Treasuries funds in taxable account...

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8hygro
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Joined: Sun Dec 25, 2016 9:15 am

Treasuries funds in taxable account...

Post by 8hygro » Tue Jan 14, 2020 3:00 pm

I know it is not preferred, but if one had no access through their 401k and was very risk adverse desiring only Intermediate treasuries, is it rationale?

There is a Roth being fully funded but only the last couple years.

The taxable account is with Fidelity. Funds being considered are FUAMX (Int Trs Bd Ind) and FIPDX (Inf prot Bd Ind). Money will be added quarterly in 50k or so sized deposits. Retirement is set for 2022.

TIA

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simplesimon
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Location: Boston, MA

Re: Treasuries funds in taxable account...

Post by simplesimon » Tue Jan 14, 2020 3:02 pm

It's fine.

UpperNwGuy
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Re: Treasuries funds in taxable account...

Post by UpperNwGuy » Tue Jan 14, 2020 3:12 pm

I hold VSIGX, Vanguard's counterpart to Fidelity's FUAMX, in taxable. I pay Federal tax on the dividends, but not state tax.

Church Lady
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Re: Treasuries funds in taxable account...

Post by Church Lady » Tue Jan 14, 2020 4:31 pm

Regarding FIPDX ....

https://www.morningstar.com/articles/71 ... e-accounts

From the article:
Benz: Generally speaking, you'd want to keep any sort of bond investment that has high income out of your taxable account. The key reason is that those income distributions are taxed at your ordinary income tax rates. Junk bonds, for example, are the classic example of the thing to keep out of your taxable account because if you are earning, say, a 6% income payment on that junk-bond fund, you will owe ordinary income taxes, which will take a big haircut out of that nice yield. So, junk bonds would be one category. Another category would be Treasury Inflation-Protected Securities because you're taxed not just on the interest income but also on the inflation adjustment that you receive to your principal. So, those would be two categories that would be not such great ideas for a taxable account.
FIPDX appears to hold Treasury Inflation Protected Securities. If I were you, I'd investigate what distributions this fund makes, and how they are taxable to you. Sometimes funds do magic things that make such inconveniences go away, and sometimes they pass the inconvenience on to you. :oops: I don't know about this fund myself. You could read the prospectus or give Fidelity a call.

The other fund should be fine. Many states exempt Treasury income from taxation, so that's a bonus to you.

Good luck!
He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity.

Ferdinand2014
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Re: Treasuries funds in taxable account...

Post by Ferdinand2014 » Tue Jan 14, 2020 4:35 pm

8hygro wrote:
Tue Jan 14, 2020 3:00 pm
I know it is not preferred, but if one had no access through their 401k and was very risk adverse desiring only Intermediate treasuries, is it rationale?

There is a Roth being fully funded but only the last couple years.

The taxable account is with Fidelity. Funds being considered are FUAMX (Int Trs Bd Ind) and FIPDX (Inf prot Bd Ind). Money will be added quarterly in 50k or so sized deposits. Retirement is set for 2022.

TIA
FUAMX: Yes
FPIDX: No
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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grabiner
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Re: Treasuries funds in taxable account...

Post by grabiner » Tue Jan 14, 2020 8:50 pm

If you are going to hold bonds in your taxable account, Treasuries are a good choice. The low yield comes with low risk, so you need less in Treasuries to get the same risk reduction. And the low yield and state tax exemption reduce the tax cost.
Wiki David Grabiner

JBTX
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Re: Treasuries funds in taxable account...

Post by JBTX » Tue Jan 14, 2020 9:00 pm

8hygro wrote:
Tue Jan 14, 2020 3:00 pm
I know it is not preferred, but if one had no access through their 401k and was very risk adverse desiring only Intermediate treasuries, is it rationale?

There is a Roth being fully funded but only the last couple years.

The taxable account is with Fidelity. Funds being considered are FUAMX (Int Trs Bd Ind) and FIPDX (Inf prot Bd Ind). Money will be added quarterly in 50k or so sized deposits. Retirement is set for 2022.

TIA
As long as rates remain relatively low, the long term tax impact of bonds in taxable vs bonds in tax advantaged is very small, and in some cases bonds in taxable can be marginally better.

lazyday
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Re: Treasuries funds in taxable account...

Post by lazyday » Wed Jan 15, 2020 5:40 am

8hygro wrote:
Tue Jan 14, 2020 3:00 pm
very risk adverse desiring only Intermediate treasuries .... Funds being considered are FUAMX (Int Trs Bd Ind) and FIPDX (Inf prot Bd Ind).
For the whole portfolio, including the Roth?

Retirement is set for 2022.
In my opinion, if it’s almost certain that no money is needed after 30 years from now:

MORE RISKY
-
100% int Treasury fund
-
50% int Treasury fund, 50% TIPS fund
-
40% int Treasury fund, 40% TIPS fund, 20% Total World Stock
-
100%: 28 year ladder of TIPS
-
LESS RISKY

Topic Author
8hygro
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Re: Treasuries funds in taxable account...

Post by 8hygro » Wed Jan 15, 2020 11:06 am

Hello lazyday,

Muddy wording on my part. I only mentioned the Roth space as I know it could be a possibility for holding the treasuries. Currently it is holding a Total Mkt fund.

The portfolio AA is near 50/50. All tax advantaged space is maxed out. Existing 401k is very limited and expensive. Currently it holds 50/50 in a total Bond fund and Total Mkt Fund.

The desire is to take some structured bonus money that otherwise is just going to be parked in a savings account (very risk adverse), and invest it in Int Treasuries offering some diversification to the portfolio. It would be moving the AA toward 40/60 which is desired.

palanzo
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Re: Treasuries funds in taxable account...

Post by palanzo » Wed Jan 15, 2020 1:03 pm

grabiner wrote:
Tue Jan 14, 2020 8:50 pm
If you are going to hold bonds in your taxable account, Treasuries are a good choice. The low yield comes with low risk, so you need less in Treasuries to get the same risk reduction. And the low yield and state tax exemption reduce the tax cost.
Would Intermediate Term TE also not be a good choice in taxable? I have found that running simulations in TurboTax for the person's circumstances is very useful. I have found that IT TE provides considerably more dividends than Intermediate Treasury Index and with considerably lower Federal tax due.

Looking4Answers
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Re: Treasuries funds in taxable account...

Post by Looking4Answers » Wed Jan 15, 2020 1:50 pm

palanzo wrote:
Wed Jan 15, 2020 1:03 pm

Would Intermediate Term TE also not be a good choice in taxable?
Forgive my ignorance but what is Intermediate Term TE?

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Wiggums
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Re: Treasuries funds in taxable account...

Post by Wiggums » Wed Jan 15, 2020 2:04 pm

Looking4Answers wrote:
Wed Jan 15, 2020 1:50 pm
palanzo wrote:
Wed Jan 15, 2020 1:03 pm

Would Intermediate Term TE also not be a good choice in taxable?
Forgive my ignorance but what is Intermediate Term TE?
Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX)?

palanzo
Posts: 76
Joined: Thu Oct 10, 2019 4:28 pm

Re: Treasuries funds in taxable account...

Post by palanzo » Wed Jan 15, 2020 2:14 pm

Wiggums wrote:
Wed Jan 15, 2020 2:04 pm
Looking4Answers wrote:
Wed Jan 15, 2020 1:50 pm
palanzo wrote:
Wed Jan 15, 2020 1:03 pm

Would Intermediate Term TE also not be a good choice in taxable?
Forgive my ignorance but what is Intermediate Term TE?
Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX)?
Correct.

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grabiner
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Re: Treasuries funds in taxable account...

Post by grabiner » Thu Jan 16, 2020 12:00 am

palanzo wrote:
Wed Jan 15, 2020 1:03 pm
grabiner wrote:
Tue Jan 14, 2020 8:50 pm
If you are going to hold bonds in your taxable account, Treasuries are a good choice. The low yield comes with low risk, so you need less in Treasuries to get the same risk reduction. And the low yield and state tax exemption reduce the tax cost.
Would Intermediate Term TE also not be a good choice in taxable? I have found that running simulations in TurboTax for the person's circumstances is very useful. I have found that IT TE provides considerably more dividends than Intermediate Treasury Index and with considerably lower Federal tax due.
Which one is better depends on your tax situation. The muni fund has a higher yield because it has significantly higher risk; munis can default, or can be called. In a 32% tax bracket, it is probably worth taking that risk because of the higher return; in a 24% bracket, I would only recommend taking the risk if Vanguard has a muni fund for your high-tax state.
Wiki David Grabiner

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