where to put extra money

[AreWeThereYet0]

Hi,
So I saved up more money than necessary for my taxes this year. (5K ish) My 401K and Roth IRA are both maxed out. So I have two non-tax advantaged accounts what I am putting in my excess money. I also have slashed my monthly expenses and would like to be contributing at least $100 a month to whatever plan I go with, if possible. Buying stocks is a little less messy in my option because of the distributions, etc. that come along with the mutual funds. That said, I have two accounts that are non tax advantaged, one with Vanguard and one with Fidelity. With Vanguard I have a REIT index fund and a total market index fund. With Fidelity I have a few stocks and one small cap index fund. Is having mutual funds in a non-tax advantaged account too messy? Should I be doing something else? The other alternate option that I see is stock and I really would like to be out of the stock picking game. My Fidelity Roth has the zero cost total stock market fund which is where I think that I would ideally like the money to go to, I am just concerned about a tax nightmare I guess. Does anyone has any thoughts/options on this matter? Thanks in advance.

 

[RunningBum]

What is so messy? What kind of nightmare do you envision?

Go with an index fund that gives predictable dividend distributions and rarely capital gains. You'll get a 1099-DIV which has very little difference from a 1099-INT from a bank. OK, you have some qualified dividends, which are actually nice because of a more favorable tax rate than unqualified dividends or basic interest, and any tax program can handle them.

The nice think about a non-tax advantaged investment account is that you can access it for major expenses you may have, and if you retire before you can tap your retirement accounts. That's the nightmare to me, if you have enough money to retire but it is tucked away in IRAs you can't easily get to.

 

[AreWeThereYet0]

Thanks. Do you have any specific funds in mind when you say "Go with an index fund that gives predictable dividend distributions and rarely capital gains."?

 

[RunningBum]

Either Fidelity or Vanguard's total stock market index would be good.

 

[AreWeThereYet0]

Sorry for such a newbie question, but how do you determine if a fund rarely kicks off capital gains? Would you judge that by how high the turnover rate is? Thanks.

 

[RunningBum]

In Vanguard, look at the Distributions tab for the fund you are looking at, like:

https://investor.vanguard.com/mutual-funds/profile/distributions/vtsax

Note only dividends in the distributions for this fund. Contrast that with a managed fund like Primecap:

https://investor.vanguard.com/mutual-funds/profile/distributions/vpmax
which has both dividends and capital gains.

You can divide the distribution amount by the share price (Reinvest price on this page) to see the % yield.

I assume Fidelity shows similar.

 

[AreWeThereYet0]

Awesome! Thank you!

 

[audreyh1]

Morningstar has recent distribution history for mutual funds.

 

[HillCountry]

How old are you and what is your tax situation?

 

[mrfeh]

Hi,
So I saved up more money than necessary for my taxes this year. (5K ish) My 401K and Roth IRA are both maxed out. So I have two non-tax advantaged accounts what I am putting in my excess money. I also have slashed my monthly expenses and would like to be contributing at least $100 a month to whatever plan I go with, if possible. Buying stocks is a little less messy in my option because of the distributions, etc. that come along with the mutual funds. That said, I have two accounts that are non tax advantaged, one with Vanguard and one with Fidelity. With Vanguard I have a REIT index fund and a total market index fund. With Fidelity I have a few stocks and one small cap index fund. Is having mutual funds in a non-tax advantaged account too messy? Should I be doing something else? The other alternate option that I see is stock and I really would like to be out of the stock picking game. My Fidelity Roth has the zero cost total stock market fund which is where I think that I would ideally like the money to go to, I am just concerned about a tax nightmare I guess. Does anyone has any thoughts/options on this matter? Thanks in advance.

OP - the nature of your questions indicate you need to learn about the basics; these links are a good starting place:

https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

 

[mountainsoft]

Hi,
So I saved up more money than necessary for my taxes this year. (5K ish) My 401K and Roth IRA are both maxed out. So I have two non-tax advantaged accounts what I am putting in my excess money.

We always use whatever extra or income tax returns we receive to pay off our property taxes for the year.

Are you married? If so, you could open a second Roth IRA for your spouse and put your extra money there.

Once those are filled, you could put any extra in a taxable savings account. I like to keep things simple with a single fund so I use Vanguards VTMFX Tax Managed fund in my taxable account. It's roughly 50% stocks and 50% bonds.

https://advisors.vanguard.com/web/c1/fas-investmentproducts/VTMFX

You may want to look at online high yield savings accounts from Ally, Discover, Marcus, Synchrony, etc. They pay about 2% to 2.5% interest and are FDIC insured up to $250K.

You could also consider buying Certificate of Deposits (CD's) for another percentage point or so.

It depends on how much risk you want and when you need to access the money.