Help rebalancing after liquidating taxable

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mildred66
Posts: 36
Joined: Fri Sep 16, 2011 4:43 pm

Help rebalancing after liquidating taxable

Post by mildred66 »

Hi Bogleheads,

We recently liquidated our taxable account in preparation for a major purchase in the next year.

I need some advice on how to rebalance across our other accounts to maximize tax efficiency.

Desired Asset allocation: 82% stocks / 18% bonds
Desired International allocation: 30% of stocks

We are currently over/under our allocation as such:
9% over in bonds
4% over in REITs
10% under in International equities
3% under in US equities

Our Accounts

Taxable
3.4% Spartan Global Ex US Index FD Investor Cl (FSTMX) (ER: 0.10%)

His 401k
42.1% Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) (ER: 0.02%)
12% Vanguard REIT Index Fund Institutional Shares (VGSNX) (ER: 0.08%)
3.6% Vanguard Total Bond Market Index Fund Institutional Plus Shares (VBMPX) (ER: 0.05%)
12.5% Vanguard Total International Stock Index Institutional Plus Shares (VTPSX) (ER: 0.1%)

Her 403b
2% FID Freedom 2040 (FFFFX) (ER: 0.75%)

His Traditional IRA
7.9% Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) (ER: 0.10%)

Her Roth IRA
16.5% Fidelity Total Bond Fund (FTBFX) (ER: 0.45%)

Annual Contributions
$17,500 his 401k (Employer match: 8,750)

Two questions in particular:
1. Should the REITs be in the Roth IRA?
2. Since I'm no longer dealing with taxable, should I just grab Target Retirement funds? I'm basically core four portfolio, but not wed to REITs.


Thanks so much!
livesoft
Posts: 86075
Joined: Thu Mar 01, 2007 7:00 pm

Re: Help rebalancing after liquidating taxable

Post by livesoft »

1. I hold REITs in Roth and traditional IRA. Should be in Roth? is too strong for me. It is fine in Roth.

2. The 403(b) seems small and you need some bonds, so I would just make that account 100% in a bond fund and put it in set-and-forget mode. Are you adding to it or is it an orphan account?

I would use the large 401(k) for all rebalancing. I would try to put just 1 fund in the other smaller accounts. For example, her "Roth IRA" could be 100% US Total Stock Market index since it appears you want a lot of that and her Roth is large. Or make "her Roth" REIT plus another fund.

There are lots of possibilities that fit the ideas just presented.
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mildred66
Posts: 36
Joined: Fri Sep 16, 2011 4:43 pm

Re: Help rebalancing after liquidating taxable

Post by mildred66 »

Thanks livesoft!
less
Posts: 158
Joined: Mon Sep 16, 2013 12:38 pm

Re: Help rebalancing after liquidating taxable

Post by less »

The tax-sheltering benefits of the Traditional and Roth accounts are exactly equal.
Their difference is that the Traditional incurs a bonus/penalty when the tax rate on eventual withdrawal is less/more than the rate on contribution.
You have to decide which is more likely for yourself.

Assuming your withdrawal rate is lower or equal, than you get the largest Traditional benefits when the assets have the largest rates of return. So bond funds now would be low priority for the Traditional. This 'rule' may be wrong if you are close to the withdrawal stage.
The priorities can switch when you expect a higher tax rate on withdrawal. See this paper, and use the spreadsheet linked because 'it all depends'. http://papers.ssrn.com/sol3/papers.cfm? ... id=2317970

For reasons why the commonly hear rules of thumb are wrong see http://www.bogleheads.org/forum/viewtop ... 6#p1810509
livesoft
Posts: 86075
Joined: Thu Mar 01, 2007 7:00 pm

Re: Help rebalancing after liquidating taxable

Post by livesoft »

less, let me make a comment I made before: That paper is particular obtuse and not refereed. There is no reason for me to believe that anything in that paper is true. Can you start a new thread about it and perhaps make it clear to a dummy like me? Also, I had asked you before: Did you write that paper or are you connected with the person who wrote it?
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