Bonds in Roth vs 401K

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Joined: Wed Oct 11, 2017 3:44 pm

Bonds in Roth vs 401K

Post by davidsonb »

Currently have 80/20 stocks/bonds across my portfolios. In brokerage account at vanguard have all stock index funds (VTSAX & VTIAX), and in Roth IRA (vanguard) have VTSAX,VTIAX, and Total bond (VBTLX). I also keeps some stocks and bonds in my 401k (Index funds, Lincoln Financial 401k through work). Questioning whether I should keep all my bonds in 401k since Roth has higher growth/tax free withdrawal potential.

Problem is Bond index ER in 401K is .75 vs .05 ER for bond index at vanguard. S&P 500 index in 401k has ER of 0.55 so you can see I'm dealing with high fees in 401k. My question is does higher ER/fees of keeping all bonds in 401k (difference in ER of .50) negate what I would get in growth of Roth IRA at vanguard if I kept the Roth 100% stock index funds. Currently in 35% tax bracket so tax exempt muni bond index in taxable account would also be option I guess.
Posts: 69
Joined: Thu Jan 26, 2017 9:15 pm

Re: Bonds in Roth vs 401K

Post by codedude »


Let us say you x amount saved in your 401k. You need to invest this money in something. If all of it went into stocks, you will pay 0.0075x in expenses yearly. If all into bonds you will pay 0.0055x. Keeping as much in bonds up to your bond allocation in the 401k will keep your expenses minimal at 0.0055x. If there is money left in the 401k after buying the bond fund, you can buy the stock fund.

This increases the expected return in your Roth IRA hopefully allowing it to grow better.

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