Index fund advice for taxable account?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
BurrPrairie
Posts: 24
Joined: Wed Feb 26, 2014 7:17 pm

Index fund advice for taxable account?

Post by BurrPrairie »

In summary all of our money is at Fidelity (including work Roth 401k), and using the Fidelity retirement planner plus my free yearly meeting with my Fidelity advisor, we're on track for retirement in ~15 years. Our overall AA (not including cash) is 75/25 with 100% stock in Roth accounts, and IRA and 401K accounts adjusted to get to an overall 75/25 AA. Our HSA is $3000 cash and the rest in a 2035 target index fund, to keep moving money simple! We max our our HSA, both Roth IRA's, and contribute enough in 401k's to get company match.

We moved money from our checking and savings EF to our brokerage leaving 10 months cash in those ER accounts. We want to invest that taxable brokerage account probably with a more conservative 60/40 AA, since it would months 11+ of our EF if ever needed.

Our portfolio for all the retirement accounts use the Rick Ferri Core 4 portfolio. For the brokerage, what portfolio and Fidelity index funds would you recommend for tax purposes? I would be fine with 2-3 fund portfolio for this to keep things simple.
tashnewbie
Posts: 4284
Joined: Thu Apr 23, 2020 12:44 pm

Re: Index fund advice for taxable account?

Post by tashnewbie »

You haven't provided some details that I think would be helpful to know (tax bracket(s), 401k options, planned retirement age, etc).

In your shoes, I would decide how much I wanted as my EF. Everything else would be invested.

I would opt to increase 401k contributions before doing taxable investing. One option for you is to increase your 401k contributions and use any non-EF cash to pay monthly expenses.
User avatar
FelixTheCat
Posts: 2035
Joined: Sat Sep 24, 2011 12:39 am

Re: Index fund advice for taxable account?

Post by FelixTheCat »

Here's a list of Vanguard funds and their Fidelity equivalent https://www.bogleheads.org/wiki/Fidelity

Here's a wiki article on tax efficiency and fund placement https://www.bogleheads.org/wiki/Tax-eff ... _placement
Felix is a wonderful, wonderful cat.
Topic Author
BurrPrairie
Posts: 24
Joined: Wed Feb 26, 2014 7:17 pm

Re: Index fund advice for taxable account?

Post by BurrPrairie »

tashnewbie wrote: Tue Feb 02, 2021 1:35 pm You haven't provided some details that I think would be helpful to know (tax bracket(s), 401k options, planned retirement age, etc).

In your shoes, I would decide how much I wanted as my EF. Everything else would be invested.

I would opt to increase 401k contributions before doing taxable investing. One option for you is to increase your 401k contributions and use any non-EF cash to pay monthly expenses.
We're 13-15 years away from retirement and ahead of schedule with the retirement accounts. We already max out 2 Roth IRA's, 1 HSA, and enough in our 401K's to get company match, so contributing a good chunk into tax-advantaged accounts. Our EF was getting too big and why I moved money into the taxed brokerage account. If we ever need to pull from the EF, this would be the order:

Checking -> Savings -> Brokerage -> Roth IRA's

So the taxed brokerage could be EF, project money, fun money, or retirement money. I at least don't want to lock it into a 401k, and unfortunately putting more into Roth IRA's is maxed out.
tashnewbie
Posts: 4284
Joined: Thu Apr 23, 2020 12:44 pm

Re: Index fund advice for taxable account?

Post by tashnewbie »

BurrPrairie wrote: Tue Feb 02, 2021 3:07 pm
tashnewbie wrote: Tue Feb 02, 2021 1:35 pm You haven't provided some details that I think would be helpful to know (tax bracket(s), 401k options, planned retirement age, etc).

In your shoes, I would decide how much I wanted as my EF. Everything else would be invested.

I would opt to increase 401k contributions before doing taxable investing. One option for you is to increase your 401k contributions and use any non-EF cash to pay monthly expenses.
We're 13-15 years away from retirement and ahead of schedule with the retirement accounts. We already max out 2 Roth IRA's, 1 HSA, and enough in our 401K's to get company match, so contributing a good chunk into tax-advantaged accounts. Our EF was getting too big and why I moved money into the taxed brokerage account. If we ever need to pull from the EF, this would be the order:

Checking -> Savings -> Brokerage -> Roth IRA's

So the taxed brokerage could be EF, project money, fun money, or retirement money. I at least don't want to lock it into a 401k, and unfortunately putting more into Roth IRA's is maxed out.
You say you'll retire in 10-15 years, but you don't state how old you'll be then. If you'll have a good amount of time before RMDs kick in at age 72, then it might be better to make more 401k contributions. If you're in the 22%+ tax bracket, I'd definitely go with more 401k contributions. In the 12% bracket, there's an argument that Roth contributions are a good deal.

There are ways to access money in a 401k prior to 59.5. See: How to Access Retirement Funds Early

You could just figure out how much you want to spend each year for projects and fun things (presumably you have control over when and whether you do these things; I assume truly emergent home repairs are covered by your EF) and allocate that money to cash or cash-equivalent vehicles like checking and savings accounts.
Topic Author
BurrPrairie
Posts: 24
Joined: Wed Feb 26, 2014 7:17 pm

Re: Index fund advice for taxable account?

Post by BurrPrairie »

tashnewbie wrote: Tue Feb 02, 2021 3:55 pm
You say you'll retire in 10-15 years, but you don't state how old you'll be then. If you'll have a good amount of time before RMDs kick in at age 72, then it might be better to make more 401k contributions. If you're in the 22%+ tax bracket, I'd definitely go with more 401k contributions. In the 12% bracket, there's an argument that Roth contributions are a good deal.
I purposely left out details from the bigger picture because the money in the brokerage came from checking and savings accounts, so at that point I can't put it into a 401k. We are already maxing out both Roth IRA's and our HSA, so I don't know of a way to put that money in a tax-advantaged account, unless I'm missing something. I'm 52 and ideally the brokerage money won't be touched until retirement, but it could also be a EF, project, or fun money account.

If I am correct that the only option is a taxed brokerage account, then I'm looking for the best way to do a 60/40 mix in a taxed account.
flyfishers83
Posts: 408
Joined: Fri Jun 07, 2019 6:08 pm

Re: Index fund advice for taxable account?

Post by flyfishers83 »

You could increase your 401k contributions and live off the cash, assuming you need the cash for regular expenses.
tashnewbie
Posts: 4284
Joined: Thu Apr 23, 2020 12:44 pm

Re: Index fund advice for taxable account?

Post by tashnewbie »

flyfishers83 wrote: Wed Feb 03, 2021 9:31 am You could increase your 401k contributions and live off the cash
+1. This is what I meant earlier upthread. This will essentially shift the money that's currently in taxable in checking/savings accounts into your 401k.

So you're planning to retire at 62-67. Depending on the size of your current tax-deferred balance, you may not have enough time before RMDs start (5-10 years) to do Roth conversions while in a lower tax bracket. A couple MFJ has ~$105k of space to do Roth conversions and stay in the 12% bracket (that amount will increase with inflation).

If you're in anything above a 12% bracket, I think I'd opt to shift more money into the 401k by using the extra money in taxable to pay regular living expenses.
Topic Author
BurrPrairie
Posts: 24
Joined: Wed Feb 26, 2014 7:17 pm

Re: Index fund advice for taxable account?

Post by BurrPrairie »

tashnewbie wrote: Wed Feb 03, 2021 9:59 am
flyfishers83 wrote: Wed Feb 03, 2021 9:31 am You could increase your 401k contributions and live off the cash
+1. This is what I meant earlier upthread. This will essentially shift the money that's currently in taxable in checking/savings accounts into your 401k.

So you're planning to retire at 62-67. Depending on the size of your current tax-deferred balance, you may not have enough time before RMDs start (5-10 years) to do Roth conversions while in a lower tax bracket. A couple MFJ has ~$105k of space to do Roth conversions and stay in the 12% bracket (that amount will increase with inflation).

If you're in anything above a 12% bracket, I think I'd opt to shift more money into the 401k by using the extra money in taxable to pay regular living expenses.
What both of you are saying makes sense and we're currently in the 22% tax bracket. We paid off both of our vehicles and our fifth wheel a year ago so the extra cash flow is building quickly; the only thing we have is our house and expenses. We have been putting $37k/yr towards retirement accounts - Roth 401k's, Roth IRA's, and HSA, and doing Roth 401k since our assets are very heavy in traditional IRA's.

We could put more in our 401k's, but we are ahead of schedule on retirement and already adding $37k/year more towards it. We could probably max out our 401k's and still not need that $30k in the brokerage because of lower expenses right now. A lot of it is just timing where cars are paid off, and probably down the line we both might need new ones around the same time. Our 401k's have index funds with cheap ER's, so maybe we should add more to them.

It's been probably 8 years since I read the Boglehead's book, and guessing if I read it again, it would say max everything tax-advantaged out before investing in your taxed brokerage account.
Post Reply