AA and Tax efficiency review

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ready20
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AA and Tax efficiency review

Post by ready20 » Tue Sep 11, 2018 9:22 am

The title says it all. For those of us with simplistic 401k, Roth IRA and Taxable available to us I have the below questions.

1. WIth low cost Vanguard funds available in the above three, and an AA of 70 stocks, 30 bonds is the below the most tax efficient.
All Bonds in 401k and all International in Taxable?

bloom2708
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Re: AA and Tax efficiency review

Post by bloom2708 » Tue Sep 11, 2018 9:48 am

There is no one right answer.

The ratio/mix of amounts in each and your desired ratio of US to International will determine how you mix it.

Taxable - Total US and/or Total International
401k - Total US bond, and/or Total US
Roth - Total US and/or Total International

Typically your 401k has the largest balance with the higher limits compared to Roth and filling up Pre-tax 401k and Roth before taxable.

Kind of like a small puzzle lay out the pieces and see how they fit. Keeping it simple but not as simple as 1 fund in each if the amounts don't line up.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

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triceratop
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Re: AA and Tax efficiency review

Post by triceratop » Tue Sep 11, 2018 9:51 am

What are your federal/state income tax rates?
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

retiredjg
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Re: AA and Tax efficiency review

Post by retiredjg » Tue Sep 11, 2018 10:05 am

ready20 wrote:
Tue Sep 11, 2018 9:22 am
1. WIth low cost Vanguard funds available in the above three, and an AA of 70 stocks, 30 bonds is the below the most tax efficient.
All Bonds in 401k and all International in Taxable?
If it fits, that is how I would do it. I might make an exception and use some state munis (not the entire bond allocation) if in a very high tax state and if I were in a very high tax bracket.

ready20
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Re: AA and Tax efficiency review

Post by ready20 » Tue Sep 11, 2018 10:19 am

triceratop wrote:
Tue Sep 11, 2018 9:51 am
What are your federal/state income tax rates?
State is Indiana, so 3.23%
Federal Bracket is 35%

ready20
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Re: AA and Tax efficiency review

Post by ready20 » Tue Sep 11, 2018 10:26 am

ready20 wrote:
Tue Sep 11, 2018 10:19 am
triceratop wrote:
Tue Sep 11, 2018 9:51 am
What are your federal/state income tax rates?
State is Indiana, so 3.23%
Federal Bracket is 35%
Also, I am using HSA for bonds also- that ok?

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triceratop
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Re: AA and Tax efficiency review

Post by triceratop » Tue Sep 11, 2018 12:15 pm

You should check out this thread: viewtopic.php?t=242137

US stocks have been more tax efficient for someone in your situation.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

ready20
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Re: AA and Tax efficiency review

Post by ready20 » Tue Sep 11, 2018 12:27 pm

So, if they are more tax efficient, they should be held where?

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triceratop
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Re: AA and Tax efficiency review

Post by triceratop » Tue Sep 11, 2018 12:34 pm

ready20 wrote:
Tue Sep 11, 2018 12:27 pm
So, if they are more tax efficient, they should be held where?
If they were held in taxable they would have cost less money in taxes.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

ready20
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Re: AA and Tax efficiency review

Post by ready20 » Wed Sep 12, 2018 8:29 am

Should TIPS, Ibonds or something similar be part of my portfolio, or is Vanguard total bond in 401K sufficient?

ready20
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Re: AA and Tax efficiency review

Post by ready20 » Tue Sep 18, 2018 8:23 am

See above question. Thank you

retiredjg
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Re: AA and Tax efficiency review

Post by retiredjg » Tue Sep 18, 2018 8:37 am

There really is no general "should" for this. The total bond market is good enough alone.

For people who must or choose to hold bonds in taxable, I Bonds are a good choice. And if your MAGI is not too high, they can be used for education without paying tax on the earnings. I Bonds can also be used for an emergency fund if you can work around the 1 year period when they cannot be sold.

TIPS are something that some people choose to hold. TIPs are reported to be a good hedge against unexpected inflation. Some people believe that simply having a salary is enough hedge against inflation. Opinions seem to vary about whether TIPS are helpful against expected inflation.

There is more information in the Wiki on I bonds and probably on TIPs as well.

ready20
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Re: AA and Tax efficiency review

Post by ready20 » Tue Sep 18, 2018 8:53 am

thank you

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