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Taxable Retirement Account

3,078 Views | 25 Replies | Last: 5 yr ago by Stive
Tex_Ag_2017
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AG
I am 23 years old and have maxed out my roth IRA for the year for investing. I have been prioritizing investing for my future in my personal finances before I have kids or other bills start piling up. I also contribute the maximum amount to my 401k that my company will match. The fees are too high to put money into my 401k without getting a match.

What is the best online broker to use for taxable accounts? I use Vanguard for my roth IRA and I have a Bank of America checking account. I know that BofA has merrill edge for investing but I haven't really looked into the fees for trading. I would like to know everyone's opinion on the big brokerage firms for taxable accounts such as Vanguard, charles schwab, ally, etc. Can you tell me the fees, returns, best ETFs, funds, etc. to put into a taxable portfolio?

I have tried googling but all I could really find was the benefits and what types of funds to put into a taxable account. Not necessarily which one is the best.

Thanks in advance.
SnowboardAg
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It's all preference - I use TD ameritrade and use a couple accounts - 1 is a play account that I manage and trade with and another is called select portfolio etf core aggressive. The etf portfolio is managed by them and I just dump extra money in that each month / year - there's a fee to manage, but that can be negotiated depending on how much you have in it.
fourth deck
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Until you have at least $50,000 with Vanguard, their broker fees are not competitive.

https://investor.vanguard.com/investing/trading-fees-commissions?wt.srch=1&cmpgn=PS:RE
IrishTxAggie
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Have you looked at Robinhood? Free equity and options trading.

http://share.robinhood.com/colinb132
Out in Left Field
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Wonder if it's possible to contribute the max to your 401k to knock your taxable income down then roll to a Traditional IRA to avoid those high fees.
nactownag
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Most likely that won't work unless he's over 59.5 and the company offers in service distributions
GE
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Out of curiosity how high are the fees on the 401k beyond the match?
Tex_Ag_2017
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I have most of my 401k in vanguard funds within Nationwide so I am paying the vanguard fund fees plus Nationwide's active managing fee. The nationwide fees are unavoidable since my company chooses to go with nationwide to mange out entire company for 401k and I think that basically the fees get passed along to us. All that nationwide does for me is deposit my monthly contribution into the funds I selected myself, therefore I do not want to put more into nationwide beyond my match. I can put in funds directly to vanguard and avoid the nationwide fee.
nactownag
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Except for you're missing the tax advantage which is huge over the long term. I love putting 18.5k in my Roth
Stive
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Are the fees more than your tax bracket?
GE
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Stive said:

Are the fees more than your tax bracket?
That's why I was asking
Stive
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GE said:

Stive said:

Are the fees more than your tax bracket?
That's why I was asking
OldArmyBrent
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That's weird the 401k custodian fees get passed to you. Are you sure of that? Or are you just assuming? Check to see what they liquidate every year to pay the fee and how much it is.

Usually that fee is picked up by the employer until you leave. Then it is passed to you if you are no longer employed by the company but still have the 401k account.
Clavell
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Hard to believe the fees would outweigh the tax benefits of 401K. I would put in max allowed.
Baby Billy
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I would max out all of my tax advantaged options before worrying about a taxable brokerage.
FrioAg 00
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Hard to imagine fees being high enough to outweigh tax advantages

If they are, hire a lawyer and start a class action suit. Others have, and it's the reason employers aggressively benchmark and manage down the fees of their offerings.
TriAg2010
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Huell Babineaux said:

I would max out all of my tax advantaged options before worrying about a taxable brokerage.


I get the sentiment here, but I do think there is economic value for young people to have some of their net worth outside of retirement accounts, even if that means not maximizing the IRS contribution limits. At some point in your late 20s/early 30s, you'll probably want to buy a house, maybe start a business, pursue an advanced degree, etc.
FrioAg 00
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I agree with that, it's liquidity value. My target while young was always to get to 1 year worth of income in liquidity.

But that included $50k I could borrow against my own 401k any time, and easily accessible Home Equity (equity above 30%), in addition to post-tax investments.
colonialag
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The Merrill Edge/Bank of America combination is one of the better deals in personal finance once your balances qualify for their Preferred Rewards program. If your balances don't qualify for free etf and stock trades, there are a few low cost / no transaction fee index mutual fund options while you build up your portfolio. I have been very satisfied with the features and service at Merrill Edge.
Baby Billy
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I agree with that to a certain extentt, but it could also be said that if you are properly planning, then you should be financially secure enough to max out your retirement accounts before you commit to a huge purchase like that buying a home or starting a business.

I understand that doesn't work for everyone. There's not one cookie cutter way to do things. You can also pull out of your IRA up to 10,000 for a first time home purchase.
GE
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Huell Babineaux said:

I agree with that to a certain extentt, but it could also be said that if you are properly planning, then you should be financially secure enough to max out your retirement accounts before you commit to a huge purchase like that buying a home or starting a business.

I understand that doesn't work for everyone. There's not one cookie cutter way to do things. You can also pull out of your IRA up to 10,000 for a first time home purchase.
I think it depends on the long-term and short-term costs of renting vs. home ownership. If the future value of the home when paid off is greater than the future value of the monthly cash savings in renting vs owning when invested, then it could be better to buy a house earlier. Also if things go crazy and rental rates go through the roof and interest rates go up, you're likely better off locking in a 30 year low rate so you're working with a mostly fixed housing cost.

I ran a few difference scenarios and depending on how you tweak the numbers it could come out differently. Someone smarter than me could probably (and probably has) derive a standard formula to calculate which is better with the variables being interest rate on the home loan, % higher amount invested in retirement monthly from renting vs. owning, % increase in costs to rent over time, and % increase in home value over term of the loan. You would only run it out over the term of the loan and see who comes out better between the renter who has invested the excess cash on hand vs. the homeowner who owns the home but has not invested the excess cash.
Endo Ag
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Agree with those who say you should aggressively look at the 401k again. Even if the fees aren't the best, will you stay in your job long enough for it to matter. If you are likely to change employers after 2-5 years, you may come out ahead investing in even high fee options for now, and rolling over the money later when you can.

For all those who are talking about brokerage fees, that may be true if you are a day trader. If you are investing into Vanguard funds or ETFs, there is no fee from a Vanguard account.
tford12
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Highly recommend Betterment, unless you want to be super involved with your stock/fund picks. Its a "robo-advisor", so you pick your risk tolerance, and they create your portfolio for you.

Great option for someone who wants to be a bit more hands-off, and wants to set it & forget it.
RangerRick9211
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From Bogleheads,
Quote:

A reasonable rule-of-thumb is to consider investing in a taxable account if the product of the extra costs and the number of years you will stay in the plan exceeds one and a half times your combined federal and state tax rates on qualified dividends over your working career. That is, if you pay 1.70% expenses rather than 0.20%, and you pay 15% federal tax on qualified dividends, plus 5% state tax, you should still invest in the plan unless you are reasonably certain that you will stay with the employer for more than 20 years for a net loss of 30% (actually 26% because of compounding). If you pay no state tax, you should still invest in the plan unless you are reasonably certain you will stay more than 15 years.
https://www.bogleheads.org/wiki/401%28k%29#Expensive_or_mediocre_choices

Interwebs reveal Nationwide's AMC fee at .35%. Pick the lowest fee S&P fund within your 401(k) and invest in that. Diversify into sector, market cap, fundamental, bond, international, etc. within your IRA.
Stive
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So that equation doesn't take into account the match?
Tex_Ag_2017
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It doesn't have to take into account my company match because I already do that because it is a no brainer. I am talking about putting in more after my company match or opening a taxable account.
Stive
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I get you're doing that but the equation Rangerrick posted doesn't seem to. If that's the case, combine that with uncertainty about what future tax rates may be and that equation seems a little bit flimsy to use.
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