You mentioned that index funds and ETFs are more tax efficient, but aren’t index funds the same as mutual funds? I'm in my early 40's. Join our community, read the PF Wiki, and get on top of your finances! I was looking at annuities, but I don't know too much about them. Some people want to set it and forget it and pick a target date fund. A taxable account … I’m sorry my responses are so late, I work 3rd shift so I was asleep during the majority of these comments. IRA vs. 401 (k) contribution limits In 2017 you can contribute up to $18,000 to a 401 (k) account, plus a $6,000 catch-up contribution if you're 50 or older. The main difference I’ve seen is that brokers will allow you to automatically invest in mutual funds, but not for ETFs. My 401k is through a different broker, but they really have decent selections including index funds. I guess 64k annual income at retirement wouldn't be bad if I keep doing what I'm doing. Get $5k in your top choice then move to the next. A taxable account has more trading options but you'll be taxed now if you make sales. It also depends on what funds you have in the 401k. My company does allow for after tax 401k contributions. Fully fund your HSA? I was just trying to diversify outside of the market. 4. Investing I just opened my Roth IRA through Vanguard this year and contributed the max $6k as well … Just a little background. I was thinking about opening a regular brokerage account through Vanguard, but it seems like I would be putting all of my eggs in one basket, so I was looking for some diversification. I have ~6mo emergency saved in my personal bank + maxed 401k + maxed Roth IRA … You can invest $6,000 a year ($7,000 if you’re 50 or older). any input or thoughts would be appreciated. So I was thinking about a 529 as there are some tax savings at the state level. By the 3rd one you’ll likely have more thoughts on where you’d like to go. The after-tax 401k will defer any taxes and can later be rolled into an IRA, or an in-service rollover to Roth 401k if your employer allows it. Contribution Limits As some of the wealthiest Americans are well aware, there are limits on how much you can invest in tax sheltered accounts. For 401k accounts, this amount currently stands at $16,500 a year if you are under age 50, and $22,000 a year if you are over age 50.For Roth IRAs, the limit is considerably less. It's especially good if you're looking towards early retirement - just need to make sure you're getting positive cash flow. My contributions to both retirement accounts are $23,500 per year. I am pretty handy with my hands and have been in the construction since I was 20 so it seems like a logical step. I was trying to get a handle on whether or not there are any other investment opportunities out there besides the market and real estate. Also, they trade like stocks so you might get different prices depending on when you trade. Does your empoloyer allow inservice rollovers, allowing you to megabackdoor roth? Mutual funds or ETFs for taxable accounts? Note that there are differences between index funds and ETFs. If your emergency savings is up to snuff and you've looked into an HSA … Bond funds can give your portfolio exposure to a … Also, these funds only trade at the closing price at the end of the market day. Now I’m trying to figure out how/what to invest outside of pre tax 401k and my Roth IRA. Beyond these, I'm also building my daughter's ABLE account (up to $100k, not subject to Social security income limits). Vanguard's website is better... but I hate how they hide their login flow so you need to scroll and discovering basic things is frustrating (like how do I link a bank account or what number can I call for help?). If you're willing to do that, I think it's worth a shot. Vanguard's minimum investment is $3000. Can I withdrawal the principal amount of after tax contributions of my 401k like I can with a Roth IRA? Cookies help us deliver our Services. I have an emergency fund of $30,000. Lastly, you mention figuring out my risk tolerance and changing my investments accordingly over time. Look at the website for the funds you are considering. Broker doesn’t matter much anymore. I'm boring, so I like investing directly into index funds. I have accounts with Fidelity, Vanguard, and Schwab. Clients regularly ask whether they should max out a 401(k) — and sometimes they’re surprised by the answer, says Jeff Weber, a certified financial planner and wealth advisor at Titus Wealth Management. I have an emergency fund of $30,000. Doesn't really matter. I've recently paid off my mortgage, maxed out my 401k (first year in 2017), and Roth IRA … The real estate thing is a good option if you're not moving away at some point in the future. Add in social security, and your take-home income in retirement is scheduled to be significantly higher than it is now! For the short/medium term you can open a taxable brokerage account and invest the funds in whatever level of risk index fund you feel like. All of the rebalancing the fund managers do will generate taxable events for you. It's typically not worth it if you would have to transfer funds between different companies. That means a financial advisor must do that much better than a self-managed portfolio, which if you can create even a basic 3-fund portfolio, you're highly likely to perform the same as a financial advisor's portfolio. Thanks again! Press question mark to learn the rest of the keyboard shortcuts. Do you have kids? I was thinking about doing that in the spring. Unless you qualify for Vanguard's higher tier support levels. So I was throwing it out there. With my lifestyle, my monthly discretionary income is roughly $1200. Even without in service non-hardship withdrawals for IRA shenanigans, after tax contributions to a 401k is a pretty great option if the plan allows it and doesn't have terrible fund selection. Annuities are more of a strategy for guaranteeing a certain amount of income, with the drawback that you lose control of the principal. I'm needing investment advice on where to put my money. I have a few upgrades at the condo left to do, notably replacing the sliding patio door and a couple of windows. I have my IRA with Vanguard, plus a rollover from a 401k that I had from an earlier employer, so I wouldn't necessarily be diversifying across brokerages. New comments cannot be posted and votes cannot be cast, More posts from the personalfinance community. Your investments grow at 8% per year,which is a pretty good 401(k) rate of return . If you have extra cash to invest after maxing out a 401 (k) or other retirement plan at work, it’s wise to consider your options. Thank you again. Mutual funds often require higher minimum amounts, often up to $2500, though that probably won’t matter to you if you’re maxing 401k and IRA. Also wanted to plug Schwab index fund ETFs in addition to the Vanguard and Fidelity ones you mentioned, super low expense ratios, no transaction fees and no minimums. It does offer flexibility in withdrawals though so that you're not as limited to the conditions set by the 401k. Flipping houses sounds to me like a lot of work, but if you have the skills and are interested enough for it to motivate you, it's something you could think about. You need to figure out your risk tolerance, your goals and how much effort you want to put into this. Not only will most people pay 1% on their portfolio in commission each year, they're likely to be put into funds with high loads and high expense ratios. The short answer is that index funds or ETFs are preferred for taxable accounts. One is to just sock away more of your discretionary income into straight up savings accounts to help pay for your kid's college education. A few I have heard of are a non-deductible IRA, a Health Savings account and an annuity. It also depends on what funds you have in the 401k. If your goal is retirement or long-term wealth accumulation, Guay recommends stashing any extra savings in a Roth IRA, which is a tax-free investment account. Suppose you start maxing out your 401(k) at 25 and you invest it aggressively, meaning primarily in stocks. They show how much is domestic, international and bonds. I've been pooling any extra money into my brokerage (ETF's / passion funds... clean energy for example) and have done really well so far. I've done a little research but they seem like a complicated instrument and each product has different variables which makes them hard to compare. FXAIX is a S&P500 index fund but you can buy dollar amounts do doesn’t that make it a mutual fund and less tax efficient? Any other reasons why ETFs would be better than mutual funds? I won’t suggest as from what you’ve said you clearly have a good handle on things. You should be able to remove excess contributions and put them in a self directed Roth IRA, I do this with an Ameritrade account, I already do this, my IRA is maxed out for the year. I will look into contributing into a HSA. I guess ETFs are slightly more liquid as well. If you are otherwise following the Prime Directive and your employer doesn't allow it, then taxable brokerage. Pick what you like. If a financial advisor must be used, try and find a fee-only fiduciary that does not make commission, but instead only charges a per-service fee. I honestly can’t decide between Fidelity and Vanguard as my main broker. https://fundresearch.fidelity.com/mutual-funds/summary/92202E847. I wouldn't mind an early retirement though so I guess that I might need to work on increasing my earnings by starting a business or get into real estate management. Unlike 401(k) contributions, … Individual retirement accountscan be a great tool to supplement your 401(k) contributions and you can enjoy some tax benefits in the process. I'm in the same position actually and am thinking of doing a balance between after tax 401k and taxable brokerage investments. It seems from your advice, as well as others, that annuities may not be the best option out there. I’d agree with the earlier comment of vanguard, fidelity, or Schwab. Index funds and ETFs are more tax efficient than actively managed mutual funds in taxable accounts. Some people pursuing FI like VTSAX only. So I think that I will stay away from them. Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. 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