Implementing AA Across Taxable and Tax Deferred Accounts

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terpfan71
Posts: 14
Joined: Mon Jan 10, 2011 11:13 am

Implementing AA Across Taxable and Tax Deferred Accounts

Post by terpfan71 » Tue Apr 18, 2017 8:43 am

In implementing my AA across all my investment accounts, how do I take into account the tax liability of my tax deferred accounts? Approximately 26% of our assets are held in taxable accounts and virtually 100% of those assets are in equities. So all of my fixed income assets are in tax deferred accounts and ultimately subject to 25% federal plus state tax. My desired AA is 75% equities, 20% fixed and 5% REIT. Should I be invested to reflect an after tax or before tax AA. Hope I have made my question understandable and thank you for any responses

aristotelian
Posts: 2383
Joined: Wed Jan 11, 2017 8:05 pm

Re: Implementing AA Across Taxable and Tax Deferred Accounts

Post by aristotelian » Tue Apr 18, 2017 9:03 am

There was a thread in the theory/general investing question on how to "count" taxable vs tax deferred vs tax free. The general rule of thumb is Roth > taxable > tax deferred. What makes this even more complicated for the question you are asking is keeping track of gains in taxable and tax deferred. VTI with 10 years of gains in taxable is worth a lot less than the same balance with a few months of losses (which actually have positive value as a tax deduction).

All you can do is guestimate the best you can, and take some comfort in knowing that the difference between 60/40 and 65/35 is not going to make that big a difference long term.

Artisan
Posts: 300
Joined: Sat Oct 01, 2016 8:30 am

Re: Implementing AA Across Taxable and Tax Deferred Accounts

Post by Artisan » Tue Apr 18, 2017 11:51 am

I've asked that question myself and asked other. From my experience most balance across accounts without regard to where each asset class is located.

Yes that is not accurate if one asset class is over representedin lets say a tax advantaged account but it is the way most I know do it.

KlangFool
Posts: 6225
Joined: Sat Oct 11, 2008 12:35 pm

Re: Implementing AA Across Taxable and Tax Deferred Accounts

Post by KlangFool » Tue Apr 18, 2017 12:01 pm

terpfan71 wrote:In implementing my AA across all my investment accounts, how do I take into account the tax liability of my tax deferred accounts? Approximately 26% of our assets are held in taxable accounts and virtually 100% of those assets are in equities. So all of my fixed income assets are in tax deferred accounts and ultimately subject to 25% federal plus state tax. My desired AA is 75% equities, 20% fixed and 5% REIT. Should I be invested to reflect an after tax or before tax AA. Hope I have made my question understandable and thank you for any responses


terpfan71,

You might be right. But, for 90+% of people, that statement is wrong. You would need to have a very big pension in order for all your tax-deferred money to be taxed at 25%.

For a single person, the pension would have to be about 50K per year. For married couple, the pension would have to be about 90K to 100K per year.

KlangFool

terpfan71
Posts: 14
Joined: Mon Jan 10, 2011 11:13 am

Re: Implementing AA Across Taxable and Tax Deferred Accounts

Post by terpfan71 » Thu Apr 20, 2017 1:24 pm

We both have pensions and our SS is taxed to the max. That plus dividends and gains puts us in the middle of the 25% bracket. It will only get worse when RMDs start.

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