Is a Taxable investing account right for me?

Submitted by shawarmadude t3_yibmwb in personalfinance

Assuming no Roth or 401K option available.

I'm looking to invest in an account, where I put in for example 5,000$ a year (VTI, VXUS) and sit on it for 30 years, and collect it then without any buying/selling (other than capital addition) during these times.

Basically, an alternative to a savings account but with ETFS instead of cash?

Am I on the right track, and how do i know about what taxes i'm due during the years I'm holding it without any buying or selling? as you can be liable for CGT??

thanks, looking forward to starting my journey

4

Comments

You must log in or register to comment.

RelishMule t1_iuhs91b wrote

How much money are you making a year? Are you self employed?

I would probably go an IRA of some variety before taxable account

> and how do i know about what taxes i'm due during the years I'm holding it without any buying or selling

If you don't buy and sell, then the only taxes you'd owe are any dividends. In any case, your brokerage will send you assorted 1099 forms shoiwng your gains/losses/dividends for the year

2

shawarmadude OP t1_iuht94o wrote

Self-employed, expat, claiming FEIE so dropping earned income to 0 - not sure if I can contribute to any retirement account

1

RelishMule t1_iuhtqe3 wrote

Gotcha, that makes sense. Ya, with no earned income, no luck with IRAs.

If you don't make in excess of the FEIE limit and don't want to go the route of opting for the FTC instead, then ya, taxable sounds like the way to go

3

TiredPistachio t1_iuhsbvu wrote

If you dont have many retirement account options available to you, then yes a brokerage is better than nothing. And yeah you can buy a low tax liability ETF like VTI and just sit on it for many years with only having to pay taxes on the dividends.

2

syxxnein t1_iuhskyz wrote

Why isn't roth or 401k an option? Hsa?

A taxable account would be your last option if you really couldn't do the above but not many people only have 5k a year to invest and can't do the above. There are exceptions but usually if you have maxed out income limits you have more than 5k to put in.

2

hondaFan2017 t1_iuhuehv wrote

Perfectly fine and ETFs like VTI are tax efficient, so no worries investing in a taxable brokerage.

Also don’t forget the 0% LTCG tax bracket exists, which is a wonderful thing. Hope it still does in 30 years !

I suggest a set-it-and-forget-it platform like M1 finance which allows you to auto-invest in ETFs.

2

nowthatswhat t1_iuhs4da wrote

Your broker should handle the tax reporting for you but you will get hit with CGT when you sell, that’s why it’s called a taxable account

1

shawarmadude OP t1_iuhsauk wrote

thanks. so basically, let's say my contributions during the years are 100K and i manage to sell everything down the line for 500K ...the CGT will be on the 400K profit? Assuming i take it out as a lump sum or in one year?

1

Werewolfdad t1_iuhsets wrote

Probably not unless you’re also maxing out an ira and don’t have access to an hsa

1

thor_ragingcock t1_iuhsud8 wrote

Basically everyone with earned income has the option of contributing to an IRA, which has significant tax advantages over using a taxable brokerage account. What’s your yearly income? Is it W2 or 1099?

1

isaacs_ t1_iuhvzm2 wrote

Others will probably have more detailed suggestions, but for that plan, a simple dollar cost averaging strategy is easy to set up, hard to mess up, and will perform pretty well.

I'd recommend putting it in a traditional ira up to the yearly limit, and then scheduling a regular monthly purchase of a retirement fund or broad index fund.

You only pay CGT when you sell them, ie, when you make gains on your capital. So I wouldn't worry about it for now, if your strategy is to sit on the stocks for a long time.

1