I am currently maxing out my tax-advantaged retirement accounts:
- SIMPLE IRA through employer
- ROTH IRA
I also have a rollover traditional IRA from a previous 401k. All of these accounts are at Vanguard and are 100% invested in the Target Date 2050 fund. I am a big fan of the simplicity of TDI.
Two years ago, I opened a taxable brokerage account with Vanguard, because I have additional money that I can contribute. Typically, I make these contributions in one lump sum at the beginning of the year. For the first two years, I invested 100% in the same Target Date 2050 fund.
However, I’ve since been told that this is not the right way to go with a brokerage account because of tax reasons. I did have to pay taxes this year on the capital gains after the fund was rebalanced.
Instead, I’m told I should be selecting specific index funds/bonds and building my own 3-fund portfolio to invest in the brokerage account and that it should mirror the 90/10 percentage of the TD fund.
So, I’ve been wringing my hands about it and trying to figure out which US stock/International stock/bonds to purchase and going down all kinds of rabbit holes. I narrowed it down to:
Option 1: Jeremy’s example - VTSAX, VTIAX, VBTLX
Option 2: VTSAX, VTIAX, VTEAX (I like the idea of VTEAX being tax exempt, but it immediately throws off my 90/10 ratio with the $3k initial investment requirement, so I’d have to rebalance that next year)
I finally completed the PFC Course today, and in several instances Jeremy shows his own Vanguard as an example and it clearly shows he buys TD funds in his brokerage account.
So, is this even an issue?! Are the tax implications a big enough issue to deal with to warrant letting go of the ease of TD funds?
I really appreciate any feedback! If it helps, we are in the 22% tax bracket.