain a decent income level until you reach 59-1/2, you have to have pretty healthy balance numbers in your tax advantaged accounts. There are lots of SEPP calculators out there that can tell you what you need if you retire at X years of age.

I plan to retire about around age 45. I calculate what my SEPP payments will be at age 45 with what I expect my tax advantaged balances to be and then figure out what I need to invest into taxable accounts from now until 45 to make up the shortfall.