Bonds in a taxable brokerage account

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Bonds in a taxable brokerage account

Post by BowermanII » Fri Oct 12, 2018 8:01 am

Just want to start out by saying how awesome this community is. I'm still amazed at how selfless people are to consistently spend time helping strangers make good financial decisions.

A few years ago I opened a taxable brokerage account with Vanguard after maxing out my IRA and 401k. I was new to investing at the time and didn't really know what I was doing (still trying to learn more) and opened four funds--VTSAX, VBTLX, VTIBX, VTIAX. The VTIBX and VBTLX are International Bond and Bond Market funds, which I've since learned aren't great to have in a non-tax-advantaged account. I haven't really done anything with the account since opening it and really want to get over my fear of screwing up and straighten things out. What is the best way to go about getting the money I have in bonds into something better? Do I sell the bonds or something? I've never sold anything in my accounts before and feel like a novice when it comes to this stuff. The bonds make up about 29% of the total amount in the brokerage account.

If it helps at all, I'm 31 years old and in the 24% tax bracket for 2018. My IRA is a target retirement account, and I think my 401k is the same.

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Re: Bonds in a taxable brokerage account

Post by Living Free » Fri Oct 12, 2018 12:02 pm

The only way to get them into something better would be to sell the bond funds and instead invest in something more tax efficient

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Re: Bonds in a taxable brokerage account

Post by aj76er » Fri Oct 12, 2018 3:59 pm

Based on your tax bracket, you should look into selling the two bond funds and rolling them into Vanguard intermediate-term Municipal Bond Fund, vwiux. I believe if you have these in a Vanguard Brokerage you can simply do an Exchange on them and into vwiux (look for a button near the buy sell buttons).
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Re: Bonds in a taxable brokerage account

Post by grabiner » Fri Oct 12, 2018 10:23 pm

Welcome to the forum!

It makes sense to view your entire portfolio as a unit. If you want your brokerage account to be all stock for tax reasons, then you can sell the bond funds to buy stock funds; then, in your IRA or 401(k), sell stock funds to buy bond funds so that you have the correct overall bond allocation. This would probably require selling the target-date funds and buying separate bond and stock funds.

One caution: if you have a capital loss in your bond funds, wait 31 days before buying the same bond fund in your IRA or 401(k), or else you won't be able to deduct the capital loss because of the wash sale rules. You can buy a different bond fund, or temporarily leave the money in something else in the IRA and 401(k).
Wiki David Grabiner

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