Rebalancing between Roth and 401k

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Rebalancing between Roth and 401k

Postby krannerd » Thu Dec 27, 2012 1:23 pm

After reading through the wiki about tax efficient fund placement, I've recognized that my funds are not placed optimally (example below with bonds in the Roth when they could be better placed in the 401k). My question is related to how to balance funds between tax advantaged accounts.

Is there any reason not to exchange bonds for small cap in my Roth and reverse that in the 401k? I was planning to execute all of the transactions on the same day. Is there a different / better way to do this?

Thank you for any and all comments on this topic. Please let me know if I need to clarify any specifics.

The overall asset allocation for the entire portfolio is generally correct
The funds that I plan to exchange between are generally equivalent between FIDO and my 401k
Funds available in 401k (other fund names omitted): WFBIX (Blackrock US Bond Index), Small / Mid fund of funds (Janus Small / Mid 25%, Lord Abbett Small/Mid 25%, Black Rock Russell 2500 Index 50%)
Funds available in Roth (other fund names omitted): FSEMX (Spartan Small / Mid Index), FBIDX (Spartan US Bond Index)

Accounts with current balances (extra information omitted):
My 401k: $10,000 Small / Mid fund
My Roth: $10,000 FBIDX

Action plan:
My 401k: Sell $10,000 small / mid fund and buy WFBIX Bond Index
My Roth: Sell $10,000 FBIDX and buy FSEMX

Extraneous information:
I compared the expense ratios for these funds and my 401k funds have higher ERs than FIDO. Making this exchange will reduce the ER on the small / mid fund from 0.42 to 0.07. The bond fund ratio will increase from 0.10 to 0.13 after the exchange
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Re: Rebalancing between Roth and 401k

Postby stan1 » Thu Dec 27, 2012 1:46 pm

FSEMX is an S&P Completion/Extended Market Index. Are you using it with an S&P 500 fund to simulate the Total Stock Market in a ratio of about 80/20?

If your goal is to add a small cap slant there might be better choices that are smaller and less prone to front loading of index changes.
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Re: Rebalancing between Roth and 401k

Postby krannerd » Thu Dec 27, 2012 2:50 pm

I'm using this fund for exposure to non-Large US stocks. I thought it would be simpler than having dedicated small cap and mid cap funds. I'm open to suggestions for different funds.

Any thoughts on the mechanics of how to achieve better tax efficiency between the 401k and Roth?

Thank you for your offer of help on fund selection.
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Joined: Sat Jun 25, 2011 12:05 pm

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