Bonds or stocks to IRA?

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HappyJack
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Bonds or stocks to IRA?

Post by HappyJack » Sat Jan 12, 2019 7:32 am

I know that conventional wisdom dictates we place bond funds in IRA tax deferred accounts. However if VGIX is earning 9% over five years and VBILX is earning 1.97%over five years, does it make sense To put the growth stock in the IRA.

retiredjg
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Re: Bonds or stocks to IRA?

Post by retiredjg » Sat Jan 12, 2019 7:50 am

A traditional IRA can be used to house both stocks and bonds. Preferring to hold your bonds in IRA does not mean you can't hold stocks in the rest of the IRA space.

But when your tIRA space is filled, many of us prefer for the "spillover that is going to a taxable account" to be stocks funds, not bond funds. This is because of the way stock profits are taxed. Earnings from stock funds held in an IRA will be taxed as ordinary income. Earnings from stock funds held in a taxable account will be taxed as capital gains. The tax on long term capital gains is less than the tax on ordinary income.
Last edited by retiredjg on Sat Jan 12, 2019 7:51 am, edited 1 time in total.

livesoft
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Re: Bonds or stocks to IRA?

Post by livesoft » Sat Jan 12, 2019 7:51 am

It makes sense to put bond funds AND stock funds in IRAs, 401(k)s, 403(b)s, and other tax-advantaged accounts.

And don't forget that in a taxable account, unrealized capital gains are not taxed at all.
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Topic Author
HappyJack
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Re: Bonds or stocks to IRA?

Post by HappyJack » Sat Jan 12, 2019 7:57 am

Ahhhhhh. Thanks. Very helpful.

Topic Author
HappyJack
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Re: Bonds or stocks to IRA?

Post by HappyJack » Sat Jan 12, 2019 1:00 pm

Is it possible to hold stock funds in the IRA portion of your portfolio and then transfer those proceeds into bond funds before you take them out in order to avoid the taxes as ordinary income.

MotoTrojan
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Re: Bonds or stocks to IRA?

Post by MotoTrojan » Sat Jan 12, 2019 1:23 pm

HappyJack wrote:
Sat Jan 12, 2019 1:00 pm
Is it possible to hold stock funds in the IRA portion of your portfolio and then transfer those proceeds into bond funds before you take them out in order to avoid the taxes as ordinary income.
No matter what the asset is, when you withdraw from a tIRA it is ordinary income.

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abuss368
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Re: Bonds or stocks to IRA?

Post by abuss368 » Sat Jan 12, 2019 1:30 pm

HappyJack wrote:
Sat Jan 12, 2019 7:32 am
I know that conventional wisdom dictates we place bond funds in IRA tax deferred accounts. However if VGIX is earning 9% over five years and VBILX is earning 1.97%over five years, does it make sense To put the growth stock in the IRA.
Welcome to the Bogleheads!

There are two strategies available and there are positives and negatives to both.

* Equal Location - Place the same funds in each account (in terms of taxable accounts, taxable bonds may be substituted with tax exempt bonds). Rick Ferri has recommended this approach over the years.

* Asset Location - Stocks in taxable accounts and bonds in tax advantaged accounts.

Over the years I have come to realize that investors would be well served to pick the strategy that works best for them and will allow them to stay the course in all types of markets. We may be dancing on the head of a needle.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!"

livesoft
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Re: Bonds or stocks to IRA?

Post by livesoft » Sat Jan 12, 2019 1:45 pm

HappyJack wrote:
Sat Jan 12, 2019 1:00 pm
Is it possible to hold stock funds in the IRA portion of your portfolio and then transfer those proceeds into bond funds before you take them out in order to avoid the taxes as ordinary income.
It is possible to exchange stock funds in the IRA portion into bond funds in the IRA or vice versa pretty much at any time one wants to.

But that won't let you avoid taxes as ordinary income when you take the money out of the IRA.
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Topic Author
HappyJack
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Re: Bonds or stocks to IRA?

Post by HappyJack » Sat Jan 12, 2019 1:48 pm

Thanks

retiredjg
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Re: Bonds or stocks to IRA?

Post by retiredjg » Sat Jan 12, 2019 1:57 pm

HappyJack wrote:
Sat Jan 12, 2019 1:00 pm
Is it possible to hold stock funds in the IRA portion of your portfolio and then transfer those proceeds into bond funds before you take them out in order to avoid the taxes as ordinary income.
Well sure, but the earnings will still have come from stocks so that would accomplish nothing. Everything coming out of tIRA is taxed at ordinary rate.

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