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grabiner

Everyone is different but if I was in your situation I would just pay it off and then invest the freed up mortgage payment each month. I am not sure this example is apples to apples. OP will not use the investment account to pay his mortgage. He will continue paying his mortgage from wherever he is...

grabiner

One other thing to be aware of: There is a “once per lifetime” annual funding option [“Qualified HSA funding distribution” in IRS-speak, see Publication 969] from a tIRA which moves money directly from tax-deferred to tax-free. I did that in 2020. The once per lifetime is a technicality. All this r...

grabiner

now thinking it may make sense to file federal, like in previous years, but NOT CA...as he has never filed there before (or had ANY reason to consider it)… though a general question here. He is a student, and his permanent residency is a different state. If his only income is unearned (capital gain...

grabiner

now thinking it may make sense to file federal, like in previous years, but NOT CA...as he has never filed there before (or had ANY reason to consider it)… though a general question here. He is a student, and his permanent residency is a different state. If his only income is unearned (capital gain...

grabiner

Have not yet been able to find any IRS guidance on this issue. The best I could find was some suggestions from the CPA organization and from Forbes magazine that the full amount for 1st qtr estimated tax due should be paid by 4/15/21 and that there is no guarantee that the IRS will consider a refun...

grabiner

If you can refinance to a much lower rate, and the interest will be all tax-deductible, that would reduce the risk-free return on a mortgage prepayment by enough that it might not be worthwhile I don't have a whole lot of deductions. We barely went over the 24K standard deduction with both properti...

grabiner

Sell calls against stocks that are up in value that you don't mind losing. This has its own tax cost. Dividends on stocks for which you have an outstanding call become non-qualified. (You must hold the stock for 61 days of the 121 around the dividend date, and any time you have a protective call do...

grabiner

What is better for a brokerage acct? An index mutual fund or index ETF? Tracks the same index, same expense ratio, same turnover. Is there any advantage to one or the other? If it is a taxable account, a stock ETF is better than a non-Vanguard mutual fund tracking the same index. The ETF structure ...

grabiner

Assets Tax-Free - Roth IRA Vanguard Intermediate-Term Treasury Fund Investor Shares Treasuries are the most tax-efficient bonds, because they have low yields and are exempt from state income tax. Thus, if you want a separate Treasury fund, you should hold it in your taxable account, and hold more o...

grabiner

We will be starting RMDs in about 8 years. Our current plan is to do QCDs ( qualified charitable donations) with our entire RMD. If we are planning to do just QCDs is there any reason to do any ROTH conversions? QCD is a great use of tIRA assets, but If your taxable income is less than about $18,00...

grabiner

It makes more sense to split the question in two: How much do you want to have in stock? Do you want the money not in stock to be in bonds, or use it to pay off the mortgage? The first question is the harder one to answer. The second question has a relatively easy answer; given that you don't need a...

grabiner

People seem to worry about this too much. Don't let the tax tail wag the dog. A HSA in California is still a tax advantaged account at the Federal level, and thus is still advantageous. And that is the reason for the advice to hold Treasuries in the HSA only if Treasuries are appropriate for your i...

grabiner

Tax-equivalent yield is not based on total return, particularly for a fund which holds stocks; you don't pay tax at your full tax rate on the stocks every year. (Even on a bond fund, the tax cost is paid on the current yield, not the historical return which may include capital gains and losses.) Th...

grabiner

I view a mortgage as a negative bond. If you have a bond portfolio which pays you $X every year, and a loan on which you pay $X every year, you can ignore both of them since the bond portfolio pays the loan. I spent a bunch of time today reading about the concept of a mortgage being a negative bond...

grabiner

I view a mortgage as a negative bond. If you have a bond portfolio which pays you $X every year, and a loan on which you pay $X every year, you can ignore both of them since the bond portfolio pays the loan. Your interest rate is 2.75%, which is a pretty good risk-free rate for a long-term investme...

grabiner

This follows the historical pattern: many individual investors chase performance. This is what makes rebalancing so difficult; it goes against most investors' instincts to buy more stock when the market is falling. Balanced funds, such as target-date funds, avoid this behavioral issue; when the stoc...

grabiner

I like to keep investing simple. The target retirement fund seems like the simplest investment option. My question...is it a good idea to have everything in the TRF during the decumulation phase (retirement)? During a market downturn, it seems like it would be better to sell only bonds to take a di...

grabiner

Can I defer to your obvious expertise in such matters and expand the question a little? I have a large sum that I want to invest in a taxable account and I prefer a "sleep well" kind of investment. Currently, I use the CA muni fund and Wellesley to sleep well. I have looked at both of the...

grabiner

I often recommend paying down a mortgage for risk-free returns, but if you itemize deductions, your risk-free return on a prepayment is only 1.41% because you deduct at a 46.3% rate. This is a poor return on a long-term investment, so you should keep the mortgage. If you donate little to charity, y...

grabiner

Given your very high tax rate, I would recommend holding US stock in taxable where possible. You get the same foreign tax credit as everyone else, but you pay a higher tax cost on dividends, particularly on non-qualified dividends. Since international stock funds have higher dividend yields and mor...

grabiner

Yes there will be a difference. Interest rates at various maturites do not go up by a fixed % or a fixed ratio at each maturity term. Sometimes the shorter stuff goes up a lot more than longer or just the reverserve. Could another way to think about this be that if the yield curve maintained a cons...

grabiner

A few tax-related notes: Since you are in CA, your HSA is taxable for state tax. Thus it should be invested in Treasuries, which are exempt from CA tax. TIPS would likely be a good choice. And since you pay 35.1% tax (20% federal + 3.8% NIIT + 11.3% CA) on qualified dividends, but no more tax on CA ...

grabiner

One problem with this strategy is the tax cost, which is relevant even when you are withdrawing from the portfolio. If you need to spend $30K and have $30K in dividends, you pay tax on the dividend (at 15% if qualified; the tax would be even higher on non-qualified dividends such as those in the rea...

grabiner

The issue isn't the tax work, but the tax cost. No matter what you hold in your IRA or 401(k), the percentage lost to taxes is the same (zero for a Roth account, and your retirement tax rate for a traditional account). In an HSA in CA or NJ, you will pay a tax cost for dividends on a stock fund, and...

grabiner

One thing I just realized is that not all states seem to allow Foreign Tax Credit... My current state does not seem like it allows it, so I wonder if this tips things in favor of NOT putting international in taxable... This is a minor advantage for international in tax-deferred if your state does n...

grabiner

Since you are in the 10% federal tax bracket, you will pay no federal tax on your long-term capital gains. Thus, if you need to sell stock for a capital gain, it is better to sell for a long-term gain even if the gain on those shares is higher than on shares with short-term gains. (You will pay stat...

grabiner

I prefer my bonds be investment grade or government bonds. Therefore, I would not use this fund. Just my prerogative, though. I prefer my bonds have a certain level of safety, albeit arbitrary, and this fund doesn't meet that arbitrary level. Despite the name, this fund is not a junk-bond fund; it ...

grabiner

If your theory works for you, then it works for you. I think it’s nonsense. I think you should borrow money only when you can generate a greater after tax return than your after tax cost of debt. This misses the issue of risk. Paying down a loan, or not taking one out, or buying a bond, all give a ...

grabiner

Given your very high tax rate, I would recommend holding US stock in taxable where possible. You get the same foreign tax credit as everyone else, but you pay a higher tax cost on dividends, particularly on non-qualified dividends. Since international stock funds have higher dividend yields and more...

grabiner

I'm fine with car loans. If you don't have a home mortgage, it provides a boost to your credit score. I think putting $10,000 or more down on the car and borrowing the rest can be good for credit scores without the problems caused by depreciation. Taking out a loan to build your credit score isn't ...

grabiner

Great question - thank you! Consider: Use low cost debt to build an inflation hedge. Do you remember the 9-13% inflation of the 1970-80's*? If that returns in the next decade, then setting up 5-10 year's of 1-2% debt is brilliant. Too bad we have an unpredictable future... Not a good idea; this is ...

grabiner

Part of the reason for spending down the HSA may be the relative drawbacks of its tax treatment if eventually inherited by a non spouse. Good point. I'm generally aware of this but not the specifics. Can you elaborate ? Is the entire balance immediately taxable to the non-spouse heir ? Unpaid medic...

grabiner

I believe this is a case in the book where she's referring to a health spending account as opposed to a health savings account. Unfortunately both have the same abbreviation. A Health Care Flexible Spending Account is always abbreviated FSA or HCFSA, not the HSA which is used for a Health Savings A...

grabiner

If you are in a very low tax bracket, you might be able to sell some of the total stock and pay 0% on long term capital gains. In order to do this, your taxable income (not AGI) including the LTCG would need to be less than $80,800. However, if you are in the phase-in of Social Security taxation, y...

grabiner

Even if you don't need to report your HSA (and muni?) capital gains as California income, they will increase your taxes a bit, because those are based on "the rate you would have paid, using California rules, if you had been a full-year resident." Thanks. Where are you quoting from? I've ...

grabiner

Whether it is better to pay medical expenses from the HSA depends on where you will invest the money that you aren't using to pay out of pocket. Once you made the contribution to the HSA, you already got the primary benefit: your investment was tax-deductible when made, and will be tax-free when wit...

grabiner

2. I am in CA, so HSA is basically treated like a taxable account from what I understand. If I sell 6k to reimburse myself, would I be taxed on that even though it's a medical expense? I know in other states the answer is NO, not sure on CA You would be taxed only on the capital gain. If you invest...

grabiner

Hi - I'd like to hear your opinion about two investment strategies: - Option #1: 30% US equity, 20% International equity, 35% US Munis, 15% International bonds - Option #2: 30% US equity, 20% International equity, 50% US Munis Assume that scope is a taxable account and that the investor is in the h...

grabiner

1. Assuming I regularly rebalance and keep my target AA across all 3 accounts and I'm only investing in low cost index funds, does it matter whether I invest future funds in VTI or VXUS in my brokerage account? 2. If it matters, what's the risk if I go 100% VTSAX in my 401k and mixed in my taxable ...

grabiner

. When your stock holding gets too high for your risk tolerance, you do need to sell. While there is a tax cost, it isn't a total loss since these are shares you were planning to sell anyway; you just pay the tax earlier. (Selling for a gain, then buying back, would be more of a loss.) It would be r...

grabiner

Hi. I work in the field. There is a difference between the charge and the reimbursement for everything in medicine - doctor visits, labs, MRI, etc. The MRI facility will charge insurance say $1200 but expect to get about $300. Why? Once in a blue moon insurance will actually pay $1200 and that's mo...

grabiner

you'd incur taxes if like me you live in a state (CA) that taxes gains in HSAs. Never thought some states can tax HSA gains, good to know. It's now only CA and NJ. In those states, you may want to invest your HSA in Treasury bonds to avoid the tax, as long as Treasury bonds (including TIPS) fit you...

grabiner

I just tried to take a spin...and ran into the following conditions which made NONE OF MY CURRENT accounts eligible...(bold conditions) Assets within the brokerage account must be in your Settlement Fund, similar to being in cash. This is a serious problem with a taxable account. You would have to ...

grabiner

You made two mistakes, one explained by the post above. That first mistake is that you chose an asset allocation you don't understand based on vague information about a "good" fund. As mistakes go this is not a big deal. We live and learn, and, properly understood, it may not even be a mi...

grabiner

There are also three other tax costs: If your call is exercised, you have to sell the stock in the taxable account at the strike price, which will result in a capital gain. If you write a call against stock in the taxable account, you may make the dividends non-qualified. (Any time that you hold a c...

grabiner

There are improvements- Wellington now shows international component Domestic bond funds show international bond component REIT breakdown shows mid and small, not just small This is a big improvement. Vanguard funds are now allocated according to their proper style percentages, rather than their st...

grabiner

My normal recommendation for CA investors with a lot in munis is to split 50/50 between Vanguard CA Long-Term Tax-Exempt and Vanguard Limited-Term Tax-Exempt. This gives an overall intermediate-term duration, with only half the bonds in CA, but more than half the bond interest exempt from CA tax. T...

grabiner

Only if your credit is limited on Form 1116, which is not that common for investors. Is there any data to support the assertion that it isn't common for investors? Just the tax rates. If your foreign tax is less than $600, you aren't forced to adjust your qualified dividends (unless you are in the ...

grabiner

I was hoping for a reply from you David. Thanks for the time. By converting this to Roth, you are increasing the risk. If you retire at a 30% marginal tax rate, $X in any investment in a traditional IRA has 30% less value and 30% less risk than in a Roth IRA, since the IRS and state will take 30% o...

grabiner

Recharacterize those Traditional IRA contributions to Roth IRA contributions if your income allows for direct Roth IRA contributions. I'm new to all this. What is the benefit of this? Recharacterization of the Traditional IRA contribution to Roth IRA contribution will make it as though you had cont...

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