When to use a taxable brokerage account
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When to use a taxable brokerage account
What are the general rule of thumbs for when it would make sense to use a brokerage investment account?
Re: When to use a taxable brokerage account
When you want to invest more than you have room for in your retirement accounts. That is, long-term investing.anthonypals wrote: ↑Thu Jul 15, 2021 8:15 pm What are the general rule of thumbs for when it would make sense to use a brokerage investment account?
But people who have 401ks with poor investment choices, may choose to invest only enough in that account to get any employer match and then put the rest toward investment in a taxable account.
Others may use a taxable brokerage account for investing goals nearer term than retirement, but I just used mine for over-and-above savings.
Re: When to use a taxable brokerage account
When the alternatives don't make senseanthonypals wrote: ↑Thu Jul 15, 2021 8:15 pm What are the general rule of thumbs for when it would make sense to use a brokerage investment account?
Some rules are thumb are described in the Prioritizing investments wiki article. As with many rules of thumb, there are certain assumptions about job, income, tax brackets, etc. that may not apply to everyone. Grain of salt and all that.
Various Bogleheads are discussing ways to improve that article in another thread. If you like, take a look at the current and proposed wiki articles to see if it answers your question. Feedback is welcome!
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Re: When to use a taxable brokerage account
That is what I was confused about, I have my IRA maxed out and I do the 401K up to the match, I wasn’t sure if I should leave money sitting in my savings account that I don’t use right now or if it would make more sense to put that in a taxable account for the near future.GerryL wrote: ↑Thu Jul 15, 2021 8:25 pmWhen you want to invest more than you have room for in your retirement accounts. That is, long-term investing.anthonypals wrote: ↑Thu Jul 15, 2021 8:15 pm What are the general rule of thumbs for when it would make sense to use a brokerage investment account?
But people who have 401ks with poor investment choices, may choose to invest only enough in that account to get any employer match and then put the rest toward investment in a taxable account.
Others may use a taxable brokerage account for investing goals nearer term than retirement, but I just used mine for over-and-above savings.
Re: When to use a taxable brokerage account
When you don’t want to be tax bombed in retirement come RMD time. Capital gains rates are favorable as well.
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Re: When to use a taxable brokerage account
When you want to borrow at 1.1%
Re: When to use a taxable brokerage account
If you're going to need it in "the near future," you should not be investing that amount in the stock market. Whether sitting in a brokerage account is better than sitting in a savings account is the better option ...? Depends on what you put the $$$ into.anthonypals wrote: ↑Thu Jul 15, 2021 8:34 pmThat is what I was confused about, I have my IRA maxed out and I do the 401K up to the match, I wasn’t sure if I should leave money sitting in my savings account that I don’t use right now or if it would make more sense to put that in a taxable account for the near future.GerryL wrote: ↑Thu Jul 15, 2021 8:25 pmWhen you want to invest more than you have room for in your retirement accounts. That is, long-term investing.anthonypals wrote: ↑Thu Jul 15, 2021 8:15 pm What are the general rule of thumbs for when it would make sense to use a brokerage investment account?
But people who have 401ks with poor investment choices, may choose to invest only enough in that account to get any employer match and then put the rest toward investment in a taxable account.
Others may use a taxable brokerage account for investing goals nearer term than retirement, but I just used mine for over-and-above savings.
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Re: When to use a taxable brokerage account
I was thinking about doing a 5 year brokerage investment where it is 80% bonds and 20% stocks so I’m not at huge risk to lose a lot in 5 years and hopefully make some interest.GerryL wrote: ↑Thu Jul 15, 2021 9:39 pmIf you're going to need it in "the near future," you should not be investing that amount in the stock market. Whether sitting in a brokerage account is better than sitting in a savings account is the better option ...? Depends on what you put the $$$ into.anthonypals wrote: ↑Thu Jul 15, 2021 8:34 pmThat is what I was confused about, I have my IRA maxed out and I do the 401K up to the match, I wasn’t sure if I should leave money sitting in my savings account that I don’t use right now or if it would make more sense to put that in a taxable account for the near future.GerryL wrote: ↑Thu Jul 15, 2021 8:25 pmWhen you want to invest more than you have room for in your retirement accounts. That is, long-term investing.anthonypals wrote: ↑Thu Jul 15, 2021 8:15 pm What are the general rule of thumbs for when it would make sense to use a brokerage investment account?
But people who have 401ks with poor investment choices, may choose to invest only enough in that account to get any employer match and then put the rest toward investment in a taxable account.
Others may use a taxable brokerage account for investing goals nearer term than retirement, but I just used mine for over-and-above savings.
Re: When to use a taxable brokerage account
Bonds are not recommended in a brokerage account. They are not as tax efficient.
Re: When to use a taxable brokerage account
What exactly will be the use for the money? That is the question that needs to be answered.anthonypals wrote: ↑Thu Jul 15, 2021 8:34 pmThat is what I was confused about, I have my IRA maxed out and I do the 401K up to the match, I wasn’t sure if I should leave money sitting in my savings account that I don’t use right now or if it would make more sense to put that in a taxable account for the near future.GerryL wrote: ↑Thu Jul 15, 2021 8:25 pmWhen you want to invest more than you have room for in your retirement accounts. That is, long-term investing.anthonypals wrote: ↑Thu Jul 15, 2021 8:15 pm What are the general rule of thumbs for when it would make sense to use a brokerage investment account?
But people who have 401ks with poor investment choices, may choose to invest only enough in that account to get any employer match and then put the rest toward investment in a taxable account.
Others may use a taxable brokerage account for investing goals nearer term than retirement, but I just used mine for over-and-above savings.
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Re: When to use a taxable brokerage account
A 5-8 year plan for a down payment.coachd50 wrote: ↑Thu Jul 15, 2021 10:11 pmWhat exactly will be the use for the money? That is the question that needs to be answered.anthonypals wrote: ↑Thu Jul 15, 2021 8:34 pmThat is what I was confused about, I have my IRA maxed out and I do the 401K up to the match, I wasn’t sure if I should leave money sitting in my savings account that I don’t use right now or if it would make more sense to put that in a taxable account for the near future.GerryL wrote: ↑Thu Jul 15, 2021 8:25 pmWhen you want to invest more than you have room for in your retirement accounts. That is, long-term investing.anthonypals wrote: ↑Thu Jul 15, 2021 8:15 pm What are the general rule of thumbs for when it would make sense to use a brokerage investment account?
But people who have 401ks with poor investment choices, may choose to invest only enough in that account to get any employer match and then put the rest toward investment in a taxable account.
Others may use a taxable brokerage account for investing goals nearer term than retirement, but I just used mine for over-and-above savings.
- PicassoSparks
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Re: When to use a taxable brokerage account
At current interest rates, that’s largely irrelevant. Also tax efficiency is far from the most important question when it comes to deciding how to allocate money you are parking for ~5 years, which is what the OP is trying to decide.
Re: When to use a taxable brokerage account
When you want to save in an Emergency fund or for a short term goal, such as for a house down payment, getting married, a vacation or car.
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Re: When to use a taxable brokerage account
I-bonds should get more love in regards to a down payment of a house IMO. Tax efficient and low risk
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Re: When to use a taxable brokerage account
I have emergency fund, but still am 5-8 years from getting a house so I wasn't sure if it makes sense to just leave it in a savings not collecting much.
Re: When to use a taxable brokerage account
Tax drag always needs to be considered. In this this low interest rate environment we have been in one doesn't have many options. As others have suggested, I-bonds are an option, you mentioned holding for about 5 years so you could avoid the 3 month interest penalty. The current rate is 3.54 % for the first 6 months.
Re: When to use a taxable brokerage account
Now in retirement and withdrawing for expenses, I find it very tax efficient to have all options of a taxable account, tax deferred tIRA and a tax free Roth. Nice to take advantage of the first $80k (MFJ) or so for tax free qualified dividends or LTCG.
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Re: When to use a taxable brokerage account
So you used the taxable account as a long term retirement account as well?
Re: When to use a taxable brokerage account
Lots of people do this, but generally it's only advisable if you've already maxed out tax-advantaged space.anthonypals wrote: ↑Fri Jul 16, 2021 10:14 amSo you used the taxable account as a long term retirement account as well?
Re: When to use a taxable brokerage account
I bonds seem perfect for this. The interest rate will vary with inflation, but currently at 3.54%.anthonypals wrote: ↑Fri Jul 16, 2021 7:30 amI have emergency fund, but still am 5-8 years from getting a house so I wasn't sure if it makes sense to just leave it in a savings not collecting much.
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Re: When to use a taxable brokerage account
In general after an emergency fund is funded, after the paying off high interest debt, after making maximum contributions to all available tax-advantaged accounts (unless the 401k fund choices are terrible).anthonypals wrote: ↑Thu Jul 15, 2021 8:15 pm What are the general rule of thumbs for when it would make sense to use a brokerage investment account?
Wiki article Prioritizing Investments.
Use a taxable account invested in a very safe short-term bond fund with a good credit rating, federally insured short-term or intermediate-term CDs, federally insured savings account, I savings bonds, or a combination of those choices.A 5-8 year plan for a down payment.
Last edited by ruralavalon on Fri Jul 16, 2021 11:31 am, edited 3 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
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Re: When to use a taxable brokerage account
My only question about going down this path, is if you want to save for a house but are contributing so much to roth 401k/IRA wont it take forever to accomplish the house goal? That is why was thinking about putting some in a taxable for the next few years instead of maxing out retirement and not having any extra left.ruralavalon wrote: ↑Fri Jul 16, 2021 11:24 amAfter an emergency fund is funded, after the paying off high interest debt, after making maximum contributions to all available tax-advantaged accounts (unless the 401k fund choices are terrible).anthonypals wrote: ↑Thu Jul 15, 2021 8:15 pm What are the general rule of thumbs for when it would make sense to use a brokerage investment account?
Wiki article Prioritizing Investments.
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Re: When to use a taxable brokerage account
For buying a home in 5-8 years use a taxable account invested in a very safe short-term bond fund with a good credit rating, federally insured short-term or intermediate-term CDs, federally insured savings account, I savings bonds, or a combination of those choices.anthonypals wrote: ↑Fri Jul 16, 2021 11:29 amMy only question about going down this path, is if you want to save for a house but are contributing so much to roth 401k/IRA wont it take forever to accomplish the house goal? That is why was thinking about putting some in a taxable for the next few years instead of maxing out retirement and not having any extra left.ruralavalon wrote: ↑Fri Jul 16, 2021 11:24 amAfter an emergency fund is funded, after the paying off high interest debt, after making maximum contributions to all available tax-advantaged accounts (unless the 401k fund choices are terrible).anthonypals wrote: ↑Thu Jul 15, 2021 8:15 pm What are the general rule of thumbs for when it would make sense to use a brokerage investment account?
Wiki article Prioritizing Investments.
Even when saving for a home I still suggest that be (1) after funding an emergency fund, (2) after paying off high interest debt, and (3) after contributing enough to the employer plan to get the full employer match.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
Re: When to use a taxable brokerage account
Yes. My tax advantaged and taxable accounts all had long term goals to provide for my retirement.anthonypals wrote: ↑Fri Jul 16, 2021 10:14 amSo you used the taxable account as a long term retirement account as well?
Re: When to use a taxable brokerage account
If you are in early retirement and have over $500K (single) or $1M (MFJ) in tax-deferred, I hope you are withdrawing from tax-deferred for living expenses or conversions before spending down much in taxable.02nz wrote: ↑Fri Jul 16, 2021 11:06 amLots of people do this, but generally it's only advisable if you've already maxed out tax-advantaged space.anthonypals wrote: ↑Fri Jul 16, 2021 10:14 amSo you used the taxable account as a long term retirement account as well?
I know it’s nice to have a choice of where to withdraw from in retirement, but you need to also plan for when you don’t have much choice (ie, RMDs at Age 72).
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
Re: When to use a taxable brokerage account
It depends on the circumstances, I don't think your statement is anywhere near generally true. I would say $500K single/ $1M MFJ in tax-deferred is a perfectly fine amount to have at the start of normal retirement age (65-70), not at the start of early retirement, when I'd want substantially more in tax-deferred. How much more depends of course on time frame, spending, pension/no pension, etc. It's good to strategically draw down tax-deferred when it's advantageous to do so from a tax standpoint, but there's far too much FUD (fear, uncertainty, and doubt) out there over RMDs (which come to $39K for a $1M portfolio at age 72) and "tax bombs."celia wrote: ↑Sat Jul 17, 2021 2:43 pmIf you are in early retirement and have over $500K (single) or $1M (MFJ) in tax-deferred, I hope you are withdrawing from tax-deferred for living expenses or conversions before spending down much in taxable.02nz wrote: ↑Fri Jul 16, 2021 11:06 amLots of people do this, but generally it's only advisable if you've already maxed out tax-advantaged space.anthonypals wrote: ↑Fri Jul 16, 2021 10:14 amSo you used the taxable account as a long term retirement account as well?
Last edited by 02nz on Sat Jul 17, 2021 3:12 pm, edited 3 times in total.
Re: When to use a taxable brokerage account
If you're ok with having to potentially delay your home purchase, then I'm in the camp of investing that money. Your 20/80 AA sounds ok to me (I did that several years ago, but I used a more aggressive AA).
What would be the impact of that plan if you were to max out your 401(k)?
What would be the impact of that plan if you were to max out your 401(k)?
Re: When to use a taxable brokerage account
We actually agree. (I meant to say “in early retirement years, and have…”.) Those are the general amounts where I notice that someone needs to start worrying about large RMDs. And the younger they are with that amount of money, the more time that money has to compound.02nz wrote: ↑Sat Jul 17, 2021 3:04 pmIt depends on the circumstances, I don't think your statement is anywhere near generally true. I would say $500K single/ $1M MFJ in tax-deferred is a perfectly fine amount to have at the start of normal retirement age (65-70), not at the start of early retirement, when I'd want substantially more in tax-deferred. How much more depends of course on time frame, spending, pension/no pension, etc. It's good to strategically draw down tax-deferred when it's advantageous to do so from a tax standpoint, but there's far too much FUD (fear, uncertainty, and doubt) out there over RMDs (which come to $39K for a $1M portfolio at age 72) and "tax bombs."
To make this relevant to the OP, it is best to start retirement with a lot in a taxable account, since taxes will need to be paid on the withdrawals/ conversions from tax-deferred. If you are under 59.5 when withdrawing, there will be early withdrawal penalties on anything withheld for taxes.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.