I agree the big picture is how much of your income is going toward building wealth. I started a Betterment taxable account on 12/16/14 and DCA into it twice monthly. Whoop whoop. If the only benefit you see from Betterment is the TLHing, and you actually care about the fees, I think youre in the minority of their customers. HSAs are triple tax-free, but you can't stretch them or use them very tax-efficiently except for healthcare. Some more room for argument here. ), as the underlying funds cost just over 0.11%! For the manual tax loss harvester working within a taxable account, I agree that switching to a Fidelity alternative for that 30 days makes sense. I even sought out a 0 percent car loan for the arbitrage opportunities. Plus add another $100K for residency since it typically compounds at 6%+ for 3-5 years. You've heard the phrase before, When you win the game, stop playing. We carried our mortgage a couple of years longer than we had to so we could invest in a taxable account. They may even argue about it for weeks in the comments section. 150 Of The Best Investing Blogs On The Planet (2018) Well done. Happy New Year everyone and thank you to the WCI you are a big reason we have the net worth we have. Curious anyone try the Schwab version of their Intelligent Portfolio robo advisor? It builds your net worth. Im currently on #7, looking to pay off a 2.75% mortgage aggressively. Who needs losses Your level of wealth can affect whether you should pay off debt. 03-03-2016, 07:53 AM They're OK, but honestly you'd be better off just investing with a simple index fund portfolio with Vanguard and tax loss harvesting on your own. We were both military, so close to nil student debt (I paid off my squat undergrad loan with my first few paychecks as an intern).but we are kind of older and when we built our home interest was 8% for mortgage. I am a IM subspecialist in a northeast suburb. Just when you thought it couldn't get more complicated, let's bring asset protection and estate planning considerations into the equation. Duh. With regard to the Wash Sale Rule, no issues if the two accounts in questions are in different names. All times are GMT-7. Here are two sources (not the IRS itself, mind you, and Im not going to be in the room if you get audited!) If there is a loss we would probably sell Vanguard total stock index and buy Vanguard Large cap index and/or sell Vanguard total international index and buy Vanguard FTSE ex-US near the end of the year to harvest losses. I just started using Wealthfront. I hope nobody is surprised to find this one at the bottom of the list. I believe if your portfolio is large enough the fee outweighs the benefits since you can only utilize $3K per year. If you are truly a DIY, great. 3(d) Include non-retirement tax-protected accounts in accordance with your goalsHSAs, 529s, UTMAs, etc. It isnt really the account size but the contributions.. As I understand it, harvesting is not only at deposit events: https://www.betterment.com/resources/research/tax-loss-harvesting-white-paper/. What would you add to it? I think that if you want instant diversification, rebalancing, and TLHing, for a reasonable fee and no additional advice, hand holding, or frills. Obviously nobody knows the future of the stock market particularly short-term performance however weve had quite a run. They offer an automated tax loss harvesting service, TLH+, as part of their standard management fee for accounts with holdings greater than $50,000 (including both taxable account and traditional IRA holdings). We love being debt free. We are in Seattle so the companion fare has been used many times. But at this juncture, it will feel great to payoff the student loans and only have a mortgage left to contend with. Your email address will not be published. Perhaps the best advice I can give is to avoid extreme positions. I built up a taxable account and then in my forties I paid off all loans. This year I will be switching to a solo 401K instead of the SEP, as I can avoid the income limits on Roth contributions in the Solo 401K. If the decision to keep debt to invest is just a balloon-squeeze between debt balances and investment balances, Id suggest adopting a more radical approach to debt reduction, whether thats through scaling back lifestyle further, or through diverting investment dollars to pay off debt. A fitting topic for New Years day! No, because the Target Date Fund is substantially different than TSM. Rolling over one's tax-deferred accounts into a Betterment (traditional) IRA would effectively rule out backdoor Roth conversions due to the pro rata rule. Our free financial planning resource covers a variety of topics from doctor mortgage loans and refinancing. Feels fantastic! Posts like this one are a perfect example. Therefor I am paying $1500 to save $1188 in taxes. We carried student loan debt for 8 years post-residency. In the meantime, we are investing in taxable accounts instead of paying down the mortgage. stan1 Posts: 12752 Joined: Mon Oct 08, 2007 9:35 pm Re: Vanguard doesn't let you buy fractional shares of ETFs? Particularly given the discussion about eventual fees and account size etc above. Here's the other thing to keep in mind. Over that same period it has harvested $2,351.52 in tax losses and my two (75/35% stock, respectively) goals have time-weighted returns of 12.8 and 6.8%, respectively. I also like the small cap and value I do not like the heavy international equity weighting and the use of non-municipal bonds in the taxable environment. Best Ways to Use Debt to Your Advantage, Fire Your Financial Advisor! If you're shopping for a home mortgage, know the latest financing options for doctors, dentists, and other healthcare professionals. The shares are simply transferred to their account, then liquidated. The ETF price usually reflects the prices of the stocks it holds, whereas mutual funds shares tracking similar holdings may not have the same underlying value. A financial planner that is highly respected on the Bogleheads forum told us that we should pay off the mortgage. So with interest I have to pay ~15k per year on this debt in order to hopefully make more money elsewhere. A few months in we refinanced (for free) to a 15 year at 7.25%. 529s are good, but the tax break pales in comparison to a 401(k). For me, Im a real estate investor who decided to pay off my investment properties as well as my primary residence. Betterment can manage one's tax-deferred funds, too, via a rollover/transfer to a traditional IRA managed by them. Sorry, I didnt refresh my browser prior to posting. Betterment Lab - The Backdoor Roth IRA Made Easy - Facebook Reverse Mortgages Problems | White Coat Investor Then, over the next 30 years, it never goes below $8 a share, so you can never tax loss harvest that share again. Helping those who wear the white coat get a fair shake on Wall Street since 2011. biggest thing I think people gloss over when they see that Betterment offers tax loss harvesting:you cant own any "substantially identical" funds in your 401k, or else its a wash sale when Betterment sells/buys some automatically for you. We wouldnt mind eating out less, traveling less, borrowing for college, or delaying new car/ sailboat purchase as much as wed mind HAVING to move if we suddenly had a drop in income and were unable to pay the prior mortgage each month. Theres definitely the option to turn it onits not available for sub-$50k accounts, and is an option that one proactively enables for supra-$50k accounts. That is assuming you have a million in taxable investments. The real bang for your buck with TLHing is if you can avoid paying the taxes at all by donating appreciated shares to charity or getting the step-up in basis at death. They boast there's no mgt fee. Also, when you flush out capital gains how is that separated from the principal investment? Does anyone have anything good/bad to say about Betterment? We have no debt. Add in vanguard intermediate term tax exempt admiral shares (VWIUX-exp ratio 0.12%). How to Do a Backdoor Roth IRA - The White Coat Investor The 10 Best Investing Blogs for 2023 | Investor Junkie For accounts with 500k+, average harvested to date = $4282. Tax bill may change the equation. I do it myself and still pay about .09% with my fund fees, and I dont harvest nearly as much as they do. You do need to worry about violations between taxable and tax-deferred accounts, howevercant hold the exact same fund (but you could hold the ETF equivalent in one, as Betterment does, and the mutual fund equivalent in the other). For us, our course of delaying paying off the student loans felt like the middle way. Im not sure what the right answer is for you MDRadOnc but I know a lot of people who are setting money aside in safer accounts just in case PSLF falls through. This is where most of the arguments are going to be made. Forgot to mention plans apply for forgiveness. Originally posted by The White Coat Investor View Post. Step 5 - Ensure you have no money in a traditional IRA, SEP-IRA, or SIMPLE IRA on December 31st of the year you do the CONVERSION step. Copyright 2023 - The White Coat Investor, LLC. I like the user interface, the dashboard, and the ease of use. Just realize you are playing with fire and it could burn down your house if you arent careful. But even if I do have to pay the taxes later, Im paying taxes at a 20%ish rate, or lower, but getting the deduction at a 40%+ rate. For us, paying off some smaller debts makes a lot of sense, as it frees up cash flow and gives more cush in the budget. Im not ready to go the Betterment yet but am interested in these Robo-Advisors. Yes, obviously you dont want to pay off debt that someone else will pay off for you. Disability insurance is crucial insurance for the vast majority of physicians to secure. So generally, its only contributions youve made in the last year or two or three that you ever get to tax loss harvest. Actually had a chance to sit down with their co-founder for a bit recently and was really impressed with their tax loss harvesting and rebalancing algorithms, and I'm now starting to move some of my taxable account over to them. Great, now my blog is decreasing the quality of medical care and medical education. Savvy readers over the years realized those lists were not identical. If you expect to make 5% or 6% on something, it can make sense to carry a 2% loan. Since this would be for cross-vendor potential wash sale violations, across taxable (in one) and tax-deferred (in the other) accounts, I think the actual potential of being audited would be extremely low, in any case. This investment comes with a high rate of return, and it's also guaranteed. Its where all my money goes after maxing out 401K and SEP and 529 accounts. And, though its my own article, this analysis of the Millionaire Next Door Tom Stanley Wealth Equation has a bunch of tables with numbers in in that your readers might find interesting: https://www.designindependence.com/articles/2016/10/25/book-review-the-millionaire-next-door-by-thomas-j-stanley-and-william-d-danko-and-tackling-the-stanley-wealth-equation-what-should-your-net-worth-be. Otherwise to the extent excess equities are held in your normal retirement account you are turning gold in to lead (converting long-term capital gains into eventual ordinary income). I use Wealthfront and love it. 0.15% of $100,000 = $150 Annually, or $12.50 per month, right. Thought there was a case on that, and since its the exact same holdings, I dont think this would stand up in court. What about tax-deferred accounts? Erstwhile Dance Theatre . So I have little tolerance for debt because of a lack of protection. Maybe you should pay off your mortgage. I have been strongly considering cashing out my Betterment account and going to such an approach. Even in 2023 with cash paying just over 5%, paying off moderate interest rate debt is an attractive option. Id call that a win. Expected return benefits from tax loss harvesting, continual rebalancing seems to more than make up for the small fee involved. Yes, it seems silly to buy 2% treasuries while paying 4% on a mortgage doesnt it? In this respect, perhaps investments with high expected returns get purchased before paying off debt and vice versa. 2. Thanks for the update. I love the website and as I grow past saving in tax deferred accounts, I will definitely use betterment to handle TLH, but it isnt a problem I have had the fortune of handling yet. I owe a LOT to this site and WCI and am pretty sure that plenty of people come to the comments section. It felt great to invest so much in retirement, start a taxable account, have a nice car to drive (paid with cash), hike the Tour du Mont Blanc, take a fancy pants small boat cruise in Alaska, and go to Hawaii 2x a year! document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); A Doctor's Guide To Personal Finance And Investing, 2023 - The White Coat Investor Investing & Personal Finance for Doctors. I posted this in response to another comment, but heres the manual Betterment distribution, for tax-deferred accounts at 70% stock: Ive been trying to get my head around TLH since recently opening a taxable account, its in my wifes name only. So all the investments are relatively recent, right? They include a commodity position and VIG but do not tilt to value, like Betterment does. Anyway just some thoughts. . Financial Wellness and Burnout Prevention for Medical Professionals. Products - The White Coat Investor Most of the time, there is no right answer, but maybe 5% of the time, there is. So you still have to do that. Then, we became wealthier faster than we expected. Sorry, Im saying I would compare paying off debt at 4.375% to a taxable investment gain of 5.6% because the taxable investment would net about 4.4% after capital gains. After a decade or so, even a massive market decline isnt going to get your share price back below what you paid for it. I dont know that it has to be low risk, unless youre going to use it to buy a home soon. The other thing I noticed in the comments is the tlh only being done at depostis? What about an ill 85-year-old with some debt but also some taxable assets with low basis? I actually think this is a great product, especially for those who can save, but dont know what to do with it. Bogleheads Investing Advice and Info Correction: Their fee is NOT inclusive of the fund fees. The members also welcome less experienced investors who have questions about investing or who need help to develop their portfolios. In addition to mutual funds, Optum Bank is now offering a new investment option: digitally managed investments with Betterment. If you're expecting to earn 10% on investments and your debt is at 2%even if it is 2% variableit seems kind of dumb, at least from a mathematical perspective, to pay off the debt. If you're carrying credit card debt with a 30% interest rate in hopes that your investments will outperform it, you're making a mistake. I think it is a great way to get a new investor started or to help someone transition from an advisor relationship to a more DIY milieu. Their fee is 0.25% annually for accounts $50,000-$99,999, and 0.15% annually for $100,000+. The important decision is probably what percentage of your income is going toward building wealth rather than consumption. Youre right. And its not that the balance tipped (we are taking as many trips as ever). It is the practice of selling securities at a loss and using those losses to offset taxes from gains from other investments and income. Even still for a total of basically .25% including fund fees, its a great deal if you dont want to handle it yourself. Now, you can look to WCI for expert advice and customized solutions for managing your student loans. Am I (>50 yo) eligible to fit more than $79,800 (2023 figures, to be adjusted for inflation yearly) in combined retirement accounts if I open a Roth 401K in addition to the 401K and 457b that I already have? https://www.betterment.com/resources/inside-betterment/product-news/betterment-for-business-the-best-401k-for-employers-and-employees/. Plus Betterment puts WAY too much in emerging markets/International markets for my taste (which is to say no taste for international at all). Putting money into investments early gives you more compounding time. The fee for two months is $37.50. Financial Waterfalls for New Residents and Attendings. Your email address will not be published. For accounts >50k but 100k but 200k but 300k but 400k but <500k, average harvested to date = $2609 Yes, you should buy insurance against financial catastrophes. You would certainly hope so. For me, interest rate isnt so bad on school loans (4.5%) but the absolute dollar amount, combined with daycare, combined with primary care field of work has led us to meld #2 and 3 together: max a couple (but not all available) retirement accounts (still saving >15%) and focusing raises, bonuses, etc onto student loans. Then the extra 0.15% fee is $1500 per year. If you are so fee sensitive that a few hundred dollars makes a difference in your decision, youre probably a do-it-yourselfer. csinvesting. But a common criticism is that they favor their own funds and have a larger then normal cash position that some don't like. I have a small Betterment account, and I contribute to it monthly. Wealthfront is a competing product that apparently is popular among west coast techies. I am following a similar plan. This is a great way to look at low interest student loan debt. The White Coat Investor | April 4, 2023 at 11:04 pm MST. We also book far in advance and stay at relatively inexpensive (oceanfront condos). Currently, it represents less than 1% of my investible assets in the taxable portion of my portfolio. While its a low interest rate and I can clearly make more investing its still a required bill every month and it cuts into cash flow. Not really, just trying to explain why it doesn't work to do what you would like to see. This page was generated at 03:56 AM. Some people hate debt. By Dr. Jim Dahle, WCI Founder I am often asked for recommendations on how to choose a financial advisor, and sometimes people ask for recommendations for a specific financial advisor. Both of course change significantly with the stages of life. Whether to use a service such as Betterment ultimately is an individual choice, but I think their introduction of TLH+ makes their 0.15% fee seem reasonable for management of taxable investment accounts. As with many things financial, you can run the numbers many ways to make your favorite point stick. His reasoning was that there is no benefit to being on both sides of debt instruments. Whether to use a service such as Betterment is an individual choice, but I think their introduction of TLH+ makes their 0.15% fee seem reasonable for management of taxable investment accounts. We also have a mortgage in a high COLA. I think Toshi is mistaken on that point. My guess is it was similar to your point around level of wealth and risk tolerance. Would you consider it for the TLH+ service? Find the latest WCI products including books, shirts, stickers and more. Hard to say. So, a tax-deductible debt (like many mortgages) is less of a priority than one with an equal interest rate that is not deductible. One could argue in that situation yo are trying to make minimum payments on likely a high interest rate debt and should still invest with the anticipation of it being forgiven. If you're in a state where it isn't protected, perhaps it is less of a priority. (The Mad FIentists own portfolio would have resulted in him manually harvesting $0 over that same period. (She has no retirement accounts). I agree. Ive never owned individual stocks. I believe that switching from ETF to Matching mutual fund is a wash. There should be a breakeven point at a lower balance. I would love to have more in 401K etc., but its not always possible, so I tax loss harvest to make the best of an imperfect situation. So if one fund goes up 25,000 in a quarter and another drops 40,000 the same year, I can sell them both, rebuy the one that went up and something similar for what went down.
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