in which account do REIT funds go ?

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aaja
Posts: 27
Joined: Mon Mar 12, 2018 9:40 pm

in which account do REIT funds go ?

Post by aaja » Tue Mar 13, 2018 12:46 am

First time poster!! Thank you to everyone on this forum for all this great information which has really helped me graduate to a confident investor with a plan.

My current asset allocation is

75% - US Stocks
15% - Intl Stocks
5% - REITs
5% - Bonds

I max out my tax-advantaged accounts i.e. 401K (pretax), Roth (back door and mega back door). I have placed the following funds in my three accounts based on what is available to me.

Vanguard (taxable) - VTSAX, VTIAX
Fidelity 401K (pretax) - FSITX, Vang S&P fund trust (0.01 ER), Vang Russell 2000 growth trust (0.03 ER)
Fidelity Roth IRA - FSTVX

The S&P and Russell 2000 funds in 401K combine in an 85/15 % ratio to approximate total market. What I need help with is on where to place my REIT funds (FSRVX). It seems like the REITs are not as tax efficient as VTSAX and VTIAX hence need to be in tax-advantaged accounts (am I right ?). Based on this should they go into the 401K or the Roth or it does not matter?

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ruralavalon
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Location: Illinois

Re: in which account do REIT funds go ?

Post by ruralavalon » Tue Mar 13, 2018 9:41 am

Welcome to the forum :) .
aaja wrote:
Tue Mar 13, 2018 12:46 am
First time poster!! Thank you to everyone on this forum for all this great information which has really helped me graduate to a confident investor with a plan.

My current asset allocation is

75% - US Stocks
15% - Intl Stocks
5% - REITs
5% - Bonds

I max out my tax-advantaged accounts i.e. 401K (pretax), Roth (back door and mega back door). I have placed the following funds in my three accounts based on what is available to me.

Vanguard (taxable) - VTSAX, VTIAX
Fidelity 401K (pretax) - FSITX, Vang S&P fund trust (0.01 ER), Vang Russell 2000 growth trust (0.03 ER)
Fidelity Roth IRA - FSTVX

The S&P and Russell 2000 funds in 401K combine in an 85/15 % ratio to approximate total market. What I need help with is on where to place my REIT funds (FSRVX). It seems like the REITs are not as tax efficient as VTSAX and VTIAX hence need to be in tax-advantaged accounts (am I right ?). Based on this should they go into the 401K or the Roth or it does not matter?
A REIT fund is very tax-INefficient, and should not be placed in a taxable account. Please see the wiki article "Tax-efficient Fund Placement".

I don't know if Roth or the 401k is preferable for some reason.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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ruralavalon
Posts: 13189
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: in which account do REIT funds go ?

Post by ruralavalon » Tue Mar 13, 2018 9:45 am

Welcome to the forum :) .
aaja wrote:
Tue Mar 13, 2018 12:46 am
First time poster!! Thank you to everyone on this forum for all this great information which has really helped me graduate to a confident investor with a plan.

My current asset allocation is

75% - US Stocks
15% - Intl Stocks
5% - REITs
5% - Bonds

I max out my tax-advantaged accounts i.e. 401K (pretax), Roth (back door and mega back door). I have placed the following funds in my three accounts based on what is available to me.

Vanguard (taxable) - VTSAX, VTIAX
Fidelity 401K (pretax) - FSITX, Vang S&P fund trust (0.01 ER), Vang Russell 2000 growth trust (0.03 ER)
Fidelity Roth IRA - FSTVX

The S&P and Russell 2000 funds in 401K combine in an 85/15 % ratio to approximate total market. What I need help with is on where to place my REIT funds (FSRVX). It seems like the REITs are not as tax efficient as VTSAX and VTIAX hence need to be in tax-advantaged accounts (am I right ?). Based on this should they go into the 401K or the Roth or it does not matter?
A REIT fund is very tax-INefficient, and should not be placed in a taxable account. Please see the wiki article "Tax-efficient Fund Placement".

I don't know if Roth or the 401k is preferable for some reason. If the same fund, Fidelity Real Estate Fund Premium Class (FSRVX), is a available in both accounts I think it probably doesn't matter whether it's in the 401k or the Roth IRA.
Last edited by ruralavalon on Tue Mar 13, 2018 10:03 am, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: in which account do REIT funds go ?

Post by livesoft » Tue Mar 13, 2018 9:58 am

Put your REIT fund in your Roth at the end of the day if the next day will be a big up day, but ...
Put your REIT fund in your tax-deferred at the end of the day if the next day will be a big down day, otherwise ...
Keep your REIT fund out of your taxable accounts, otherwise ...
At 5% of portfolio I don't think I would own a REIT fund right now, especially if my portfolio asset allocation was 95% equities and 5% bonds.
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PFInterest
Posts: 1381
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Re: in which account do REIT funds go ?

Post by PFInterest » Tue Mar 13, 2018 10:10 am

livesoft wrote:
Tue Mar 13, 2018 9:58 am
Put your REIT fund in your Roth at the end of the day if the next day will be a big up day, but ...
Put your REIT fund in your tax-deferred at the end of the day if the next day will be a big down day, otherwise ...
Keep your REIT fund out of your taxable accounts, otherwise ...
At 5% of portfolio I don't think I would own a REIT fund right now, especially if my portfolio asset allocation was 95% equities and 5% bonds.
:wink:

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telemark
Posts: 2250
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Re: in which account do REIT funds go ?

Post by telemark » Tue Mar 13, 2018 10:44 am

My REIT allocation is mostly in my 401K, because all of my portfolio is mostly in my 401K, but I have a nice chunk (20%) in my Roth.

Tax inefficient plus high expected return generally indicates putting it in Roth. It is a volatile asset, so you should be willing to rebalance in and out of it as necessary. (Another reason to avoid taxable)
Last edited by telemark on Tue Mar 13, 2018 10:46 am, edited 1 time in total.

TwstdSista
Posts: 806
Joined: Thu Nov 16, 2017 4:03 am

Re: in which account do REIT funds go ?

Post by TwstdSista » Tue Mar 13, 2018 10:46 am

Certainly not in taxable.

As for pre-tax vs. Roth -- I would put them wherever I could get them cheaper. All things being equal, flip a coin.

aaja
Posts: 27
Joined: Mon Mar 12, 2018 9:40 pm

Re: in which account do REIT funds go ?

Post by aaja » Tue Mar 13, 2018 11:52 pm

Thank you everybody for your replies 😊

aaja
Posts: 27
Joined: Mon Mar 12, 2018 9:40 pm

Re: in which account do REIT funds go ?

Post by aaja » Tue Mar 13, 2018 11:56 pm

livesoft wrote:
Tue Mar 13, 2018 9:58 am
Put your REIT fund in your Roth at the end of the day if the next day will be a big up day, but ...
Put your REIT fund in your tax-deferred at the end of the day if the next day will be a big down day, otherwise ...
Keep your REIT fund out of your taxable accounts, otherwise ...
At 5% of portfolio I don't think I would own a REIT fund right now, especially if my portfolio asset allocation was 95% equities and 5% bonds.
:P it took me couple of reads to see what you did there.

Regarding the REITs why do you think so. Any pointers would help since I am new to this.

livesoft
Posts: 60980
Joined: Thu Mar 01, 2007 8:00 pm

Re: in which account do REIT funds go ?

Post by livesoft » Wed Mar 14, 2018 8:56 am

Since you asked: I would not buy REITs at the present time at all. I would have an asset allocation of 0% to 10% in REITs with my allocation at the current time to be 0%. There are better places to your money I think. One better place would be Total US Stock Market Index fund. Another better place would actually be a bond fund for you since you appear to want only 5% bonds right now and perhaps you should have 10% to 20% in bond funds.
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