Rebalancing Tax Implications

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Rebalancing Tax Implications

Postby davidr-va » Sat Jun 29, 2013 10:02 am

First, thanks for all the excellent advice I've received here. As a result of that I now have a very nice plan for my investments that's 50/50 stocks and bonds spread across taxable and tax advantaged accounts. I am having a slight issue with getting all the way there though...

In my tax advantaged account I'm holding my stock funds - total stock market and total international. Dividends are deposited into a money market fund rather than being reinvested. When I started I was underweight in international and bonds (in my tax advantaged accounts) so I was simply buying more international in the same account. At this point I'm fairly well balanced between domestic stock and international (40/10) and need to buy more bonds. I don't believe I can transfer the money into a tax advantaged account as I'm over the income limits. Should I just buy it in the taxable account and be done with it or are there other options I'm not seeing?

As always, thank you.
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Re: Rebalancing Tax Implications

Postby dbr » Sat Jun 29, 2013 10:09 am

If you don't have enough tax advantaged space to optimally locate your asset allocation, then you have to start finagling. Finagling means various options such as:

1. Pay some taxes. Also avoid taxes by tax loss harvesting (There are limits to this).
2. Select tax exempt (muni) bonds for part of your bond holdings. Also remember US Treasuries are state tax exempt.
3. Invest in tax deferred I bonds (deferred for 30 years, then gotcha).
4. Change your asset allocation and hold less in less tax efficient assets (not the the most recommended approach).
5. Invest in a variable annuity (almost never a good idea but there are exceptions).
6. Evaluate tax efficiency by calculating the actual tax cost to you; what is generally tax inefficient may not be costing you that much.

Other posters may add to the list.
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Re: Rebalancing Tax Implications

Postby livesoft » Sat Jun 29, 2013 10:14 am

Put more bonds in your HSA
Put more bonds in your 529 plans
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Rebalancing Tax Implications

Postby pkcrafter » Sat Jun 29, 2013 10:42 am

David, last July you posted your portfolio, have you changed it since that post? That portfolio was not presented correctly, and there was no review, so I'm wondering what it looks like now.

http://www.bogleheads.org/forum/viewtopic.php?f=1&t=100015&p=1446581#p1446581

First, thanks for all the excellent advice I've received here. As a result of that I now have a very nice plan for my investments that's 50/50 stocks and bonds spread across taxable and tax advantaged accounts. I am having a slight issue with getting all the way there though...

In my tax advantaged account I'm holding my stock funds - total stock market and total international. Dividends are deposited into a money market fund rather than being reinvested.


Why?

When I started I was underweight in international and bonds (in my tax advantaged accounts) so I was simply buying more international in the same account. At this point I'm fairly well balanced between domestic stock and international (40/10) and need to buy more bonds. I don't believe I can transfer the money into a tax advantaged account as I'm over the income limits. Should I just buy it in the taxable account and be done with it or are there other options I'm not seeing?


I think you should post your portfolio as it is now according to our recommended format.

http://www.bogleheads.org/forum/viewtopic.php?f=1&t=6212

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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