401K Wells Fargo Stable Value Fund - Home Downpayment?

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boglenomics
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401K Wells Fargo Stable Value Fund - Home Downpayment?

Post by boglenomics »

In order to avoid the substantial ordinary income tax on my savings for a home downpayment I would like to shelter the funds inside my tax advantaged accounts. I have a 50% margin of safety on my taxable account index funds that I could swap when the time comes per the Wiki "Placing cash needs in a tax-advantaged account".

Unfortunately my company only offers a single fund that would be a potential candidate and has no significant risk of price fluctuation like a normal bond fund would. It's the Wells Fargo Stable Value Fund and has had a 1 YR yield of 2.16%. The concept of these funds is relatively new to me, would this be a reasonable fund to use as a cash like instrument for this purpose? It's not a mutual fund from what I gather so I couldn't find more info on the fund via Morningstar, my 401K provider (Fidelity) provides a brief overview.

Any input is greatly appreciated! :D
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whodidntante
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Re: 401K Wells Fargo Stable Value Fund - Home Downpayment?

Post by whodidntante »

I do not have cash in taxable so I'm probably doing what that wiki suggests. Yes, a stable value fund in tax-deferred is a reasonable choice. I personally have a stable value fund that is the closest thing to cash that I have in my portfolio. I also have a bond fund in tax-deferred. I don't really care if it goes down, because it has also gone up.
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grabiner
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Re: 401K Wells Fargo Stable Value Fund - Home Downpayment?

Post by grabiner »

You could do this, as long as there are no restrictions on withdrawing from the stable value fund to buy stock. (For example, you can't do the equivalent transaction with TIAA Traditional Annuity in the forms which require all withdrawals to be made over a ten-year period.)

However, for a short-term need, with current yields, it's probably more tax-efficient to save as much as you can in taxable in short-term bond funds or CDs. If you have any stocks with losses, you can sell those to hold more bonds in your taxable account, and keep your stock allocation by moving money from the stable value fund to stocks in your 401(k).
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boglenomics
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Re: 401K Wells Fargo Stable Value Fund - Home Downpayment?

Post by boglenomics »

whodidntante wrote: Thu Sep 05, 2019 8:34 pm I do not have cash in taxable so I'm probably doing what that wiki suggests. Yes, a stable value fund in tax-deferred is a reasonable choice. I personally have a stable value fund that is the closest thing to cash that I have in my portfolio. I also have a bond fund in tax-deferred. I don't really care if it goes down, because it has also gone up.
With the rapid increase in bond value buying into them now would expose me to more risk than I'd be willing to tolerate for this short time horizon purpose if new issue yields somehow rise in the future. I keep 10% in bonds as part of my "regular" allocation. Probably some mental accounting on my part.

Going to do a bit more research but pretty sure I will utilize this fund (and lobby for a better money market fund in the plan). Thanks for the input!
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boglenomics
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Re: 401K Wells Fargo Stable Value Fund - Home Downpayment?

Post by boglenomics »

grabiner wrote: Thu Sep 05, 2019 8:57 pm You could do this, as long as there are no restrictions on withdrawing from the stable value fund to buy stock. (For example, you can't do the equivalent transaction with TIAA Traditional Annuity in the forms which require all withdrawals to be made over a ten-year period.)

However, for a short-term need, with current yields, it's probably more tax-efficient to save as much as you can in taxable in short-term bond funds or CDs. If you have any stocks with losses, you can sell those to hold more bonds in your taxable account, and keep your stock allocation by moving money from the stable value fund to stocks in your 401(k).
Did read that and confirmed that there's no withdraw or exchange restrictions.

Unfortunately not, but all the tax lots for the stock index funds will be long term cap gains in taxable by the time I need them to be.

If this whole thing gets too complicated I'll probably just do what you suggest and switch back to cash in a CD or T-Bills via taxable and take the couple of hundred bucks a year hit in ordinary income.
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