Hi Evan, are talking about tax-deferred (retirement accounts) or taxable?
JBer: I generally have not seen clients willing to put all with one firm. Since you are at about $2MM, you may want to begin to consider moving your next pile to another strong firm...up to you.
Hi Evan - I usually recommend ETFs in taxable portfolios instead of mutual funds - because they are more tax-efficient. Due to their structure, you don't get hit with capital gains each year even when you haven't sold your position (unlike mutual funds). I do use mutual funds in retirement accounts. If you are looking at an ETF vs an MF with the "same" name, chances are the MF is much larger and therefore expense ratios might be lower...
Evan, I agree that ETFs, due to their structure, should be more tax-efficient, and if they're with one of the large providers like Vanguard, should be dirt-cheap. That being said, I'd be careful about selling mutual funds with significant capital gains just to buy an identical vehicle in its ETF form. The other consideration is frequency of trading -- which vehicle carries a trading fee, if any, and how often will you be buying/selling? If you're dollar-cost-averaging, that matters.
Hi Evan, I think Lea answered the question, I'll just add that I once started using the ETF version of a technology mutual fund I was using. It did have lower expenses, but I soon realized it had little money in it and didn't have much activity. I'm not sure it was a big deal, but it scared me off. As a result I don't like to get too focused -- as some of the ETF can.
Jdm, you can always use tax-efficient index mutual funds to invest after-tax for retirement. They're not as attractive as Roth IRAs, but they do offer favorable capital gains rates if you have to sell something at a gain. And of course you can deduct losses or use them to offset gains.
Jdm, I agree with Delia; don't let the fact that you don't have a tax-favored vehicle stop you from saving more! Tax efficient investments in a taxable account are a great place to save for the long term.
Hi Emily! You're on deck.
Jdm, if you are over the income cut-off for a Roth IRA, your options become more limited. If you do not want ANY more taxable income, your best bet is individual municipal bonds, but be sure you purchase bonds that are indeed tax-free (some are taxable; some are subject to AM), some states and municipalities are riskier than others. Individual bonds held to maturity ensure return of your principal (barring default) in addition to the interest
DMB, take a look at www.evaluatelifeinsurance.org; that could be a good resource for an evaluation of your specific policy. And remember: if you need life insurance, don't cancel an existing policy until you have a new policy in hand....
DMB, whenever considering life insurance you first have to look at the time period that you'll need it. So assuming it's a policy from a strongly rated company, (1) UL policies last longer than the typical term policy, so if you need the insurance for the remainder of your life that's an advantage a UL has over a term product. (2) This is a tricky one. Depending on the cash inside the policy, you could use that to pay the remaining one year premium, or if the penalty is small you might want to go ahead and switch (but you FIRST must buy a replacement policy before cancelling the existing one). (3) You need to ask the insurance company how much of the cash value is a return of premium and therefore not taxable, vs. interest on the premium.
Hi DMB, Great question. You probably didn't need the UL policy, but now that you have it, do you ditch it. Frist, having appropriate life insurance is the most important aspect. If you have a $100,000 UL policy but really need $1,000,000 of coverage -- but didn't buy it because the UL premium was all you could afford -- then you need either additional insurance or cancel and get new insurance (but never cancel before you have the new policy fully issued and in place). I personally did the right thing and got term coverage that lasted until my kids are/will be through college --- but my last kid goes to college soon and I think I still want ( and probably have a some need for) life insurance once my term policy expires in a few years. Lastly, given a reasonable up market, term and invest the difference will always win, but will you continue to add to your investment accounts? Some people don't, but they will pay the insurance premiums forever.
Emily, Good question. I spent 12 years working for one of the major credit bureaus. Credit scoring systems, and more importantly, mortgage lenders, consider the time frame in which inquiries are made to your credit report for a given purpose. So if you were shopping for a mortgage with three lenders in 1 week, for example, mortgage lenders can see that and won't hold it against you. That said, I do think you should keep inquiries to your credit report to a minimum. I like to first check rates and terms through websites such as www.bankrate.com to give me a general idea of what rates are like. I also go to vendor sites such as www.amerisave.com because they'll give you a LOT of details on rates and fees without having to make an application. I give that last one just as a point of reference, not because I'm recommending them as a lender.
Tom, why is an annuity essential to this strategy? I've certainly heard of a bucket strategy, but the annuity part confuses me.
Hi Nathan. Best to seek out expert advice here, as taxation and investment issues for ex-pats are a specialized area. There are CPA firms and NAPFA financial advisors firms who focus on these issues.
Tom, withdrawals from your own savings accounts are also tax free, and FDIC insurance provides protection of the principal. If you're in your mid-40s then you would face early withdrawal penalties from IRAs, so that's why I like to use taxable money for those early years. I would suggest that instead of the variable annuity you consider using low-cost tax-efficient index funds and a laddered fixed-income strategy for that first bucket.
Tom, that fixed income could be first the FDIC-insured accounts; then short-term government or investment-grade bonds or munis.
Hi Tom. First, it is impossible to say what works for each client until a full review. But retiring in your mid 40's with $1,3 million seems risky --- again, that doesn't mean it won't work. Everyone have different life styles, but I have clients that are much older, have that much money or more and are iffy from my perspective. My biggest issue with the bucket strategy is that at some point, as you approach the third bucket you are 100% in stocks (assuming I half understand the concept) at an older age. Regardless of age, I don't like anyone 100% in stocks, so for me the bucket strategy falls apart at some point. At what point does the annuity "project" to run out? Is it a variable annuity? If so, proceed with great caution. The strategy seems simple, but proceed carefully.
Nathan, Working overseas is beyond me. I just had my first US client overseas and learned of the income credit (not sure that's the correct term). My client worked with a Very competent CPA specializing in US/overseas tax returns. I recommend ponying up the dollars.
Dennis, a lot of us have thought the same thing, and certainly anything is possible. After all, the government once promised that Social Security income would be free of taxes.
Hi Nathan. Absolutely nothing wrong with do-it-yourself if you're interested, committed, and have the time! If you're a Registered Investment Advisor, I suggest networking with planners who have expertise in this area: start with NAPFA and FPA. The right connections will point you to books/websites/articles, etc.