Ok, this is starting to make sense now, thanks. Sounds like if there's any "total x" market fund through my university and I can contribute enough, then that's going to be the no-brainer. Are there restrictions to setting up one of these personal brokerage accounts for the sole purpose of starting a
VTSAX account to use, if option A isn't available? I've poked around the Vanguard site a few times, but it was super intimidating and I actually couldn't find a way as an individual to even start an account (entirely possible I was missing an obvious necessary step).
It's really no different than setting up a bank account. Every thing can be done online, with no human interaction. Give them the personal info they need, link at least one bank or savings account, and you are good to go. The primary difference is setting up an IRA versus a standard brokerage account (though Vanguard recently renamed all of their accounts with a brokerage label on everything, so now it is a "brokerage IRA," for example). The main difference is that the IRAs or other tax-deferred savings accounts have their yearly investment limits, fees for early withdrawals, and fees or lack of fees and taxes for transactions within the account. The benefit of differentiating between the type of shares within each account is that you might want to consider putting the higher-taxed funds (so you have some REITS or other dividend funds that actually pay you monthly or quarterly, at higher percentages, thus entail a greater number of annual taxable events) into your IRA, so that you don't have to worry about keeping track of those events. VTSAX is a great option for anything, but particularly with a standard brokerage account because it pays a low percentage, quarterly dividend that isn't going to cause much of an annual tax hassle beyond your typical low-interest savings accounts.
Also, while IRAs have a maximum annual contribution, those limits do not apply to rollover values. Say you have 10k sitting in an old employer retirement account, and you want to transfer it to your personal IRA or a current employer 401/403. All of that value can be transferred over in one go, and none of it applies to your annual maximum. The annual maximum refers to income only, so whatever you earn/contribute as income in that tax year. Rollover money is considered previous year income.
Relatedly, I'm assuming what you've been talking about are 401ks or equivalentn thus far, which means they cap at 18.5k per year. Is there any value in starting a Roth/traditional IRA if I can't make that 18.5? I can't really see any value except that perhaps the penalties are lower/the accounts are more flexible if you need to tap into them in emergency situations (which none of us really expect, but we keep plenty of $$ in savings to mitigate really anything except a catastrophic medical emergency).
There really isn't an additional financial value in starting an additional trIRA if you can't max your 401, but it also doesn't hurt anything. I like mine because I consider it my "Actual retirement account" When I have left this current job, whenever that will be, and on and on, those accounts will be rolled into my personal Vanguard IRA. I'd say there is value in opening a ROTH IRA, however, because they are taxed differently and the interest earned on those contributions don't suffer withdrawal and tax penalties, unlike other IRAs. I like to think of it as a hyper savings account, assuming you've been adding to one for some time, or have a long-term plan (say 5-10 years and longer), want to make a down payment on something fun or necessary (Say, new house, boat, small island). You can keep contributing to that and the interest earned, many years later, is basically untaxable cash that you can use for that down payment, thus increasing the actual value of your payment. ....and of course if you have balls you can buy individual shares of whatever you want in these accounts and benefit from their tax-deferred status, so they
could grow much faster than the typical, expected ~7-8% per year, over time if sticking to Index funds, but that requires lots of luck and, balls.
Last question, I promise. Wife's grandfather will likely leave us a decent chunk of change in his will within the next few years (somewhere in the low five figures I'd imagine). Aside from just maxing retirement contribution to this account that I set up/settle on in the next six months, is there anything more creative I should start reading about now?
Thanks to everyone for the wonderful advice and clarification so far, by the way. You've made a confusing process much less painful so far.
If you don't have any specific plans and/or needs for that money, I would just keep it as spending cash and max out your contributions on your paycheck until you reach that year's contribution limit. (AKA: how to effectively transfer taxable inheritance into your tax-deferred retirement account). Or just use the first chunk to open a new Roth IRA if you don't have one by then.
One option to consider, if you meet the requirements to open one, is an
HSA. This requires you to have access to only expensive healthcare plans and, uh, I forget the rest. I only know that I can't open one, which sucks. It's basically a trIRA and Roth IRA all in one, but with much tighter annual max contributions (something like $3550, I think....and I think it was recently lowered). Sometimes Employers offer these--you can check with HR, but I think you can only open one during Open Enrollment, but if your Employer doesn't offer them, you can open your own, at various banks. Some access to funds aren't that great, from what I hear, so it really depends on where you open it. This involves a lot of record-keeping and patience. ...basically the idea is to max out that HSA every year, pay all of your "medical expenses" out of pocket, KEEP YOUR RECEIPTS, and then several, many, whatever years later, start claiming those receipts from your HSA (pay yourself back), as you can withdraw money from them at any time, tax free, to cover approved medical expenses (I believe they are really generous with classifying expenses, too: an ergo chair, for example). The benefit is best realized as long as you can keep the investment within your account really high for many years, to benefit from compound interest, then only start paying yourself back later in life, when you start to see health needs (and the claims do not expire--so yeah, you can make a claim on 20 year+ old co-pay or medical device, prescription, whatever). This is not a Flexible Spending Account, which they are often confused with. Those are use-it or lose-it accounts that expire annually, and only really save you minimum deferred tax savings each year--basically garbage, imo.
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