Sanity check please

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Topic Author
Stevedore
Posts: 35
Joined: Thu Aug 28, 2014 3:24 pm

Sanity check please

Post by Stevedore »

Included in our investments, my wife & I have traditional & Roth IRAs, as well as a joint taxable account, all with Vanguard. All have combinations of VTSAX & VBTLX.

I have no idea why I never thought about this before, but I'm realizing that we're paying the preferential capital gains taxes on VTSAX capital gains distributions in the taxable account, but will eventually pay our full income tax rate on such gains in the traditional IRA accounts. Bond fund dividends, however, would be taxed as ordinary income in either account.

I'm thinking that I should exchange the VTSAX shares in the IRA accounts into VBTLX shares, and exchange a similar dollar amount from VBTLX to VTSAX in the taxable account, in order to maintain our asset allocation. The exchange within the taxable account will generate a taxable gain, but if I'm understanding this correctly, the change will be worthwhile in the long run.

I should add that we're retired, so there will be no further IRA contributions in our future.

So before I make these changes, am I understanding this correctly? Overlooking anything? Thanks!
Grt2bOutdoors
Posts: 25625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Sanity check please

Post by Grt2bOutdoors »

How about the ability to partially convert your traditional IRA into Roth IRA's during retirement?
How about thinking about your future heirs, if any, who you may want to leave the most opportunity for account growth.
How about not realizing more gains than absolutely necessary to for living expenditures?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Topic Author
Stevedore
Posts: 35
Joined: Thu Aug 28, 2014 3:24 pm

Re: Sanity check please

Post by Stevedore »

Grt2bOutdoors wrote:How about the ability to partially convert your traditional IRA into Roth IRA's during retirement?
How about thinking about your future heirs, if any, who you may want to leave the most opportunity for account growth.
How about not realizing more gains than absolutely necessary to for living expenditures?
I'm not sure how your "answers" relate to my original question, but I'll respond anyway:

1. My traditional IRA is approx $800K, & I don't want to pay the taxes on a conversion. My wife's is much smaller, and we may do a conversion on hers.
2. Although I'd like to leave a bunch of $$ to my kids (and we will), it's not a big factor in my financial planning.
3. Effectively shifting the dividend-paying bond fund shares from our taxable account to an IRA WILL reduce our realized gains/income. We don't need any of our gains/dividends for living expenses, although we've drawn about 1 to 1-1/2 % each year (so far) for things we don't really need, but would like to have or do.
Minot
Posts: 454
Joined: Sat Jan 29, 2011 1:35 pm

Re: Sanity check please

Post by Minot »

Have you read the Wiki on tax-adjusted asset allocation?
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