edt wrote:Putting bonds into a 401k account makes a lot of sense because of the taxation implication.
What alternatives are there for a regular taxable account that would have a similar risk/reward profile without the tax implications for someone in the higher tax bracket? Munis seem too volatile.
In my situation, I have 150K I would like to invest, but don't want to commit it to a retirement account because I am likely to upgrade my house due to a growing family within 2-3 years. Vanguard Total Bond Market ETF would be perfect if it was more tax efficient (a 10% capital hit in another 2008 meltdown is acceptable to me but not a 50% demolition like there were in stocks since I need it in the medium term).
Anyone have some good advice?
(1) I'm against the idea of taking any money out of any retirement account until needed for retirement purposes because it's too hard to get money into such an account. (Mine may be a minority position.)
(2) If the TBM ETF is acceptable to you in a taxable account, then consider a bank CD. You will lose the principle volatility. But you will be exposed to the high-tax-bracket hit. If principle protection is your greatest concern, this is a good choice.
(3) *If tax efficiency is your greatest concern, I'd use a ST tax-exempt bond fund. But the price volatility returns. You could lose ~1% in principle over 2 years assuming a 1% increase in the federal lending rate over that time frame. (No, I don't have any idea how likely that is to happen.)
*If you are subject to the AMT (alternative minimum tax), the TE-interest becomes taxable. But luckily, there will be little of it.
d.r.a, not dr.a.