Tax shelters and investment avenues

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Jimfromdowntheroad
Posts: 5
Joined: Thu Jan 07, 2021 10:42 am

Tax shelters and investment avenues

Post by Jimfromdowntheroad »

I will keep this simple. My wife and I take advantage of all known tax shelters to me such as max our 401ks, max HSA, and max child care FSA. We max our Roth IRAs and invest in a 85/15 fund. Our emergency cash went from 3 months to 5+ months because of COVID. I would like to deplete the emergency cash back down to 3 months by moving it out of a bank account (considered additional mortgage principal but rate is 2.25%) to beat inflation such as a high yield/multisector bond fund or even a dividend and income fund.

Questions:
1. Are there other tax advantages I need to consider?
2. Is there another strategy I should consider for additional emergency funds besides lower risk mutual funds?
User avatar
alec
Posts: 3101
Joined: Fri Mar 02, 2007 2:15 pm

Re: Tax shelters and investment avenues

Post by alec »

Jimfromdowntheroad wrote: Thu Jan 07, 2021 12:58 pm I will keep this simple. My wife and I take advantage of all known tax shelters to me such as max our 401ks, max HSA, and max child care FSA. We max our Roth IRAs and invest in a 85/15 fund. Our emergency cash went from 3 months to 5+ months because of COVID. I would like to deplete the emergency cash back down to 3 months by moving it out of a bank account (considered additional mortgage principal but rate is 2.25%) to beat inflation such as a high yield/multisector bond fund or even a dividend and income fund.

Questions:
1. Are there other tax advantages I need to consider?
2. Is there another strategy I should consider for additional emergency funds besides lower risk mutual funds?
I bonds.

https://www.treasurydirect.gov/indiv/re ... ibonds.htm
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair
pkcrafter
Posts: 14685
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Tax shelters and investment avenues

Post by pkcrafter »

Jimfromdowntheroad wrote: Thu Jan 07, 2021 12:58 pm I will keep this simple. My wife and I take advantage of all known tax shelters to me such as max our 401ks, max HSA, and max child care FSA. We max our Roth IRAs and invest in a 85/15 fund. Our emergency cash went from 3 months to 5+ months because of COVID. I would like to deplete the emergency cash back down to 3 months by moving it out of a bank account (considered additional mortgage principal but rate is 2.25%) to beat inflation such as a high yield/multisector bond fund or even a dividend and income fund.

Questions:
1. Are there other tax advantages I need to consider?
2. Is there another strategy I should consider for additional emergency funds besides lower risk mutual funds?
Assuming you are maxing all tax-advantaged accounts, you have to look to taxable.

https://www.bogleheads.org/wiki/Tax-eff ... _placement

Also, consider all accounts marked for retirement as one unified portfolio. This will eliminate duplication and simplify your portfolio. Is your overall asset allocation 85/15?

If you want a review, you can list your funds.

Emergency funds should be separate and not in the market.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
solar99999
Posts: 94
Joined: Fri Mar 03, 2017 7:32 am

Re: Tax shelters and investment avenues

Post by solar99999 »

529 plans? Bonus if you get a tax deduction for your state.
- Buffetthead | | "[Cash is] thought of as “safe.” In truth they are among the most dangerous of assets."
Topic Author
Jimfromdowntheroad
Posts: 5
Joined: Thu Jan 07, 2021 10:42 am

Re: Tax shelters and investment avenues

Post by Jimfromdowntheroad »

solar99999 wrote: Thu Jan 07, 2021 9:31 pm 529 plans? Bonus if you get a tax deduction for your state.
529 was considered by no tax deduction in my state. Both parents and in laws have small 529 plans for our kids.
User avatar
grabiner
Advisory Board
Posts: 29212
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Tax shelters and investment avenues

Post by grabiner »

To optimize for taxes, view all your accounts as one allocation. Whether bonds are better in taxable or tax-deferred depends on your tax situation; you may want your taxable account to be all munis from your state (if you hold other bonds in your IRA), or all tax-efficient stock funds such as Total Stock Market and Total International.

If you do hold a high-yield bond fund, hold it in your IRA; high-yield bonds are extremely tax-inefficient. (Note that Vanguard High-Yield Tax-Exempt is not a junk fund; it is a medium-quality fund, similar in risk to the corporate bond indexes, and is fine in a taxable account as long as you recognize that the higher yield is a reward for taking on extra risk rather than a free lunch.)
Wiki David Grabiner
surfstar
Posts: 2439
Joined: Fri Sep 13, 2013 12:17 pm
Location: Santa Barbara, CA

Re: Tax shelters and investment avenues

Post by surfstar »

alec wrote: Thu Jan 07, 2021 5:49 pm I bonds.

https://www.treasurydirect.gov/indiv/re ... ibonds.htm
+1
Topic Author
Jimfromdowntheroad
Posts: 5
Joined: Thu Jan 07, 2021 10:42 am

Re: Tax shelters and investment avenues

Post by Jimfromdowntheroad »

pkcrafter wrote: Thu Jan 07, 2021 9:29 pm
Jimfromdowntheroad wrote: Thu Jan 07, 2021 12:58 pm I will keep this simple. My wife and I take advantage of all known tax shelters to me such as max our 401ks, max HSA, and max child care FSA. We max our Roth IRAs and invest in a 85/15 fund. Our emergency cash went from 3 months to 5+ months because of COVID. I would like to deplete the emergency cash back down to 3 months by moving it out of a bank account (considered additional mortgage principal but rate is 2.25%) to beat inflation such as a high yield/multisector bond fund or even a dividend and income fund.

Questions:
1. Are there other tax advantages I need to consider?
2. Is there another strategy I should consider for additional emergency funds besides lower risk mutual funds?
Assuming you are maxing all tax-advantaged accounts, you have to look to taxable.

https://www.bogleheads.org/wiki/Tax-eff ... _placement

Also, consider all accounts marked for retirement as one unified portfolio. This will eliminate duplication and simplify your portfolio. Is your overall asset allocation 85/15?

If you want a review, you can list your funds.

Emergency funds should be separate and not in the market.

Paul
My 401k is 70% in VTSAX and 30% in VTIAX and my wife's 401k is growth focused with 90% equities. Both of our Roth IRAs are in actively managed accounts that are growth focused with mine in 95% equities and my wife in 85% equities. We have two after tax accounts, one actively managed that is growth focused with 85% equities and the other is the 85/15 allocation I mentioned, with nearly all the funds in FFNOX. I can provide exact funds for my wife's 401k, the Roth IRAs and the actively managed after tax account, if necessary. Our overall allocation between 401ks, Roth IRAs and after tax accounts is 85 to 90% equities and 10 to 15% bonds.

The intention is not to move emergency funds in to the market, it is too lower the amount held in emergency funds account that was built up due to our job stability risk created with the pandemic.
User avatar
anon_investor
Posts: 5384
Joined: Mon Jun 03, 2019 1:43 pm

Re: Tax shelters and investment avenues

Post by anon_investor »

surfstar wrote: Thu Jan 07, 2021 10:39 pm
alec wrote: Thu Jan 07, 2021 5:49 pm I bonds.

https://www.treasurydirect.gov/indiv/re ... ibonds.htm
+1
+1.
Post Reply