Allocating correctly between 401k and Roth IRA?

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Allocating correctly between 401k and Roth IRA?

Postby Perpetual » Tue Jul 02, 2013 11:03 am

I have about 90k in my retirement funds, split thusly:

401k: $57,800
Roth: $32,300

I used an asset allocation calculator to figure out my optimum exposure to large cap, mid cap, small cap, foreign and bonds. Based on the percentages, I created this spreadsheet to calculate the actual amounts I need to invest in each fund to achieve my desired allocation:

Image


My question is this: does it really matter how these are split between my accounts? Or should I just dump the FSEVX in my Roth and the rest into my 401k?

Thanks in advance. :)
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Re: Allocating correctly between 401k and Roth IRA?

Postby Iorek » Tue Jul 02, 2013 11:06 am

There are several threads on this. I think the answer is that if you plan on rebalancing across assets classes it doesn't matter where you start, but I might have missed the advanced theoretical discussion.
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Re: Allocating correctly between 401k and Roth IRA?

Postby BigOilTexan » Tue Jul 02, 2013 11:09 am

Your total asset allocation should cover all your accounts, retirement and taxable. There is no need to recreate your desired allocation in each account.

You have list two retirement account which are both tax-advantaged. Do you have any retirement savings in taxable accounts?

This wiki on the principles of tax-efficient investing should answer some of your basic questions.

EDIT: I can't see the spreadsheet at work so this may not have been your question.
Last edited by BigOilTexan on Tue Jul 02, 2013 11:20 am, edited 1 time in total.
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Re: Allocating correctly between 401k and Roth IRA?

Postby Bob's not my name » Tue Jul 02, 2013 11:11 am

Doesn't matter. If you don't tax-adjust your asset allocation your FSEVX allocation in the Roth will be slightly higher than your intention, because presumably you'll pay some tax on the eventual 401k withdrawals. Most people don't bother with this adjustment.
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Re: Allocating correctly between 401k and Roth IRA?

Postby Perpetual » Tue Jul 02, 2013 11:42 am

BigOilTexan wrote:You have list two retirement account which are both tax-advantaged. Do you have any retirement savings in taxable accounts?


None... yet. :)

This wiki on the principles of tax-efficient investing should answer some of your basic questions.


Cool, I'll give that a read. Thanks!
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Re: Allocating correctly between 401k and Roth IRA?

Postby grabiner » Tue Jul 02, 2013 6:05 pm

For tax purposes, it doesn't matter which funds you put where, The most important consideration of which funds to put in which account is the options in your 401(k). If your 401(k) has the Fidelity Spartan index funds, you have good options there, but you might prefer Vanguard Total International for your foreign stock as it is better diversified (includes small-caps and emerging markets).

Also see the Wiki article link: Tax-Adjusted Asset Allocation. You may want to take into account the fact that $10,000 in a Roth IRA is worth more than $10,000 in a 401(k) because of the taxes on the 401(k) withdrawal.
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