How to achieve desired asset allocation within taxable/tax advantaged accounts

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BooneDocks11
Posts: 20
Joined: Sun Jul 19, 2020 8:49 pm

How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by BooneDocks11 » Fri Jul 31, 2020 8:49 am

I am a new investor in the process of ending ties with my financial advisor (in large part thanks to this forum) and will initially be committing to a three fund portfolio through vanguard (VTSAX, VBTLX, VTIAX)

My question is, once one has deciding on their desired asset allocation (80/20), what is the smartest way to allocate ones accounts in terms of tax advantaged and taxable accounts when considering tax efficiency?

I have moved a Roth IRA with approximately 100k to vanguard and a taxable account with around 90k with common stocks which I plan to sell and reinvest into index funds (I am at a net loss so I will not have to pay capital gains).

If the accounts are as follows

Taxable account
Roth IRA-(can no longer contribute due to income)
His Current Employer 401k
Traditional IRA (His and Hers to be converted to Roth)
His former employer 401k
Her Former employer 401k
HSA


Roth IRA, 401k and taxable accounts will have the largest values as I am just now starting my backdoor roth and HSA contributions.

My main question is should each account hold 80/20 or from a tax efficiency standpoint should bonds be placed preferentially in the tax advantaged accounts?



Emergency funds: 6m

Debt
Cars: 30k (2.85% ) 21k (2.5% )- Will be paying these off within the year
Mortgage: 434k (4.125%) In the process of a 15 year refinance

Tax Filing Status: married jointly

Tax Rate: 37% Federal, 5.25% State

State of Residence: NC

Ages:34 (his and hers)

Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 40% of stocks (I think.....)

Current portfolio size:
mid 6 figures

Current retirement assets


Roth IRA (percent of total portfolio = 27%)
-in the process of rolling this over to vanguard after liquidating the assets at Ameriprise


Common Stocks Rolled over From Ameriprise (25% of total portfolio) I plan to sell these at a loss and reinvest into index funds
AMGN AMGEN INC
AVB AVALONBAY COMMNTYS INC
AVGO BROADCOM INC
BBY BEST BUY COMPANY INC
BCE BCE INC NEW
BMY BRISTOL MYERS SQUIBB COMPANY
CMCSA COMCAST CORP CL A NEW
CSCO CISCO SYSTEMS INC
CVS CVS HEALTH CORP
DAL DELTA AIRLINES INC NEW
EXC EXELON CORP
HD HOME DEPOT INC
INTC INTEL CORP
JPM JPMORGAN CHASE & CO
KSS KOHLS CORP
MDT MEDTRONIC PLC
MPC MARATHON PETROLEUM CORP
NEE NEXTERA ENERGY INC
PEG PUBLIC SERVICE ENTERPRISE GROUP INC
PNC PNC FINANCIAL SERVICES GROUP INC
PRU PRUDENTIAL FINANCIAL INC
PSA PUBLIC STORAGE INC
RF REGIONS FINANCIAL CORP NEW
TOT TOTAL S A SPON ADR
TSN TYSON FOODS INC CL A
TXN TEXAS INSTRUMENTS INC
UNP UNION PACIFIC CORP
UPS UNITED PARCEL SERVICE INC CL B
WM WASTE MANAGEMENT INC DEL


His current 401k (13% of total portfolio)
The Growth Fund of America RGABX (1.41%) current selection
Options with Expense ratios
Af U.S. Government Money Market-R2
Amcap Fund-R2 RAFBX (0.69%)
American Funds 2010 Target Date-R2 RBATX (1.41%)
American Funds 2015 Target Date-R2 RBJTX (1.41%)
American Funds 2020 Target Date-R2 RBCTX (1.41%)
American Funds 2025 Target Date-R2 RBDTX (1.43%)
American Funds 2030 Target Date-R2 RBETX (1.45%)
American Funds 2035 Target Date-R2 RBFTX (1.47%)
American Funds 2040 Target Date-R2 RBKTX (1.48%)
American Funds 2045 Target Date-R2 RBHTX (1.48%)
American Funds 2050 Target Date-R2 RBITX (1.49%)
American Funds 2055 Target Date-R2 RBMTX (1.49%)
American Funds 2060 Target Date-R2 RBNTX (1.51%)
American Funds 2065 Target Date-R2 RBOTX (1.55%)
Fundamental Investors-R2 RFNBX (1.38%)
Intermediate Bond Fund Of America-R2 RBOBX (1.38%)
New Perspective Fund-R2 RNPBX (1.52%)
Smallcap World Fund-R2 RSLBX (1.78%)
Washington Mutual Investors Fund-R2 RWMBX (1.37%)

His 401k at previous employer (6% of total portfolio)
JPMCB SmartRetirement DRE 2050 CF-C (JTSCX)

His Former 401K options:
PMCB SmartRetirement DRE Income CF-C (0.59%)
JPMCB SmartRetirement DRE 2020 CF-C (0.43%)
JPMCB SmartRetirement DRE 2025 CF-C (0.45%)
JPMCB SmartRetirement DRE 2030 CF-C 0.45%
JPMCB SmartRetirement DRE 2035 CF-C 0.46%
JPMCB SmartRetirement DRE 2040 CF-C 0.46%
JPMCB SmartRetirement DRE 2045 CF-C 0.46%
JPMCB SmartRetirement DRE 2050 CF-C 0.46%
JPMCB SmartRetirement DRE 2055 CF-C 0.5%
JPMCB SmartRetirement DRE 2060 CF-C 0.35%
American Funds EuroPacific Gr R6 RERGX (0.46%)
Vanguard FTSE All-Wld ex-US Idx Ins Plus VFWPX (0.06%)
Federated Hermes MDT Small Cp Core IS QISCX (0.89%)
Vanguard Extended Market Idx InstlPlus VEMPX (0.04%)
Dodge & Cox Stock Fund DODGX (0.52%)
Vanguard Institutional Index Instl Pl VIIIX (0.02%)
Vanguard PRIMECAP Adm VPMAX (0.31%)
Baird Aggregate Bond inst BAGIX (0.3%)
JHancock Income R6 JSNWX (0.41%)
Vanguard Inflation-Protected Secs I VIPIX (0.07%)
Vanguard Total Bond Market Idx Instl Pls VBMPX (0.03%)
Vanguard Federal Money Market Inv VMFXX (0.11%)
TD Ameritrade SDB Sweep Program
TD Ameritrade SDB Sweep Program Roth
TD Ameritrade SDB Securities
TD Ameritrade SDB Securities Roth

Her 401K from previous employer- (20% of total portfolio) intent to change this dramatically, unsure as to why these selections were made
Vanguard Target 2050 (VFIFX)- 0.15%
Vanguard Target 2025 (VTTVX)- 0.13%
AF Europack growthr6 (RERGX) – 0.46%
CBRE unitized stock

Options
CBRE UNITIZED STOCK
FID 500 INDEX (FXAIX) (0.015%)
FID US BOND IDX (FXNAX) (0.025%)
FID EXTD MKT IDX (FSMAX) (0.046%)
FID GLB EX US IDX (FSGGX) (0.056%)
FID REAL ESTATE IDX (FSRNX) (0.07%)
LOOMIS GROWTH Y (LSGRX) (0.66%)
MACQUARIE LG CAP VAL (DPDEX) (0.7%)
PARNASSUS CORE EQ IS (PRILX) (0.63%)
AM CENT MD CP VAL I (AVUAX) (0.78%)
CRLN E MID CAP GR I (HAGIX) (0.74%)
AMG M SKY SPL EQ N (SKSEX) (1.18%)
WF EMRG GRTH CIT E2 (WEMIX) (0.9%)
AF EUROPAC GROWTH R6 (RERGX) (0.46%)
AMER NEW PERSPECT R4 (RNPEX) (0.77%)
I O DEVELOP MKT Y (ODVYX) (1.00%)
MS CBRE REAL EST I (CRARX) (0.83%)
OAKMARK EQ & INC INV (OAKBX) (0.81%)
VANGUARD TARGET 2015 VTXVX (0.13%)
VANGUARD TARGET 2020 VTWNX (0.13%)
VANGUARD TARGET 2025 VTTVX (0.13%)
VANGUARD TARGET 2030 VTHRX 0.14%
VANGUARD TARGET 2035 VTTHX 0.14
VANGUARD TARGET 2040 VFORX (0.14%)
VANGUARD TARGET 2045 VTIVX (0.15%)
VANGUARD TARGET 2050 VFIFX (0.15%)
VANGUARD TARGET 2055 VFFVX (0.15%)
VANGUARD TARGET 2060 VTTSX (0.15%)
VANGUARD TARGET 2065 VLXVX (0.15%)
VANGUARD TARGET INC (VTINX) (0.12%)
MIP II CL 3 (0.27%)
METWEST TOT RTN BD I (MWTIX) (0.44%)
BLKRK STR INC OPP IS (BSIIX)(0.84%)

His Traditional IRA at Vanguard (4% of total portfolio)
Vanguard Target Retirement 2050 (VFIFX)

Her Traditional IRA at Vanguard (2% of total portfolio)
Vanguard Target Retirement 2050 (VFIFX)

HSA at Health Savings Administrators (8% of total portfolio)
100% Cash-intend to invest and use as IRA
Last edited by BooneDocks11 on Sat Aug 01, 2020 2:35 pm, edited 3 times in total.

magicrat
Posts: 1023
Joined: Sat Nov 29, 2014 7:04 pm

Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by magicrat » Fri Jul 31, 2020 9:03 am

Bonds in pretax until you run out of room.

mystupidglasses
Posts: 36
Joined: Tue Sep 15, 2015 4:52 pm

Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by mystupidglasses » Fri Jul 31, 2020 9:08 am

Fewer fund holdings overall is desirable from a monitoring/spreadsheet perspective. You may want to refer to this wiki entry: https://www.bogleheads.org/wiki/Asset_a ... e_accounts

Regarding placement of bonds, here is yet another wiki entry: https://www.bogleheads.org/wiki/Tax-eff ... _placement
Given today's low interest rates, I would say the only hard rule to consider for suitability in your personal situation should be that Roth accounts remain 100% stock.

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midareff
Posts: 7021
Joined: Mon Nov 29, 2010 10:43 am
Location: Biscayne Bay, South Florida

Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by midareff » Fri Jul 31, 2020 9:24 am

I hold both equities and bonds in my IRA and taxable account. In taxable it's tax exempt munis and I take the distributions for spending as we are retired. In my IRA I hold corporates as they still have a reasonable real return (after CPI-U) and can be useful for rebalancing. While they fluctuate more than treasury or agency issues I see no point for a ten year treasury at something like .55% yield this AM when you can still get 1.0% at Ally Bank and skip the haircut when/if the Fed raises rates. Roth is all equities.

RocketShipTech
Posts: 536
Joined: Sat Jun 13, 2020 10:08 pm

Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by RocketShipTech » Fri Jul 31, 2020 12:08 pm

What is your tax bracket?

Topic Author
BooneDocks11
Posts: 20
Joined: Sun Jul 19, 2020 8:49 pm

Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by BooneDocks11 » Fri Jul 31, 2020 1:36 pm

RocketShipTech wrote:
Fri Jul 31, 2020 12:08 pm
What is your tax bracket?
marginal will be 37%

RocketShipTech
Posts: 536
Joined: Sat Jun 13, 2020 10:08 pm

Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by RocketShipTech » Fri Jul 31, 2020 3:36 pm

BooneDocks11 wrote:
Fri Jul 31, 2020 1:36 pm
RocketShipTech wrote:
Fri Jul 31, 2020 12:08 pm
What is your tax bracket?
marginal will be 37%
I’m going to assume that breaks down as 32% Federal + 5% State, and also assuming you did not include the NIIT which adds 3.8% to that.

Under these assumptions, Total Stock Market would have a tax cost for you of 0.41% annually while Total Bond Market would have a tax cost of 0.49%. Not a huge difference which one you put in taxable.

retiredjg
Posts: 41083
Joined: Thu Jan 10, 2008 12:56 pm

Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by retiredjg » Fri Jul 31, 2020 4:33 pm

BooneDocks11 wrote:
Fri Jul 31, 2020 8:49 am
My question is, once one has deciding on their desired asset allocation (80/20), what is the smartest way to allocate ones accounts in terms of tax advantaged and taxable accounts when considering tax efficiency?
This approach is usually very successful.

Start with your least flexible account - usually a 401k. Pick the lowest cost US stock and bond funds available there. Then fill in the other accounts as needed.

I often put international into taxable if a taxable account exists, especially if it all fits. This is because it is unusual to find a low cost international fund in a 401k.

Once the bonds and international are situated, fill in the holes with total stock in taxable and 500 index (with or without extended market index) in the other accounts. This reduces the need to watch for wash sales.

My main question is should each account hold 80/20 or from a tax efficiency standpoint should bonds be placed preferentially in the tax advantaged accounts?
This depends on who you ask and what state you live in. If you are in CA, there is an argument to be made for putting bonds into your taxable account. However, tax-exempt bonds are not as diversified and are more risky than a broad taxable bond fund like total bond index. So you might not want to put more than half of your bonds into taxable, even if you live in CA.

There are a number of people here who can help you with this. It's quite simple once you've done a few. If you want help, post your information in the format shown in the link at the bottom of this message and someone will help you. You can add that to the original post, at the bottom after what you have already posted. Then put in a new post showing that you have updated the original post.

Topic Author
BooneDocks11
Posts: 20
Joined: Sun Jul 19, 2020 8:49 pm

Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by BooneDocks11 » Sat Aug 01, 2020 8:02 am

Updated Original Post

One caveat is His current 401k will likely change in 2021. Im not sure how much this matters

BooneDocks11 wrote:
Fri Jul 31, 2020 8:49 am
I am a new investor in the process of ending ties with my financial advisor (in large part thanks to this forum) and will initially be committing to a three fund portfolio through vanguard (VTSAX, VBTLX, VTIAX)

My question is, once one has deciding on their desired asset allocation (80/20), what is the smartest way to allocate ones accounts in terms of tax advantaged and taxable accounts when considering tax efficiency?

I have moved a Roth IRA with approximately 100k to vanguard and a taxable account with around 90k with common stocks which I plan to sell and reinvest into index funds (I am at a net loss so I will not have to pay capital gains).

If the accounts are as follows

Taxable account
Roth IRA-(can no longer contribute due to income)
Employer 401k
Backdoor Roth and Spousal Backdoor roth
employer 401k
HSA


Roth IRA, 401k and taxable accounts will have the largest values as I am just now starting my backdoor roth and HSA contributions.

My main question is should each account hold 80/20 or from a tax efficiency standpoint should bonds be placed preferentially in the tax advantaged accounts?



Emergency funds: 6m

Debt
Cars: 30k (2.85% ) 21k (2.5% )- Will be paying these off within the year
Mortgage: 434k (4.125%) In the process of a 15 year refinance

Tax Filing Status: married jointly

Tax Rate: 37% Federal, 5.25% State

State of Residence: NC

Ages:34 (his and hers)

Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 40% of stocks (I think.....)

Current portfolio size:
mid 6 figures

Current retirement assets


Roth IRA (percent of total portfolio = 27%)
-in the process of rollin this over to vanguard after liquidating the assets at Ameriprise


Common Stocks Rolled over From Ameriprise (25% of total portfolio) I plan to sell these at a loss and reinvest into index funds
AMGN AMGEN INC
AVB AVALONBAY COMMNTYS INC
AVGO BROADCOM INC
BBY BEST BUY COMPANY INC
BCE BCE INC NEW
BMY BRISTOL MYERS SQUIBB COMPANY
CMCSA COMCAST CORP CL A NEW
CSCO CISCO SYSTEMS INC
CVS CVS HEALTH CORP
DAL DELTA AIRLINES INC NEW
EXC EXELON CORP
HD HOME DEPOT INC
INTC INTEL CORP
JPM JPMORGAN CHASE & CO
KSS KOHLS CORP
MDT MEDTRONIC PLC
MPC MARATHON PETROLEUM CORP
NEE NEXTERA ENERGY INC
PEG PUBLIC SERVICE ENTERPRISE GROUP INC
PNC PNC FINANCIAL SERVICES GROUP INC
PRU PRUDENTIAL FINANCIAL INC
PSA PUBLIC STORAGE INC
RF REGIONS FINANCIAL CORP NEW
TOT TOTAL S A SPON ADR
TSN TYSON FOODS INC CL A
TXN TEXAS INSTRUMENTS INC
UNP UNION PACIFIC CORP
UPS UNITED PARCEL SERVICE INC CL B
WM WASTE MANAGEMENT INC DEL


His current 401k (13% of total portfolio)
The Growth Fund of America RGABX (1.41%) current selection
Options with Expense ratios
Af U.S. Government Money Market-R2
Amcap Fund-R2 RAFBX (0.69%)
American Funds 2010 Target Date-R2 RBATX (1.41%)
American Funds 2015 Target Date-R2 RBJTX (1.41%)
American Funds 2020 Target Date-R2 RBCTX (1.41%)
American Funds 2025 Target Date-R2 RBDTX (1.43%)
American Funds 2030 Target Date-R2 RBETX (1.45%)
American Funds 2035 Target Date-R2 RBFTX (1.47%)
American Funds 2040 Target Date-R2 RBKTX (1.48%)
American Funds 2045 Target Date-R2 RBHTX (1.48%)
American Funds 2050 Target Date-R2 RBITX (1.49%)
American Funds 2055 Target Date-R2 RBMTX (1.49%)
American Funds 2060 Target Date-R2 RBNTX (1.51%)
American Funds 2065 Target Date-R2 RBOTX (1.55%)
Fundamental Investors-R2 RFNBX (1.38%)
Intermediate Bond Fund Of America-R2 RBOBX (1.38%)
New Perspective Fund-R2 RNPBX (1.52%)
Smallcap World Fund-R2 RSLBX (1.78%)
Washington Mutual Investors Fund-R2 RWMBX (1.37%)

His 401k at previous employer (6% of total portfolio)
JPMCB SmartRetirement DRE 2050 CF-C (JTSCX)

His Former 401K options:
PMCB SmartRetirement DRE Income CF-C (0.59%)
JPMCB SmartRetirement DRE 2020 CF-C (0.43%)
JPMCB SmartRetirement DRE 2025 CF-C (0.45%)
JPMCB SmartRetirement DRE 2030 CF-C 0.45%
JPMCB SmartRetirement DRE 2035 CF-C 0.46%
JPMCB SmartRetirement DRE 2040 CF-C 0.46%
JPMCB SmartRetirement DRE 2045 CF-C 0.46%
JPMCB SmartRetirement DRE 2050 CF-C 0.46%
JPMCB SmartRetirement DRE 2055 CF-C 0.5%
JPMCB SmartRetirement DRE 2060 CF-C 0.35%
American Funds EuroPacific Gr R6 RERGX (0.46%)
Vanguard FTSE All-Wld ex-US Idx Ins Plus VFWPX (0.06%)
Federated Hermes MDT Small Cp Core IS QISCX (0.89%)
Vanguard Extended Market Idx InstlPlus VEMPX (0.04%)
Dodge & Cox Stock Fund DODGX (0.52%)
Vanguard Institutional Index Instl Pl VIIIX (0.02%)
Vanguard PRIMECAP Adm VPMAX (0.31%)
Baird Aggregate Bond inst BAGIX (0.3%)
JHancock Income R6 JSNWX (0.41%)
Vanguard Inflation-Protected Secs I VIPIX (0.07%)
Vanguard Total Bond Market Idx Instl Pls VBMPX (0.03%)
Vanguard Federal Money Market Inv VMFXX (0.11%)
TD Ameritrade SDB Sweep Program
TD Ameritrade SDB Sweep Program Roth
TD Ameritrade SDB Securities
TD Ameritrade SDB Securities Roth

Her 401K from previous employer- (20% of total portfolio) intent to change this dramatically, unsure as to why these selections were made
Vanguard Target 2050 (VFIFX)- 0.15%
Vanguard Target 2025 (VTTVX)- 0.13%
AF Europack growthr6 (RERGX) – 0.46%
CBRE unitized stock

Options
CBRE UNITIZED STOCK
FID 500 INDEX (FXAIX) (0.015%)
FID US BOND IDX (FXNAX) (0.025%)
FID EXTD MKT IDX (FSMAX) (0.046%)
FID GLB EX US IDX (FSGGX) (0.056%)
FID REAL ESTATE IDX (FSRNX) (0.07%)
LOOMIS GROWTH Y (LSGRX) (0.66%)
MACQUARIE LG CAP VAL (DPDEX) (0.7%)
PARNASSUS CORE EQ IS (PRILX) (0.63%)
AM CENT MD CP VAL I (AVUAX) (0.78%)
CRLN E MID CAP GR I (HAGIX) (0.74%)
AMG M SKY SPL EQ N (SKSEX) (1.18%)
WF EMRG GRTH CIT E2 (WEMIX) (0.9%)
AF EUROPAC GROWTH R6 (RERGX) (0.46%)
AMER NEW PERSPECT R4 (RNPEX) (0.77%)
I O DEVELOP MKT Y (ODVYX) (1.00%)
MS CBRE REAL EST I (CRARX) (0.83%)
OAKMARK EQ & INC INV (OAKBX) (0.81%)
VANGUARD TARGET 2015 VTXVX (0.13%)
VANGUARD TARGET 2020 VTWNX (0.13%)
VANGUARD TARGET 2025 VTTVX (0.13%)
VANGUARD TARGET 2030 VTHRX 0.14%
VANGUARD TARGET 2035 VTTHX 0.14
VANGUARD TARGET 2040 VFORX (0.14%)
VANGUARD TARGET 2045 VTIVX (0.15%)
VANGUARD TARGET 2050 VFIFX (0.15%)
VANGUARD TARGET 2055 VFFVX (0.15%)
VANGUARD TARGET 2060 VTTSX (0.15%)
VANGUARD TARGET 2065 VLXVX (0.15%)
VANGUARD TARGET INC (VTINX) (0.12%)
MIP II CL 3 (0.27%)
METWEST TOT RTN BD I (MWTIX) (0.44%)
BLKRK STR INC OPP IS (BSIIX)(0.84%)

His Traditional IRA at Vanguard (4% of total portfolio)
Vanguard Target Retirement 2050 (VFIFX)

Her Traditional IRA at Vanguard (2% of total portfolio)
Vanguard Target Retirement 2050 (VFIFX)

HSA at Health Savings Administrators (8% of total portfolio)
100% Cash-intend to invest and use as IRA
Last edited by BooneDocks11 on Sat Aug 01, 2020 8:43 am, edited 1 time in total.

livesoft
Posts: 72480
Joined: Thu Mar 01, 2007 8:00 pm

Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by livesoft » Sat Aug 01, 2020 8:14 am

In your situation and tax bracket, I would do the following:

In your traditional 401(k)s, I would make them 100% Total Bond Index fund if possible or otherwise the best bond fund available.
In your HSA, I would use Vanguard Target Retirement fund of your choice.

Those traditional IRAs are small, so I would convert them to Roth IRAs. Roth conversion are in your future every year, too.

In your Roth IRA, I would put only Vanguard Total US Stock Market and Vanguard Total International Stock index funds for now ... or since they are not large compared to the rest of your portfolio a Target Retirement Fund of your choice.

If you still need bond allocation, then in your taxable, I would put tax-exempt muni bond fund, VWITX is fine, but you can research this.
You can do the math yourself to figure out how much VTWITX you need.

Then all that is left is what do you with the rest of your taxable account. There I would just get the allocation to equities using Total US Stock Market Index and Total International Stock Market Index.
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retiredjg
Posts: 41083
Joined: Thu Jan 10, 2008 12:56 pm

Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by retiredjg » Sat Aug 01, 2020 8:22 am

BooneDocks11 wrote:
Fri Jul 31, 2020 8:49 am
Amcap Fund-R2 RAFBX (0.69%)
Can you check to see if this is a typo? That ER should be 1.4%ish

retiredjg
Posts: 41083
Joined: Thu Jan 10, 2008 12:56 pm

Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by retiredjg » Sat Aug 01, 2020 8:59 am

BooneDocks11 wrote:
Fri Jul 31, 2020 8:49 am
His Traditional IRA at Vanguard (4% of total portfolio)
Vanguard Target Retirement 2050 (VFIFX)

Her Traditional IRA at Vanguard (2% of total portfolio)
Vanguard Target Retirement 2050 (VFIFX)
Tell us about the contributions to these two IRAs. Were the contributions deducted from income or non-deductible? When were the contributions made? If non-deductible, do you have the Forms 8606 for each contribution?

Topic Author
BooneDocks11
Posts: 20
Joined: Sun Jul 19, 2020 8:49 pm

Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by BooneDocks11 » Sat Aug 01, 2020 12:48 pm

retiredjg wrote:
Sat Aug 01, 2020 8:22 am
BooneDocks11 wrote:
Fri Jul 31, 2020 8:49 am
Amcap Fund-R2 RAFBX (0.69%)
Can you check to see if this is a typo? That ER should be 1.4%ish
That's correct. Typo

1.44%

Topic Author
BooneDocks11
Posts: 20
Joined: Sun Jul 19, 2020 8:49 pm

Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by BooneDocks11 » Sat Aug 01, 2020 1:01 pm

retiredjg wrote:
Sat Aug 01, 2020 8:59 am
BooneDocks11 wrote:
Fri Jul 31, 2020 8:49 am
His Traditional IRA at Vanguard (4% of total portfolio)
Vanguard Target Retirement 2050 (VFIFX)

Her Traditional IRA at Vanguard (2% of total portfolio)
Vanguard Target Retirement 2050 (VFIFX)
Tell us about the contributions to these two IRAs. Were the contributions deducted from income or non-deductible? When were the contributions made? If non-deductible, do you have the Forms 8606 for each contribution?
I have contributed to a 2019 and 2020 IRA only thus far and plan to roll into a roth. My income prohibits the IRA being deducted. We will file the 8606 but we have yet to file our 2019 taxes (we have an extension).

Hope this answers that question.

retiredjg
Posts: 41083
Joined: Thu Jan 10, 2008 12:56 pm

Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by retiredjg » Sat Aug 01, 2020 2:01 pm

Here's an idea. You would set up the portfolio like this shown below.

Taxable (25% of total portfolio)
0% Total Stock
25% Total International


His current 401k (13% of total portfolio)
13% Growth Fund of America
0% Intermediate Bond Fund Of America-R2 RBOBX (1.38%)


Roth IRA (percent of total portfolio = 27%)
27% Combo of 500 index and Extended Market Index (about 80/20 gives you something like total stock index)


His 401k at previous employer (6% of total portfolio)
6% Vanguard FTSE All-Wld ex-US Idx Ins Plus VFWPX (0.06%)


Her 401K from previous employer- (20% of total portfolio)
20% FID US BOND IDX (FXNAX) (0.025%)


His Traditional IRA at Vanguard (4% of total portfolio)
4% 500 Index


Her Traditional IRA at Vanguard (2% of total portfolio)
2% 500 Index


HSA at Health Savings Administrators (8% of total portfolio)
8% 500 Index

I'm going to assume an annual contribution of $19,500 to His 401k and $12k to Roth IRA (via back door), and $20k to taxable just to show you how it works. Total Contributioins = $51,500.

20% ($10,300) would go to bonds in His 401k

32% ($16,480) would go to international in the taxable account

The remaining would go into US stocks wherever you need to fill space.

Just doing it that way will work fine. To get your costs down a little bit, add more than 32% to international in taxable and exchange some international in His old 401k into Vanguard's total bond market. Eventually hold all the international in taxable and fill His Old 401k with very low cost bonds. This will reduce the amount of money in the high cost bond fund in His current 401k.

You could also hold some (or all bonds) in the HSA - that will reduce the cost of the bonds in His Current 401k.

You could even put a bit of bonds in Roth IRA to reduce the amount subject to the high costs. In general though, Roth is a good place to put your expected highest returns (stock funds).


You should know that His Current 401k is not a particularly good plan. The funds are good funds, but the costs are high. There may be little you can do about that, but it could be improved. Even with the high costs, the plan is worth using to the full extent possible.

I've tried to minimize the amount of bonds at the high costs because bonds have lower returns over time. If you have to pay a high cost, better to pay it for stocks (Growth Fund of America) than bonds.

There is a math error in there somewhere - the portfolio adds up to 105% instead of 100%....but I'm sure you get the picture.

livesoft
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Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by livesoft » Sat Aug 01, 2020 2:08 pm

retiredjg wrote:
Sat Aug 01, 2020 2:01 pm
I've tried to minimize the amount of bonds at the high costs because bonds have lower returns over time. If you have to pay a high cost, better to pay it for stocks (Growth Fund of America) than bonds.
I disagree with this statement. If one looks at the dollar amount of the costs, then if the 401(k) grows higher, then more dollars will go to fees and not into the portfolio. I would put the lowest returning asset class (i.e. bonds) in the 401(k) to keep the dollar amount of expenses as low as possible.

Example:
$100,000 in the 401(k) paying 1.5% in expenses a year is $1,500 annual cost, but
$200,000 in the 401(k) paying 1.5% in expenses a year is $3,000 annual cost.
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retiredjg
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Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by retiredjg » Sat Aug 01, 2020 2:31 pm

Now isn't that interesting? Sounds like a case of "two sides to every coin".

So you make less money in that account but you pay less in fees, but since the stock to bond ratio for the portfolio is the same in each case, it may not change the return of the overall portfolio. Hmmm. I can't say I disagree.

Maybe the optimal choice is to split the 401k half and half. But probably "optimal" will depend on how much money is being saved in the taxable account. If it is a small amount, the 401k would have to have some stocks. If it is a large amount, the 401k may eventually be all bonds anyway.

zie
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Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by zie » Sat Aug 01, 2020 5:27 pm

RocketShipTech wrote:
Fri Jul 31, 2020 3:36 pm
BooneDocks11 wrote:
Fri Jul 31, 2020 1:36 pm
RocketShipTech wrote:
Fri Jul 31, 2020 12:08 pm
What is your tax bracket?
marginal will be 37%
I’m going to assume that breaks down as 32% Federal + 5% State, and also assuming you did not include the NIIT which adds 3.8% to that.

Under these assumptions, Total Stock Market would have a tax cost for you of 0.41% annually while Total Bond Market would have a tax cost of 0.49%. Not a huge difference which one you put in taxable.
Can you go through how you derived those numbers? I'm not trying to say you are wrong or anything, I'm just trying to understand how you did it, as I'd like to do the same thing for my own situation. Thanks!

RocketShipTech
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Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by RocketShipTech » Sat Aug 01, 2020 5:42 pm

zie wrote:
Sat Aug 01, 2020 5:27 pm
RocketShipTech wrote:
Fri Jul 31, 2020 3:36 pm
BooneDocks11 wrote:
Fri Jul 31, 2020 1:36 pm
RocketShipTech wrote:
Fri Jul 31, 2020 12:08 pm
What is your tax bracket?
marginal will be 37%
I’m going to assume that breaks down as 32% Federal + 5% State, and also assuming you did not include the NIIT which adds 3.8% to that.

Under these assumptions, Total Stock Market would have a tax cost for you of 0.41% annually while Total Bond Market would have a tax cost of 0.49%. Not a huge difference which one you put in taxable.
Can you go through how you derived those numbers? I'm not trying to say you are wrong or anything, I'm just trying to understand how you did it, as I'd like to do the same thing for my own situation. Thanks!
1. Look for the SEC yield on the fund
2a. Determine whether the yield is attributable to qualified dividends or bond interest
2b. If QDI, then apply your LTCG rate to the SEC yield
2c. If bond interest, apply ordinary income rate to the SEC yield

Make sure to include NIIT to the tax rate if you exceed the specified income.

If you have any funds distributing capital gains, get out of those funds!

Topic Author
BooneDocks11
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Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by BooneDocks11 » Sun Aug 02, 2020 7:26 am

retiredjg wrote:
Sat Aug 01, 2020 2:31 pm
Now isn't that interesting? Sounds like a case of "two sides to every coin".

So you make less money in that account but you pay less in fees, but since the stock to bond ratio for the portfolio is the same in each case, it may not change the return of the overall portfolio. Hmmm. I can't say I disagree.

Maybe the optimal choice is to split the 401k half and half. But probably "optimal" will depend on how much money is being saved in the taxable account. If it is a small amount, the 401k would have to have some stocks. If it is a large amount, the 401k may eventually be all bonds anyway.
Over time, the taxable account will certainly be the largest as the Roth is capped already and the 401k (current) is also capped as to how much I can allocate.

I agree the current 401k plan is not great, and the options to choose from all hover around 1.4-1.5% from a fee standpoint. In 2021, this will change as I will be the business owner and will be selecting my own 401k plan.

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: How to achieve desired asset allocation within taxable/tax advantaged accounts

Post by retiredjg » Sun Aug 02, 2020 8:20 am

BooneDocks11 wrote:
Sun Aug 02, 2020 7:26 am
I agree the current 401k plan is not great, and the options to choose from all hover around 1.4-1.5% from a fee standpoint. In 2021, this will change as I will be the business owner and will be selecting my own 401k plan.
Well, that solves that problem, doesn't it? :happy

Are you familiar with the concept of "mega-back door" using after-tax (not Roth) contributions in a 401k? That might be something you should look for in a 401k. Fidelity seems to have the best of the lot unless you need a one-participant plan.

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