Taxable brokerage Account

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DR AJ
Posts: 37
Joined: Sat Mar 03, 2018 11:12 pm

Taxable brokerage Account

Post by DR AJ »

Asking this question for a colleague of mine. Thanks
1. Question regarding the taxable brokerage account?
Recently heard someone talk about his taxable account holdings- in addition to the Total stock market and Total International stock market fund, he also had a municipal bond fund and real estate holdings. Can someone elaborate on what kind of Municipal bond funds and Real estate holdings you can have in the taxable brokerage account?
2. ETFs are considered more tax-efficient than mutual funds except when it comes to Vanguard?
So Is it okay to have vtsax in the taxable account compared to vti?
3. In a taxable brokerage account? do you have stocks/ ETFs/ mutual funds
Which ones you have and Why?
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happenstance
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Location: NYC

Re: Taxable brokerage Account

Post by happenstance »

1. Generally broad U.S. and international index funds are tax-efficient and can be held in taxable accounts. Municipal bonds, depending on your tax bracket, can be more tax efficient than taxable bonds. REITs generally should be avoided in taxable accounts because they are not tax efficient.

2. Yes, with the exception of some Vanguard funds where the ETF is a share class of the same underlying mutual funds, ETFs tend to be more tax efficient than mutual funds. With some Vanguard funds like VTI and VTSAX the tax efficiency is the same. You could hold either in a taxable account.

3. I hold total U.S. stock and total international stock. I also hold muni bonds because I do not have enough tax-advantaged space in my 401k, and I’m in a high federal tax bracket.
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GerryL
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Re: Taxable brokerage Account

Post by GerryL »

Except for some employer stock, my taxable account is in a 60/40 balanced index fund. I started adding money many years ago before I learned about why I might not want to have bonds in a taxable account. I have only added to it and not taken anything out (except for dividends at some times), and now it does not make sense, tax-wise, to move it around so that my bond allocation is totally in my tax-advantaged accounts.

My reason for choosing this fund was to simplify my life. Since I maintain a 60/40 portfolio, I only need to rebalance in my retirement accounts.
Tingting1013
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Re: Taxable brokerage Account

Post by Tingting1013 »

GerryL wrote: Sun Sep 06, 2020 2:59 pm Except for some employer stock, my taxable account is in a 60/40 balanced index fund. I started adding money many years ago before I learned about why I might not want to have bonds in a taxable account. I have only added to it and not taken anything out (except for dividends at some times), and now it does not make sense, tax-wise, to move it around so that my bond allocation is totally in my tax-advantaged accounts.

My reason for choosing this fund was to simplify my life. Since I maintain a 60/40 portfolio, I only need to rebalance in my retirement accounts.
The good news is your balanced funds are now likely just as tax efficient as 100% stocks.
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grabiner
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Re: Taxable brokerage Account

Post by grabiner »

DR AJ wrote: Sun Sep 06, 2020 2:10 pm Asking this question for a colleague of mine. Thanks
1. Question regarding the taxable brokerage account?
Recently heard someone talk about his taxable account holdings- in addition to the Total stock market and Total International stock market fund, he also had a municipal bond fund and real estate holdings. Can someone elaborate on what kind of Municipal bond funds and Real estate holdings you can have in the taxable brokerage account?
Real estate holdings (REITs) should not be in a taxable brokerage account. They have higher dividend yields than most stocks, and the dividends are non-qualified. (The dividend may be only 80% taxable as qualified business income, but if this tax advantage expires in 2026, you will have to sell at a capital gain to get rid of the even less tax-efficient funds.)

Directly owned real estate (you own a house and rent it out) does normally need to be a taxable investment.

Municipal bonds are good investments in a taxable brokerage account if you are in a high tax bracket and choose to hold your bonds there (because this is best in your tax situation, or because your 401(k) has better stock than bond options). I normally recommend munis in a taxable account for investors in the 32% or higher bracket, or in the 22% and 24% brackets if there is a low-cost fund for their high-tax state so that you are avoiding 30% taxes.

(My own taxable account holds only US and foreign stock index funds. I hold bonds in my employer plan, and REITs in my Roth IRA.)
Wiki David Grabiner
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Eagle33
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Re: Taxable brokerage Account

Post by Eagle33 »

Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.
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