I see many posts that state something similar to -->
Conventional wisdom is that most people should invest in this order:

1 - 401k to match
2 - pay off all high rate/consumer debt
3 - max out Roth
4 - max out 401k
5 - contribute to taxable accounts

My question is when should I invest in a taxable account?
My company 401k matches half up to 6% and I already contribute 10%.
I have paid off all high rate/consumer debt.
My Roth IRA is maxed out for the year.

I realize that returns in a tax sheltered account will be higher since they aren't taxed until distribution, which allows more money to compound and grow. However your money is locked in a 401k until retirement age unless you pay hefty penalties.

Also what if I have extra investable money right now and there is no way to add it to my 401k? Yes I could max my contribution to 30%, live off my cash until it depleates, and then switch my contribution amount back...

Instead I am thinking of putting it in a taxable account, where I could have access to it if I needed it. (Eventually I might use some of it as a downpayment on a house.)

Suggestions?

If there's a possibility that you will need access to it (for a house or anything else), I wouldn't put it into your 401k.

Whether or not to max out a 401k before investing in taxable accounts is an ongoing debate in several circles and it can get *really* ugly (been there, yelled that). Basically it all comes down to math and you are the only person who can make that decision because it depends completely on your personal situation. But from what you have said, I would to the taxable just so you can access it if you need. And tax diversity is a good think anyway.

Also, your returns won't necessarily be higher in a tax sheltered account, they'll just be taxed different. And when you take into account that with taxable investments you get taxed 15% on LTCGs rather than the whole thing being taxed as income (as with a 401k) a case can be made for taxable investments.

Basically, it all comes down to math.

I don't think anyone necessarily needs to be afraid of having a taxable investment (aka savings) account. You just need to be aware of what constitutes a taxable event, namely interest, dividends and sales (individual stocks, mutual funds, ETFs, etc. -- I'll refer to these in general as securities). The sale of a security may increase your tax liability, but it can also REDUCE it.

Let's say you open up a taxable investment account at a brokerage account. You'll make an initial deposit of some amount and if you don't invest that money in securities, your broker (most) will "sweep" that cash into a money market fund (usually with no transaction cost to you). You'll earn a token interest rate on that cash, so at the end of the year you'll get an IRS Form 1099 indicating how much interest was paid and you'll pay taxes on that. You're not likely to get much of a return on that money market rate (probably won't beat historical inflation) so the next step is to invest it. This will continue for every year that you have cash with a brokerage that pays any (even miniscule) interest.

Now suppose 2 months later you've decided which securities you want to invest in. You enter a sell order and the brokerage automatically moves the necessary amount (including commission) from the money market sweep to pay for the shares and the shares are deposited in your account. If you didn't spend every cent of cash (aka money market, they're interchangeable in this case) you'll still have some cash in your account, which continues to accrue that nominal interest rate.

The securities that you've just purchased may pay dividend(s) throughout the year. When they do, they'll either be deposited into your account as additional shares of that security or as cash (my personal preference, for bookkeeping and balancing simplicity). The choice of "dividend reinvestment" or cash is usually made when you create the brokerage account, but it can usually be changed at any time by contacting your brokerage. Now your brokerage will send you a slightly different 1099 indicating how much dividends you received and you'll put that on your tax return as well. This will continue for every year that you hold a security that pays a dividend.

Suppose the security goes up in value and you decide to sell it. Your brokerage will send you a year-end statement (even if they don't, you're responsible for reporting it) indicating your stock sales over the year and you'll have to pay taxes on the gain (aka capital gains) you made in the appreciation (increase in value) of that security. But if the security goes DOWN in value you can choose to sell it to offset the capital gains incurred by the sale of other securities, or even interest & dividends. Though they don't have to be done in concert, planning the sales of your "winners & losers" is an integral part of managing your tax liability in a taxable account.

There are studies (that I happen to believe in, BTW) that indicate that active trading can reduce your returns. Unless you are an experienced professional trader, buying and selling securities on a regular basis is not the way to get rich. This leads to debates about market efficiency, index funds, and many more, so I won't go down that rabbit hole (just yet). But a buy and hold strategy, of sensible (your mileage may vary) investments in a taxable brokerage account doesn't have to cause you a lot of concern.

[Note: This is only intended to be a general overview based on MY experience. It is not a recommendation to do anything until you have sufficiently educated yourself. There are, of course, myriad options I did not discuss, so this should not be considered comprehensive.]

Excellent info PF and tinyhands.

JGS: To be short, it sounds like you just need to decide what timeframe you're looking for. The order of investments you list is specific to retirement. If you plan to invest that money for retirement, find a way to stick in a 401k if possible. If not, then don't. Invest in something that fits your timeframe. Find a company like Vanguard that tries to minimize taxes and fees and you're good to go.

I think there was a post talking crap on Legg Mason, but I found this document really helpful http://investorservices.leggmason.com/d ... pdf?seq=11 regarding timeframes, risk, etc.

I already invest at Vanguard with my Roth IRA and would keep my taxable account with them too.
I was even thinking of opening a SMALL Zecco account to speculate with - Just for fun!

There was a post at The Simple Dollar recently about this http://www.thesimpledollar.com/2007/06/02/does-ultra-frugality-mean-that-you-dont-need-a-401k-or-a-roth-ira/

I've been debating this myself lately. I feel like I'm saving all this money and I can't touch it until I'm 59 1/2? I am going to start saving up some money until I have enough to open a taxable account when I reach the minimum. This way I can use the money to buy a car, or maybe a down payment on a house someday. Or as the article at The Simple Dollar talks about what if I have enough money to retire younger than 59 1/2 but all my money is in IRA's and 401k's.

There are ways to get at that money before 59.5 without paying penalties so that shouldn't be a huge issue unless you're talking about retirement at age 40 or so.