Question: I don’t have any debt , matching my employers 401k (3 percent) (I think it’s a target date fund)

and another 15ish percent of my check into the employers Roth 401k , (I think it’s a target date fund)

Maxed out 2023 and 2024 Roth IRA. (fidelity)

And then I have another 6k invested into an individual fidelity account

Beyond that I have some savings in my hysa bank, beyond 6 month emergency fund, would I’d be a bad idea to invest more into the individual fidelity account?

Can I pull it out later ? ( I’m assuming I’d get taxed on the profits)

Any input or feedback on my current investments and any advice?

Answer: Investing Additional Funds into a Taxable Brokerage Account: Considerations and Advice

Hello! It's great to see you're proactively managing your finances and seeking advice on how to optimize your investment strategy. Let's break down your current situation and address your questions.

Current Financial Overview

Question 1: Is It a Bad Idea to Invest More into the Individual Fidelity Account?

Short Answer: No, it's generally not a bad idea, but it depends on your financial goals, risk tolerance, and investment horizon.

Considerations:

  1. Retirement Accounts Are Maxed Out:

    • You've already maximized contributions to your employer-sponsored retirement accounts and your Roth IRA, which is excellent. These accounts offer tax advantages that you should take full advantage of before investing in taxable accounts.

  2. Emergency Fund is Adequate:

    • You have a solid emergency fund covering 6 months of expenses, which provides a financial safety net.

  3. Additional Savings:

    • You have extra cash beyond your emergency fund, currently in a HYSA. While HYSAs offer safety and liquidity, they typically provide lower returns compared to long-term investments in the stock market.

  4. Investment Goals and Time Horizon:

    • Short-Term Goals (less than 5 years):
      • If you need the money soon (e.g., buying a house, car, or other large expenses), keeping it in a HYSA or other low-risk accounts might be prudent.
    • Long-Term Goals (5 years or more):
      • If you don't have immediate plans for the extra cash, investing in a taxable brokerage account could help grow your wealth over time.

  5. Tax Implications:

    • Dividends and Interest:
      • May be taxed annually.
    • Capital Gains:
      • Realized when you sell investments at a profit.
      • Short-Term Capital Gains: Assets held less than one year are taxed at your ordinary income tax rate.
      • Long-Term Capital Gains: Assets held more than one year are taxed at preferential rates (0%, 15%, or 20%) depending on your income.

  6. Flexibility and Liquidity:

    • Taxable brokerage accounts offer flexibility; there are no penalties for withdrawing funds (unlike some retirement accounts).

Conclusion:

Question 2: Can I Pull It Out Later?

Yes, you can withdraw funds from your taxable brokerage account at any time.

Details:

Important Considerations:

Feedback on Your Current Investments

  1. Retirement Contributions:

    • Maximizing Tax-Advantaged Accounts:
      • You're contributing significantly to your 401(k) and Roth 401(k), and you've maxed out your Roth IRA. This is excellent for long-term retirement savings.
    • Employer Match:
      • Ensuring you get the full employer match is crucial, as it's essentially free money.

  2. Asset Allocation:

    • Target-Date Funds:
      • These are convenient for investors who prefer a hands-off approach. They automatically adjust the asset allocation based on your expected retirement date.
    • Consider Reviewing:
      • Ensure the target-date funds align with your risk tolerance and retirement goals.
      • Fees (Expense Ratios): Check if the funds have low fees, as high fees can erode returns over time.

  3. Taxable Brokerage Account:

    • Investment Strategy:
      • Decide on an investment strategy for your taxable account that complements your retirement accounts.
      • Diversification: Consider a mix of stocks, bonds, or index funds to spread risk.
    • Tax Efficiency:
      • Tax-Efficient Investments:
      • Favor investments that generate qualified dividends and long-term capital gains.
      • Index Funds and ETFs are typically more tax-efficient due to lower turnover.
      • Holding Periods:
      • Aim to hold investments for more than one year to benefit from lower long-term capital gains tax rates.

  4. Savings Beyond Emergency Fund:

    • Purpose of Extra Savings:
      • Identify if these funds have a specific goal (e.g., down payment on a house, vacation, car).
      • Invest Accordingly:
      • For short-term goals (less than 5 years), keep funds in safer, more liquid accounts.
      • For long-term goals, consider investing to potentially achieve higher returns.

  5. Overall Financial Health:

    • Debt-Free:
      • Being free of debt gives you more flexibility to invest and save.
    • Insurance:
      • Ensure you have adequate health, auto, renters/homeowners, and, if applicable, life insurance.
    • Estate Planning:
      • Consider setting up a will and, if necessary, other estate planning documents.

Additional Advice

  1. Periodic Portfolio Review:

    • Rebalance: Adjust your portfolio periodically to maintain your desired asset allocation.
    • Performance Check: Review the performance of your investments annually.

  2. Increase Retirement Contributions (If Possible):

    • 401(k) Contribution Limits:
      • For 2023, the maximum employee contribution is $22,500.
      • If you have the capacity, consider increasing your contributions to get closer to the maximum.

  3. Consider a Health Savings Account (HSA):

    • If Eligible:
      • HSAs offer triple tax advantages: contributions are pre-tax, growth is tax-free, and withdrawals for qualified medical expenses are tax-free.
    • Long-Term Savings:
      • HSAs can be used as an additional retirement account since, after age 65, withdrawals for non-medical expenses are taxed like a traditional IRA.

  4. Set Clear Financial Goals:

    • Short-Term Goals: Vacations, purchases, etc.
    • Medium-Term Goals: Buying a home, further education.
    • Long-Term Goals: Retirement, financial independence.

  5. Stay Educated:

    • Financial Literacy: Continue learning about personal finance and investing.
    • Resources: Books, reputable financial websites, or even consulting a financial advisor.

  6. Monitor Tax Implications:

    • Tax-Loss Harvesting:
      • Use investment losses to offset gains and reduce taxable income.
    • Qualified Dividends:
      • Investments that pay qualified dividends are taxed at lower rates.

Conclusion

Investing additional funds into your individual Fidelity brokerage account can be a sound decision, especially since you've covered your bases with retirement accounts and emergency savings. Ensure that your investment choices align with your financial goals, risk tolerance, and time horizon.

Next Steps: