Sell all bond holdings in Roth?

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JimmyD
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Sell all bond holdings in Roth?

Post by JimmyD » Wed Dec 23, 2015 1:40 pm

Before I realized that it typically makes more sense to hold higher growth rate funds in Roth IRAs, I made the mistake of building a ~$10,000 position in Total Bond Admiral within my Roth.

While our asset allocation doesn't call for any required re-balancing at this time, I'm wondering if and when it makes sense for me to exchange this fund, distribute the proceeds among my existing Total Market, Total International, and REIT Index within the Roth and then bump up our bond contributions within our 401k / 403b for a year or so to bring that allocation back on target.

I'm happy to supply any additional info regarding our portfolio if needed. Thanks for your insight.

jjface
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Re: Sell all bond holdings in Roth?

Post by jjface » Wed Dec 23, 2015 1:48 pm

It is probably not conventional wisdom but I like the idea of having some bonds in my roth so that if there is a crash/big dip that is the account I'd switch to cheap stocks in when rebalancing.

4th and Inches
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Re: Sell all bond holdings in Roth?

Post by 4th and Inches » Wed Dec 23, 2015 1:49 pm

I just realized this the other day. Luckily I had my bond holdings in my 401k/Traditional IRA. If I had put all of my bonds in the Roth I would just do a swap out now between the accounts. However, I don't think it would be explicitly wrong to just switch the Roth to stock funds and then buy up the 401k space until you hit the allocation level you wanted.

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Phineas J. Whoopee
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Re: Sell all bond holdings in Roth?

Post by Phineas J. Whoopee » Wed Dec 23, 2015 1:52 pm

The right answer isn't clear. Yes, higher-growth assets in a Roth account will, if their risk is rewarded, result in a more favorable tax treatment than the other way around. On the other hand, if the risk shows up, and especially right when you need the untaxed money, for example if you have good reasons to manage your AGI, the overall portfolio outcome won't be as good.

My personal choice is to hold enough bonds in there to modestly exceed the sum total of my contributions over the years, and use stocks for the rest. When I grow up I may allocate differently.

PJW

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powermega
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Re: Sell all bond holdings in Roth?

Post by powermega » Wed Dec 23, 2015 2:26 pm

We bias our Roth IRA accounts for more equity and less bonds. Currently, the rIRAs are 100% equity. A big part of our bond allocation is in a inherited traditional IRA. If your 401k has good bond investment options, I don't see anything wrong with being very aggressive in your Roth accounts, especially if you have 20+ years till retirement, as is the case with us.
Even a stopped clock is right twice a day.

staybalanced
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Re: Sell all bond holdings in Roth?

Post by staybalanced » Wed Dec 23, 2015 2:43 pm

What we do is treat each account like it's own portfolio, I never liked the idea of having all bonds in tax deferred etc. We use muni bonds in taxable with a little total bond. Use a lot of target funds in IRA's because it's super easy, if you don't have enough for admiral use etfs. You can upgrade your account to a brokerage at vanguard if you don't already have it.

Dandy
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Re: Sell all bond holdings in Roth?

Post by Dandy » Wed Dec 23, 2015 3:52 pm

I agree that all bonds in a Roth usually doesn't make sense. I don't think it has to be all equities either. I would treat it more like a taxable account i.e. mostly equities especially pre retirement since you have decades of time. I'd make a move to you new allocation rather quickly. I'd do something like move the Roth to Balanced Index (60% equities) and move some 401k equities into bond funds if necessary.

If you want more equity exposure you can move Balanced Index to something with a higher equity allocation later. Don't let your IPS or rebalance "rules" dictate all actions. Getting the proper investments in the proper type of account usually trumps a rebalancing rule.

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