Tax Efficient Investment Options

Q. Husband 53, Wife 48
We own 5 tax deferred accts funded to the max.: 401k, 403b, 2 Roths, 1 Beneficiary IRA. Have 0 debt. Both plan to retire in 4.5 years. Husband only will have modest pension.

I plan to open a taxable acct. I don't foresee needing this money for retirement income. What are my best, tax efficient investment options?

A.Thanks for asking!

First let me say that you have both done a wonderful job and are way ahead of the game!

To answer your Q specifically, I will need to know a little bit more. You mention that you don't anticipate needing this after-tax investment for retirement income--what do you want this money to do for you? Do you want it to grow? Is it money that you don't anticipate ever needing and that will be passed on to children and/or heirs?

Can you tell me a little about how your other funds are invested because it will give me a feel for your risk tolerance.

Do you have a good long-term care insurance policy?

Lastly, are you in a high tax bracket?

There are many options available and this information will help narrow it down considerably. Once you respond I will be able to tell you what they are and give the advantages and disadvantages of each.

Q. Dear Mr. Voudrie,

Thanks for the quick response. To answer your questions:

Yes, I want the after tax investment to grow.
I don't need to, or want to take excessive risk. I can stomach some moderate volatility.

I honestly do'nt know how much I will keep, spend or pass on.
Most tax-deferred accts are mutual funds: Fidelity, Vanguard, American.

My plan now is to hold my bond allocation in tax deferred accts and equity allocation in taxable accts. due to tax advantages,
hense my quest for very tax efficient vehicles.
We have no long term care policies.
Last year we were in 28% tax bracket.
I am an electrician. My wife is a nurse.

Thankyou for your time.

A. C****--let me just say again how great of a job you and your wife are doing financially! You are well on the way to work being optional!

From what you've told me, I would recommend you put the money into some good equity funds. Depending on the amount, you should consider dividing it between multiple. You can use low cost index funds like Vanguard, but if you are investing amounts greater than $1k each time it might be better to consider ETFs. In particular (and depending on the diversification of the rest of your equity positions), I regularly use ETFs with the following symbols: SPY, IWM, IJH, EFA, EEM.

You should also consider using a portion of the after-tax money toward a good long-term care insurance policy. Once retired, the cost of long-term care will be the greatest risk to you and your wife's financial health. I view LTCI as a way of preserving what you've worked so hard to obtain. I think of it as portfolio/wealth protection insurance.

You can find articles on ETFs and LTCI at the website: http://www.guardingyourwealth.com

I hope this helps. Let me know if I can help further.

And feel free to let your friends know they can get free financial advice here as well!

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