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Old 04-16-2017, 09:19 AM   #21
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Originally Posted by Jerry1 View Post
It's great to have and max out all of the tax deferred accounts, but having done that myself, a word of advice. Don't limit yourself to the tax deferred accounts. At 56, I find myself 401K/IRA rich and now I have a big tax bill staring me in the face with few options to minimize it. When it comes time to retire, it will do you well to have various sources of funds to minimize your tax upon withdrawal.

The good news is that you're thinking about it early. Enjoy your career and spend some time each year planning and you'll be way ahead of most everyone else.
Exactly, Jerry.

I think younger equity investors, in particular, need significant taxable investments if they intend to retire well before their tax-deferred accounts become accessible without 72t gymnastics. If you want to retire in your 40s or early 50s, limiting yourself only to tax-deferred savings is hard anyway as you may need more than you could build in those accounts alone, but will limit your flexibility in terms of your income streams in the future given the rules of 72t.

I'd stay away from variable annuities. In your shoes, I'd look at individual stocks (if that's your thing) or low-cost stock mutual funds in your taxable savings. You'll pay taxes on the dividends and likely LTCG taxes in that account, but it's still the most tax-efficient way to invest outside of the tax-deferred accounts. With a long investing horizon, equities are the way to go, IMO.

Another option is to explore another investment opportunity with that cash. Real estate, for example. Build the capital a little bit and consider purchasing a rental property to set up another income stream. One path to success in ER is to set up multiple income streams. Pensions (if you're lucky), dividend/interest income, rental property, side hustles, annuities (if you must)... all can provide diversity of asset classes which makes your plan more survivable in the event of a hit to one asset class.

TLDR: no to variable annuity, look at taxable brokerage accounts, consider another investment vehicle (Real estate?).
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Old 04-16-2017, 10:13 AM   #22
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Originally Posted by nash031 View Post
I think younger equity investors, in particular, need significant taxable investments if they intend to retire well before their tax-deferred accounts become accessible without 72t gymnastics.
That can work well, and gives a lot of flexibility for later. Nobody knows how rules and tax law may change. IMO, in the future there is a good chance that various factors will align to encourage rule changes so that Uncle Sam gets a bigger slice of some of those tax-favored accounts. Regardless, having flexibility is good.

Now, something to think about with those taxable accounts: As you are relatively young now and your earnings (and tax rate) can be expected to climb, try to select assets that either won't have a tax bite when you sell/exchange them (e.g. actively managed real estate) or which you can hang onto for decades without needing to sell (then, hopefully you'll be retired and in a lower tax rate). Examples might include "basic," broadly diversified low-cost MFs or ETFs. In 10-15 years you could find yourself in the 25% tax bracket and selling funds that have appreciated 50% will take a big tax bite, so owning basic fundamental holdings that you'll be okay with holding on to for another few decades will be important. You can put more esoteric or targeted holdings (that you might want to trade more frequently) in your IRAs.
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Old 04-16-2017, 03:19 PM   #23
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Your choice is pretty much limited to a taxable acct at a broker unless your side gig allows you to earn enough to make a solo 401k worth the trouble.

At this stage of the game, I would definitely not be putting money in annuities. Nor would I put money into munis, as the interest rate is too low. As mentioned above, VSTAX would be a good start for a mutual fund, but there are numerous others in Mutual fund or ETF formats that accomplish the same goal, SCHB, for example. With mutual funds, you will have cap gains distributions which will have tax consequences. ETFs do not, only dividend distributions, which also have tax consequences. If you can afford to pay that tax from salary, put your dividends on auto-reinvestment. You can do all of this yourself thru Vanguard, Fido, or Schwab (the latter being my personal preference). Plus, with Vanguard or Schwab, you won't have to pay trading fees for their proprietary cost to buy the fund, and very low fees, which you never see unless you research the fund to find out how much they charge. Broad market index funds always seem to be the cheapest, and guess what...they usually outperform other funds in the long term because they are well diversified.
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