In a previous blog post, I highlighted the various types of investment accounts that you can own. I figured it would be worth while to dig into the accounts that we have and our philosophy behind each of them. They pretty much fall into two categories: Tax-Advantage and Non Tax-Advantage.
Employer 401k and 403B
My wife’s first employer was a non-profit so she has a 403b, which is for all intensive purposes functions the same as a 401k.
We contribute to these because our employers offer a match of 3-4%. In order to increase our savings rate, we currently contribute about 10% of our paychecks to our respective 401k and 403b plans. These plans are nice since our companies pay for the management fees.
My wife’s traditional IRA is through Betterment and mine is through Vanguard. I’ve been meaning to transition my wife’s IRA to Vanguard, but haven’t gotten around to it.
I originally started out with my IRA in Betterment before I realized that I could manage my own money and didn’t need the help of a robo-advisor. The maximum IRA contribution across both Traditional and Roth was $5,500 for 2017. We pretty much split our contributions 50/50 between Traditional and Roth contributions. I’ll explain our rationale below in Roth IRAs.
Similar to our traditional IRAs, my wife has her’s through Betterment and mine is through Vanguard.
The reason we split our contributions 50/50 between pre-tax and post-tax is that we really aren’t sure what our future holds. Roth IRAs give us flexibility. If we needed the money, we could withdraw our contributions tax free. There’s also the likely probability that our current tax bracket is lower than our future tax bracket.
On the other hand, by contributing to a traditional IRA we get a little extra tax savings and can invest that savings, which will compound over time. There’s also the backdoor Roth strategy that you allows you to convert Traditional IRA funds to Roth IRA funds in the future.
Health Savings Account
Unfortunately, my company has our HSA accounts through KeyBank, which doesn’t really allow for investing the funds. Once I change jobs, I plan on transitioning to a provider that allows me to invest our savings account in the stock market.
HSAs are a great tool to save for retirement. You get a tax deduction when contributing and as long as you use funds for health expenses withdrawals are tax free. Of course you have to have a high deductible insurance plan to qualify for a HSA account.
Non Tax-Advantage Accounts
CapitalOne 360 Investing
I’ve had this account from when I was in high school. I like the platform, but I don’t really buy individual stocks anymore. I primarily use this account to hold stocks that I’ve owned for a while.
This is my fun account. I pretty much invested $1,000 and play around with investing in individual stocks since Robinhood doesn’t charge commission fees. This makes it a lot easier to buy and sell smaller stocks. Commission and trade fees always made me feel like I had to buy a large amount of a specific stock to offset the fees, which didn’t allow me to diversify since I didn’t have much money to invest.
We have four non tax-advantage Betterment accounts. I like these accounts since they provide a service called tax loss harvesting, which can save you some money on your taxes. I’m sure I could learn how to harvest tax losses myself, but for the small percentage fee that Betterment charges it seems to be worthwhile.
These are just our investment accounts. We also have some cash reserves in checking and savings accounts. Here is a pie chart of all of our investment accounts and the % of money we have invested in each:
There are definitely some changes that I want to make to our current investment accounts breakdown like moving some of our Betterment Investments to Vanguard. As I continue to learn more about investing, I gain more confidence that I can manage my own money and not pay someone else to do it.
The other thing that we plan on doing in a couple years is opening up a Donor Advised Fund (DAF), which will allow us to contribute our appreciated investments and donate them to organizations we support.
Hopefully this breakdown of our investment accounts gives you a general idea of the pros and cons of each account.