Same funds in taxable accounts as IRAs? (pay, taxes, rate)

[mjedwards409]

I'm 32 years old and currently maxing out my 401K contributions ($19K) with a 6% employer match as well as two Roth IRAs for my wife and me. ($6,000 each) We also have 529s for both of our kids where we are contributing. I get quarterly bonus money from work ($3K - $4K per quarter) and I'd like to open a taxable account to start investing that. Currently my Roth IRAs are comprised of a few Vanguard index funds.


Without getting into any index funds vs managed funds debates, my general question is if there is any reason to invest any differently within my taxable account than I do in my Roth IRAs? (Assuming my Roth funds are properly diversified to begin with) My goal is the same - growth over a 20-30 year period. I do not plan on really messing with the taxable account until after 55 or so unless there is an emergency need. (I also have a 6 month emergency fund in a High Yield Savings Account)


Only debt is my 3.75% mortgage and $7,000 left on my wife's 1.75% car loan. I pay a few hundred extra each month on the mortgage but don't want to start throwing my bonus money at it - with such a low rate I'm thinking I can get a better return elsewhere.

[numsgal]

The only reason I can think of is if there's a big difference in fees. If you have enough in your taxable account to get Admiral status (Vanguard) you'll have a lower fee.

[mjedwards409]

Originally Posted by numsgal

The only reason I can think of is if there's a big difference in fees. If you have enough in your taxable account to get Admiral status (Vanguard) you'll have a lower fee.

Yes was going to start off with $3K in my first deposit so I will have enough for Admiral. Thanks for the feedback!

[Lowexpectations]

I would opt for ETFs over mutual funds where possible in taxable accounts

[Petunia 100]

Whether you do index or actively managed, you want low turnover funds/etfs in your taxable account. Also, if you hold international stocks, those are ideal for taxable accounts as you can deduct foreign taxes paid by the fund/etf. If you hold it in a tax-advantaged account, you cannot.

[mysticaltyger]

Originally Posted by mjedwards409

I'm 32 years old and currently maxing out my 401K contributions ($19K) with a 6% employer match as well as two Roth IRAs for my wife and me. ($6,000 each) We also have 529s for both of our kids where we are contributing. I get quarterly bonus money from work ($3K - $4K per quarter) and I'd like to open a taxable account to start investing that. Currently my Roth IRAs are comprised of a few Vanguard index funds.


Without getting into any index funds vs managed funds debates, my general question is if there is any reason to invest any differently within my taxable account than I do in my Roth IRAs? (Assuming my Roth funds are properly diversified to begin with) My goal is the same - growth over a 20-30 year period. I do not plan on really messing with the taxable account until after 55 or so unless there is an emergency need. (I also have a 6 month emergency fund in a High Yield Savings Account)


Only debt is my 3.75% mortgage and $7,000 left on my wife's 1.75% car loan. I pay a few hundred extra each month on the mortgage but don't want to start throwing my bonus money at it - with such a low rate I'm thinking I can get a better return elsewhere.

I would think you want to be careful about what you put in taxable accounts. You have to look for funds that don't generate a lot of capital gains. That usually means funds without much turnover. That usually means index funds should go in the taxable account. I helped a friend find some actively managed funds with low turnover for his taxable account; but even those funds put out some significant capital gains last December. These were the funds I put my friend in:

Parnassus Core Equity PRILX
Yacktman YACKX

Other actively managed funds with low turnover that I'd consider would be:

Amana Growth AMIGX
Amana Income AMINX
FMI Large Cap FMIHX/FMIQX

[PamelaIamela]

Taxable munis ..eg BBN, can generate over 6% annual yield with less volatility than a market index, which makes them a very nice bond position in a diversified retirement fund.
At higher income levels in taxable accounts they become much less suitable .

[wheelsup]

Consider an after tax contribution to your 401k and roll into the Roth IRA. Max contribution is $56k per person.

You put in $19k, company puts in $11k (example), you can add up to $26k in after tax contributions and roll that into your Roth.

If needed you can take out any contributions to your Roth at any time without penalty.

Check with your plan administrator.

I wish I had gone that way years ago when I started saving - well into the six figures in cap gains taxes.

[Lucy_C]

In your taxable account you may want to invest in funds that either do, or do not, spin off a lot of dividends.

You also may want different funds in taxable vs. IRAs to avoid wash sales.

[rjm1cc]

In general no investment reason to have different investments in each account. My assumption is you are properly diversified.


But you should think about taxes. In your taxable accounts you should favor accounts that do not pay interest or dividends or have capital gains distributions. Thus you might want to have similar investments but avoid mutual funds and use ETF's in the taxable account.