Asset Location - 403b + Roths

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BudgetParty
Posts: 36
Joined: Wed Apr 30, 2014 7:50 am
Location: TN

Asset Location - 403b + Roths

Post by BudgetParty » Wed Sep 19, 2018 2:31 pm

Hello everyone. I could use some opinions about a change to our asset location.

My wife's 403b is moving from MetLife to Empower. In the MetLife plan the only good option was Vanguard TSM. So the 403b was 100% stock in TSM and we adjusted accordingly in the Roths to attain our allocation.

The new 403b won't have TSM, but does include both Vanguard S&P 500 and Vanguard Total Bond index.

My question is: Does it make sense to load the Roth completely with equities and essentially do all rebalancing in the 403b between Vanguard S&P500 and Total Bond?
That seems simple and easy to me, but it's very possible that I'm overlooking some drawbacks and would appreciate some input.
Of course, if fixed income needed to be added to the Roths over time, that makes sense too. Or maybe all of them as a mirror image is best?

Current snapshot below. Thank you in advance for your help.

--

Late 30's
12% tax bracket
Portfolio goal 80/20 with 30% equities international (I know it's about 85/15 now and needs rebalancing)
Planned Yearly Contributions: 3000 to 403b (for company match) + max both roths 5500 each (11000) = 14000 total

Portfolio value low six figures
*Totals from 403b are not tax adjusted (another rabbit hole I need to read more about!)

-403b (61.9%):
VG TSM 61.9% (soon to be Vanguard S&P 500)

-Wife’s Roth (12.4%):
VG Total International Stock 5.4%
VG Intermediate Bond Index 7.0%

-My Roth (25.7%):
VG Total International Stock 17.8%
VG Intermediate Bond Index 7.9%

EdLaFave
Posts: 330
Joined: Fri Dec 26, 2014 2:31 am

Re: Asset Location - 403b + Roths

Post by EdLaFave » Wed Sep 19, 2018 4:49 pm

Are you essentially asking if it is better to hold stocks in a Roth retirement account and bonds in a Traditional retirement account?

If so, then yes. It makes mathematical sense to put the asset class with the highest expected return into the account that won't require you to pay taxes because if expectations come to fruition then a smaller percentage of your overall portfolio will be taxed.

BudgetParty
Posts: 36
Joined: Wed Apr 30, 2014 7:50 am
Location: TN

Re: Asset Location - 403b + Roths

Post by BudgetParty » Wed Sep 19, 2018 6:37 pm

EdLaFave wrote:
Wed Sep 19, 2018 4:49 pm
Are you essentially asking if it is better to hold stocks in a Roth retirement account and bonds in a Traditional retirement account?

If so, then yes. It makes mathematical sense to put the asset class with the highest expected return into the account that won't require you to pay taxes because if expectations come to fruition then a smaller percentage of your overall portfolio will be taxed.
That's part if it, and it also ties in with the question of tax adjusting the 403b part of our portfolio for rebalancing (again, I didn't do that here).
I've read about both topics and there seems to be no consensus. Keeping a lot of equities in Roths does make sense to me.

More than anything I'm wondering if there are drawbacks I've not considered by keeping the bonds in the 403b (i.e. all the fixed income in one fund in one place).
Doing all the rebalancing in the 403b sure seems simple. Down the road the Roths will be bigger because we add more yearly there. Maybe mixing fixed income into all accounts later would be a good thing.

Compound
Posts: 609
Joined: Mon May 26, 2014 1:32 pm

Re: Asset Location - 403b + Roths

Post by Compound » Wed Sep 19, 2018 6:43 pm

BudgetParty wrote:
Wed Sep 19, 2018 2:31 pm

My question is: Does it make sense to load the Roth completely with equities and essentially do all rebalancing in the 403b between Vanguard S&P500 and Total Bond?
Yes, your plan makes sense. Many do it the way you propose: put highest risk/expected return assets in Roth account and the rest in tax deferred.

BudgetParty
Posts: 36
Joined: Wed Apr 30, 2014 7:50 am
Location: TN

Re: Asset Location - 403b + Roths

Post by BudgetParty » Wed Sep 19, 2018 11:48 pm

Compound wrote:
Wed Sep 19, 2018 6:43 pm
BudgetParty wrote:
Wed Sep 19, 2018 2:31 pm

My question is: Does it make sense to load the Roth completely with equities and essentially do all rebalancing in the 403b between Vanguard S&P500 and Total Bond?
Yes, your plan makes sense. Many do it the way you propose: put highest risk/expected return assets in Roth account and the rest in tax deferred.
That's good to hear. Thanks for reading and commenting.

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