Types of investments accounts and funds to own to become financially independent

This post is for new hospitalists to help understand the basics of different types of investment accounts.

Name of accountTypes Dollars$ LimitsFunds to invest inVanguard FidelitySchwabFeaturesReduces Taxable income
Checking accountPost-taxNoneCashDirect deposits, paying bills, checking account churning with different banks to earn bonus moneyNo
High-Interest Online Savings accountPost-taxNoneCashAt least get some interest earning, emergency fund, 2 yrs expensesNo
CDPost-taxNo
HELOCPost-taxcan act as emergency fundNo
Credit cardscan act as emergency fund, credit card churning if you have time to earn some bonus moneyNo
401ksolo 401(k) for self employedPre-tax19,500[$26K for 50 and older], $58K for Solo 401KTotal Stock Market Index Funds, S&P 500, can be most aggressive [100% stocks]VBFMX, VSCIX,
VMCIX, VTSAX, VITPX
SWTXSautomatic contribution from paycheck for DCA, grows tax deferred, taxed upon withdrawal, employer match, can’t be withdrawn before 59½ without 10% penalty, can take loan for expenses or to buy home, main retirement account, can roll over into Roth IRA, will have [Required Minimum Distribution] RMDs after 72yrs ageYes
TSPSimilar to 401KFor federal employeesYes
403bsimilar to 401KPre-tax19,500[$26K for 50 and older]FXAIX, FXNAXtax deferred, Only available to employees of public schools and certain tax exempt organizationsYes
457bgovernmental 457, non-governmental 457Pre-tax19,500[$26K for 50 and older]VBMFXtax deferred, taxed upon withdrawal, 10% penalty before 70½ unless for qualified emergenciesYes
Taxable Brokerage accountPost-taxNoneLow cost index funds-Total Stock Market Index funds, S&P 500,
International stock funds [foreign tax credit], High Yield Municipal Bonds
VTSAX [ETF: VTI], VFIAX [ETF:VOO],
VTIAX, VEMAX, VTMGX, VFWAX
FZROX [ETF: -], VXAIX [ETF: -], OPTAX, ORNAX, RMUNXSWTSX [ETF: SCHB], SWPPX [ETF: SCHX]very liquid, can help in [TLH]Tax Loss Harvesting [VFIAX, VTSAX, VLCAX, VTCLX are similar and can help in TLH], Donate appreciated shares to reduce taxes, Stepped-up cost basis in estate planning upon death, long term capital gains tax [0%, 15% or 20% based on your income] for stocks if sold after one year, municipal bond interest in taxable account may result in SS benefits being taxableNo
Traditional IRAAs High income professionals, this account is mainly used for doing backdoor Roth contributionswe put post tax money if converting to Roth IRA via backdoor6,000[$7K for 50 and older]Like Roth IRALike Roth IRALike Roth IRALike Roth IRACan contribute for last year until you file taxes this year [April 15], Tax deferred, taxed upon withdrawal,  10% penalty before age 70½, can roll over into Roth IRA with Roth Conversion Ladder, will have [Required Minimum Distribution] RMDs after 72yrs ageNo
Roth IRABackdoor Roth IRA,
Mega Backdoor Roth IRA
Post-tax6,000 per spouse even if one spouse works [$7K for 50 and older]REITs
High Dividend
stocks [Small Caps,
Mid Caps],
High Yield Bonds
VGSLX, VSIAX,
VMVAX, VTSAX
Earnings grow tax free, income limit in 2020 is $139,000 for individuals and $206,000 for married couples, Best way to give to heirs [generational wealth], withdrawal without tax and penalty at 59½, no RMDs if spouse inherits but beneficiaries have to take RMDs if they inherit, kids can open if they have earned income, can withdraw your contributions early, not tied to employer, not counted as income for making social security taxable, backdoor Roth can be used as emergency fundYes
SEP IRA58,000tax deferred,
HSAHealthcare expenses account but Can use it as investment accountPre-taxSelf-only: $3,600 Family: $7,200, catch-up contributions (age 55 or older)
$1,000
REITSVGSLXCan contribute for last year until you file taxes this year [April 15], Only if you have HDHP [High Deductible Health Plan], Only for health care expenses until age 65, Triple tax free[=contribute, grow and withdraw tax free], can withdraw money much later in life and pay for medical bills if you save the bills from decades [=Stealth IRA, at age 65yr withdraw money just like from a Traditional IRA], Can have Premium Pass Through Contribution, no RMD, not counted as income for making social security taxable, can use as emergency fund if you saved billsYes
529a prepaid tuition plan, an education savings planPost-tax15,000/yr per individual per yr, $75K front load for 5yrsoften limited to more conservative securities, like mutual funds and ETFsTarget date funds, S&P 500, VTSAXTarget date funds, S&P 500, VTSAXTarget date funds, S&P 500, VTSAXuse for college expenses like tuition, fees, room and board, elementary or secondary school tuition, grows tax deferred, withdraw it tax free, can transfer to another kid, invest in any state plan, counted as parents’ asset on the FAFSA,Yes
Real EstatePost-taxREITS, Syndications, single family homesSaves taxes, monthly income, uses leverage [Other people’s money], 1031 exchanges,Yes
UTMAKids Custodial AccountPost-taxno limits but gifting limit by anyone is $15KReal estate, stocks, bonds, ETFsWider investment options including Real estate, Kids can access funds at 21yrs [depends on state], Kids can do anything with this money, subjected to long term and short term capital taxes after the first $2,100 in unearned income (dividends, capital gains, and interest on your contributions), counted as students’ asset on the FAFSA, You can move money  to a 529 plan, .No
UGMAKids Custodial AccountPost-taxno limits but gifting limit by anyone is $15Kstocks, bonds, ETFsKids can access funds at 18yrs [depends on state], Kids can do anything with this money, subjected to long term and short term capital taxes, counted as students’ asset on the FAFSA, You can move money  to a 529 plan.No
FSAMedical
Pre-tax$2,750, employer may limit its employees to lessUse it or lose it yearly, medical bills paymentYes
FSADependent carePre-tax$5,000Use it or lose it yearly, kids day care expensesYes
Social Security Benefitscan start taking at age 62 or delay until 70, the more it’s delayed the more we get monthly, will be taxed,No

Tax efficient funds are fine in any account.

Regular Rebalancing of Stock/Bond ratio is easy if you have enough room in tax advantaged accounts to hold some of tax efficient stock fund as stocks and bonds can be exchanged without tax consequence.

Rebalancing in taxable accounts is done by investing new money to avoid capital gains that happen if stocks are sold.

Note: Not a financial advice. Just for education and entertainment. Consult your own advisor for your own financial decisions.

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