My taxable account is banged up. Need some help!

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Starchild
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My taxable account is banged up. Need some help!

Post by Starchild » Sun Apr 22, 2018 10:08 am

Thanks in advance. This forum has some incredible folks.

43 years old. Live in NJ. I have an IRA account that I cannot contribute to, so I recently been adding to my taxable. In February, I added a 30% bond allocation without realizing the tax consequences. I guess I will have to sell the bonds, leaving the account 100% stock. I can deal with that, although I'd rather have a little less risk. Secondly, if I sell the bonds now, I will take a small hit with the falling prices. Ugh, the learning curve. I thought of reallocating the IRA with more bonds to even out the risk, but not sure. Any suggestions are greatly appreciated.

cherijoh
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Re: My taxable account is banged up. Need some help!

Post by cherijoh » Sun Apr 22, 2018 10:27 am

Starchild wrote:
Sun Apr 22, 2018 10:08 am
Thanks in advance. This forum has some incredible folks.

43 years old. Live in NJ. I have an IRA account that I cannot contribute to, so I recently been adding to my taxable. In February, I added a 30% bond allocation without realizing the tax consequences. I guess I will have to sell the bonds, leaving the account 100% stock. I can deal with that, although I'd rather have a little less risk. Secondly, if I sell the bonds now, I will take a small hit with the falling prices. Ugh, the learning curve. I thought of reallocating the IRA with more bonds to even out the risk, but not sure. Any suggestions are greatly appreciated.
It would help if you posted the relative sizes of your IRA and your taxable account and your overall asset allocation. The latter is what is important not the stock bond mix of a single component of your portfolio. Also what is your marginal tax bracket? Are you single or married filing jointly? Do you or your spouse have access to a work place retirement plan?

Also, why do you say that you can't contribute to your IRA? There is a lot of misinformation out there, so you may be eligible to contribute to an IRA or other workplace tax-advantaged plan.

At 41, I would not feel comfortable being 100% stock overall, but if my IRA was stuffed with bonds giving me a 70/30 overall AA (or at least 80/20) then I'd be fine with 100% stock in taxable.

Chip
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Re: My taxable account is banged up. Need some help!

Post by Chip » Sun Apr 22, 2018 10:29 am

Don't worry, you haven't done any damage. If you realize the loss on the bonds now and buy back similar but not identical bonds in your IRA you are in the same net position but you'll get to claim the loss on your taxes. It's a win! Just be aware of wash sale rules so you actually get to deduct the loss.

Also, consider getting a portfolio review by using the Asking Portfolio Questions format.

BuckyBadger
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Re: My taxable account is banged up. Need some help!

Post by BuckyBadger » Sun Apr 22, 2018 10:49 am

My taxable account is 100% stocks (as are our IRSa) because my bonds are in one of our 401ks. I have an overall ratio of 70/30 stocks to bonds.

Do you have a 401k or 403b? A more complete picture of all your accounts might beat useful.

2pedals
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Re: My taxable account is banged up. Need some help!

Post by 2pedals » Sun Apr 22, 2018 10:59 am

Please review the following wiki

Wiki Tax efficient fund placement

I would not worry too much about the bond principal loss, it is what it is, lower bond principal implies higher current yield. You need to fix what you think is stupid first. Taxable bonds are moderately inefficient, I don't think what you did is all that bad, maybe it is even appropriate for your situation. More information about your portfolio would help bogleheads personalize your situation if you are willing to share it as previously mentioned by chip. You could use municipal bonds in taxable but they tend to have less interest and the risks are different.

For federal returns. (you may also have state taxes as well
Tax-Equivalent Yield = Tax-Exempt Interest Rate / (1 – Your Federal Income Tax Rate)

To take advantage of the tax laws, treat your entire portfolio as a whole, taxable, tax deferred and non taxable, including significant other.

Nate79
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Re: My taxable account is banged up. Need some help!

Post by Nate79 » Sun Apr 22, 2018 11:04 am

Certainly there are tax consequences to holding bonds in taxable account but there are also many reasons to have bonds in your taxable account. Why did you put bonds in the taxable account in the first place?

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Starchild
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Re: My taxable account is banged up. Need some help!

Post by Starchild » Sun Apr 22, 2018 11:08 am

cherijoh wrote:
Sun Apr 22, 2018 10:27 am
Starchild wrote:
Sun Apr 22, 2018 10:08 am
Thanks in advance. This forum has some incredible folks.

43 years old. Live in NJ. I have an IRA account that I cannot contribute to, so I recently been adding to my taxable. In February, I added a 30% bond allocation without realizing the tax consequences. I guess I will have to sell the bonds, leaving the account 100% stock. I can deal with that, although I'd rather have a little less risk. Secondly, if I sell the bonds now, I will take a small hit with the falling prices. Ugh, the learning curve. I thought of reallocating the IRA with more bonds to even out the risk, but not sure. Any suggestions are greatly appreciated.
It would help if you posted the relative sizes of your IRA and your taxable account and your overall asset allocation. The latter is what is important not the stock bond mix of a single component of your portfolio. Also what is your marginal tax bracket? Are you single or married filing jointly? Do you or your spouse have access to a work place retirement plan?

Also, why do you say that you can't contribute to your IRA? There is a lot of misinformation out there, so you may be eligible to contribute to an IRA or other workplace tax-advantaged plan.

At 41, I would not feel comfortable being 100% stock overall, but if my IRA was stuffed with bonds giving me a 70/30 overall AA (or at least 80/20) then I'd be fine with 100% stock in taxable.
Many thanks to you and everyone. I will work on a spread for an analysis. The IRA was a death rollover pension. The bank said I cannot contribute to it.

Gill
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Re: My taxable account is banged up. Need some help!

Post by Gill » Sun Apr 22, 2018 11:19 am

Starchild wrote:
Sun Apr 22, 2018 11:08 am
The IRA was a death rollover pension. The bank said I cannot contribute to it.
...but you can have your own IRA.
Gill

pkcrafter
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Re: My taxable account is banged up. Need some help!

Post by pkcrafter » Sun Apr 22, 2018 11:36 am

Yes, if you have income you can contribute to an IRA or Roth.
View all accounts as one portfolio. Doing that allows you to hold bonds in the 401k and stocks in taxable while still maintaining your target asset allocation.
You might also consider Vanguard tax-managed balanced VTMFX (~50/50) for the taxable account.
Secondly, if I sell the bonds now, I will take a small hit with the falling prices. Ugh, the learning curve. I thought of reallocating the IRA with more bonds to even out the risk, but not sure. Any suggestions are greatly appreciated.
Don't worry about selling the bonds as you can then immediately buy them in the 401k or tax-managed balanced. Instead of selling, all you're really doing is moving them.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

MotoTrojan
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Re: My taxable account is banged up. Need some help!

Post by MotoTrojan » Sun Apr 22, 2018 12:24 pm

Chip wrote:
Sun Apr 22, 2018 10:29 am
Don't worry, you haven't done any damage. If you realize the loss on the bonds now and buy back similar but not identical bonds in your IRA you are in the same net position but you'll get to claim the loss on your taxes. It's a win! Just be aware of wash sale rules so you actually get to deduct the loss.

Also, consider getting a portfolio review by using the Asking Portfolio Questions format.
Yup as noted this is actually better than if bonds were up. Same principal applies to selling taxable in order to fund 401k/IRA/Roth; best case scenario is taxable funds are a loss.

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Starchild
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Re: My taxable account is banged up. Need some help!

Post by Starchild » Sun Apr 22, 2018 12:52 pm

All great advice! Thank you! And yes, maybe my own IRA instead of taxable. As suggested, I'm submitting a portfolio assessment thread today.

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Starchild
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Re: My taxable account is banged up. Need some help!

Post by Starchild » Sun Apr 22, 2018 1:00 pm

Gill wrote:
Sun Apr 22, 2018 11:19 am
Starchild wrote:
Sun Apr 22, 2018 11:08 am
The IRA was a death rollover pension. The bank said I cannot contribute to it.
...but you can have your own IRA.
Gill
How would I go about doing this? Go to the bank? Would it be a better idea?

The Wizard
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Re: My taxable account is banged up. Need some help!

Post by The Wizard » Mon Apr 23, 2018 8:44 am

Starchild wrote:
Sun Apr 22, 2018 1:00 pm
Gill wrote:
Sun Apr 22, 2018 11:19 am
Starchild wrote:
Sun Apr 22, 2018 11:08 am
The IRA was a death rollover pension. The bank said I cannot contribute to it.
...but you can have your own IRA.
Gill
How would I go about doing this? Go to the bank? Would it be a better idea?
Forget the bank; they likely are charging you higher fees than necessary.
Open your new IRA at one of our recommended mutual fund companies...
Attempted new signature...

livesoft
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Re: My taxable account is banged up. Need some help!

Post by livesoft » Mon Apr 23, 2018 8:46 am

If you sell your bond fund(s) in taxable at a loss, then I think you should avoid buying shares of a substantially identical bond fund in your IRA(s) for 30 days after selling in taxable and also 30 days before selling in taxable.
Wiki This signature message sponsored by sscritic: Learn to fish.

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Starchild
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Re: My taxable account is banged up. Need some help!

Post by Starchild » Mon Apr 23, 2018 10:35 am

livesoft wrote:
Mon Apr 23, 2018 8:46 am
If you sell your bond fund(s) in taxable at a loss, then I think you should avoid buying shares of a substantially identical bond fund in your IRA(s) for 30 days after selling in taxable and also 30 days before selling in taxable.
If I do the transition immediately, I won't get the write off?

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Starchild
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Re: My taxable account is banged up. Need some help!

Post by Starchild » Mon Apr 23, 2018 10:40 am

Chip wrote:
Sun Apr 22, 2018 10:29 am
Don't worry, you haven't done any damage. If you realize the loss on the bonds now and buy back similar but not identical bonds in your IRA you are in the same net position but you'll get to claim the loss on your taxes. It's a win! Just be aware of wash sale rules so you actually get to deduct the loss.

Also, consider getting a portfolio review by using the Asking Portfolio Questions format.
Thanks Chip! I submitted one yesterday:

viewtopic.php?f=1&t=247755&p=3894750#p3894750

livesoft
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Re: My taxable account is banged up. Need some help!

Post by livesoft » Mon Apr 23, 2018 11:57 am

Starchild wrote:
Mon Apr 23, 2018 10:35 am
livesoft wrote:
Mon Apr 23, 2018 8:46 am
If you sell your bond fund(s) in taxable at a loss, then I think you should avoid buying shares of a substantially identical bond fund in your IRA(s) for 30 days after selling in taxable and also 30 days before selling in taxable.
If I do the transition immediately, I won't get the write off?
Perhaps. Please research the term "Wash Sale" applied to "Tax-Loss Harvesting."
Wiki This signature message sponsored by sscritic: Learn to fish.

finite_difference
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Re: My taxable account is banged up. Need some help!

Post by finite_difference » Mon Apr 23, 2018 1:18 pm

You can switch from VBTLX (Vanguard Total Bond Admital) to VWIUX (Vanguard Intermediate Tax-Exempt) depending on your tax bracket.

Honestly, I don’t think there’s anything really that bad about owning VBTLX in taxable because it’s a great fund and it’s low cost.

There’s a Vanguard NJ municipal fund too that I may give it a try for the minimum. But I’d use at least 50% of munis in VWIUX for the diversification.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

stocknoob4111
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Re: My taxable account is banged up. Need some help!

Post by stocknoob4111 » Mon Apr 23, 2018 2:17 pm

There are huge arguments for and against bonds in taxable/tax-exempt... for me putting bonds in a tax exempt vehicle makes no sense despite the tax efficient treatment. The reason I hold bonds is not for return but rather accessibility to my capital in a worst case scenario without incurring too much of a capital loss by liquidating equities which are hugely more volatile. In a tax exempt vehicle such as a 401k you have no access to your capital anyway until you are 60 (at least not without severe penalties which would make tax efficiency discussions pointless) which is 17 years away for me so I am 100% equities there.

The gist of it is that I don't really care if my tax exempt is extremely volatile since I can't access it for 17 years anyway so putting in bonds there to mitigate volatility at the huge expense of reduced return and growth is silly. You may as well take advantage of full equities in your tax exempt and enjoy superior tax deferred growth.

Few other advantages of holding bonds in a taxable are ability to tax loss harvest and also ability to re-allocate some capital to equities in case of a huge crash in the markets - although some may call it timing, I don't consider taking advantage of an opportunity placed in front of you "timing". If the market crashes 40% you bet I will move 50% of my bonds into equities, I made a severe mistake once in the past by not doing so and not going to repeat that again :)

mhalley
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Re: My taxable account is banged up. Need some help!

Post by mhalley » Mon Apr 23, 2018 3:58 pm

The caveat of no bonds in taxable is not set in stone like it used to be. One caveat, if in the 28 % tax bracket, use muni bond funds.
https://www.whitecoatinvestor.com/asset ... n-taxable/

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Starchild
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Re: My taxable account is banged up. Need some help!

Post by Starchild » Mon Apr 23, 2018 4:30 pm

mhalley wrote:
Mon Apr 23, 2018 3:58 pm
The caveat of no bonds in taxable is not set in stone like it used to be. One caveat, if in the 28 % tax bracket, use muni bond funds.
https://www.whitecoatinvestor.com/asset ... n-taxable/
This is a little high tech for me, but from what I understand, dividends will be charged 25% tax rate in taxable, whereas you'd pay 15% in deferred. Is that true?

I do see the point of the previous poster that keeping all stocks in tax deferred since you're not touching it for a long time, so why invest in the lower return fund? Still, I like the idea of at least some of a lower risk, steady growing income.

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