Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

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Aguilar
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Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by Aguilar »

I have a few questions regarding my portfolio.

I'm 40yrs old, file married separate (going thru divorce which is waiting on the courts), no children, no property, no debt.

1. I have about $160k that's been on the sidelines, which I plan to invest in four 40k sums over the next two months. My AA is 70/30 and I use 3% bands for rebalancing. I planned on investing the 160k with 70% in stock funds and 30% in bond funds. The issue is, I only have a little stock left in my tax deferred accounts. Am I going to have to invest in a bond index fund in my taxable account? I've always avoided that due to tax inefficiency.

2. About 7 years ago I bought some iBonds. Should I leave them be or cash them in and invest in equity funds?

3. Should I convert my Rollover IRA (TIRA) to my Roth IRA? I will likely be in the 24% tax bracket this year, though a slight chance I'll tip to the 32% bracket. I live in NY and would have to pay state tax on the conversion.

4. My 401k is with Fidelity. It's from my old job. I started a new job recently and will become eligible for their 401k next month. It's also with Fidelity. Should I/Can I roll the old job's 401k to my new job's 401k? If not, should I roll over the old job 401k to my Rollover IRA with eTrade, or just leave it be?

Taxable
FTSE All World Ex-US (VFWAX): 172k
Total Intl Index Admiral (VTIAX): 28.5k
Total Stock Index Admiral (VTSAX): 938k

Rollover IRA
Total Bond Index Admiral (VBTLX): 253k

Roth IRA
Total Stock Index Admiral (VTSAX): 114.5k
Total Intl Index Admiral (VTIAX): 11k
VBTLX: 114k

401k: fid us bond index FXNAX 36.5k
fid 500 index FXAIX 19.5k

Cash:
Cap One 360 Savings: 197.5k
PNC Savings: 1k
BofA Checking/Savings: 9.5k

Bonds:
I-Bonds: 5k
US Series EE Treasury Bonds: 2k

Total: $1,902,000

AA: 67.48% st, 32.52% b

16.5% of stocks are intl
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retiredjg
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by retiredjg »

Aguilar wrote: Sun Jun 26, 2022 10:50 am I have a few questions regarding my portfolio.

I'm 40yrs old, file married separate (going thru divorce which is waiting on the courts), no children, no property, no debt.

1. I have about $160k that's been on the sidelines, which I plan to invest in four 40k sums over the next two months. My AA is 70/30 and I use 3% bands for rebalancing. I planned on investing the 160k with 70% in stock funds and 30% in bond funds. The issue is, I only have a little stock left in my tax deferred accounts. Am I going to have to invest in a bond index fund in my taxable account? I've always avoided that due to tax inefficiency.
It certainly appears like you will have to put some bonds in taxable and/or Roth IRA.

2. About 7 years ago I bought some iBonds. Should I leave them be or cash them in and invest in equity funds?
Keep them and buy more. If you must hold bonds in taxable, I Bonds are a very good choice.

3. Should I convert my Rollover IRA (TIRA) to my Roth IRA? I will likely be in the 24% tax bracket this year, though a slight chance I'll tip to the 32% bracket. I live in NY and would have to pay state tax on the conversion.
No. Conversions are best made when you are in a lower tax bracket, not a higher one.

4. My 401k is with Fidelity. It's from my old job. I started a new job recently and will become eligible for their 401k next month. It's also with Fidelity. Should I/Can I roll the old job's 401k to my new job's 401k? If not, should I roll over the old job 401k to my Rollover IRA with eTrade, or just leave it be?
You can do any one of those three things. If the new 401k is a good one (low cost), that is likely to be the best and easiest choice.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by DIYtrixie »

Aguilar wrote: Sun Jun 26, 2022 10:50 am 4. My 401k is with Fidelity. It's from my old job. I started a new job recently and will become eligible for their 401k next month. It's also with Fidelity. Should I/Can I roll the old job's 401k to my new job's 401k? If not, should I roll over the old job 401k to my Rollover IRA with eTrade, or just leave it be?
Whether or not the rollover(s) is a good idea will depend on the plan rules and fund offerings, including expense ratios and other costs. Can you share those details?
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by grabiner »

Aguilar wrote: Sun Jun 26, 2022 10:50 am 1. I have about $160k that's been on the sidelines, which I plan to invest in four 40k sums over the next two months. My AA is 70/30 and I use 3% bands for rebalancing. I planned on investing the 160k with 70% in stock funds and 30% in bond funds. The issue is, I only have a little stock left in my tax deferred accounts. Am I going to have to invest in a bond index fund in my taxable account? I've always avoided that due to tax inefficiency.
Tax efficiency is relative. You should first decide what asset classes to hold, and then put the most tax-efficient asset classes in a taxable account. If you prefer stocks in your taxable account, but it isn't big enough for all your stock, you should hold bonds there.

However, since you are in a high combined federal and NY tax bracket, I would prefer NY munis over a taxable bond index. The only low-cost fund for that is Vanguard NY Long-Term Tax-Exempt.
3. Should I convert my Rollover IRA (TIRA) to my Roth IRA? I will likely be in the 24% tax bracket this year, though a slight chance I'll tip to the 32% bracket. I live in NY and would have to pay state tax on the conversion.
Converting at 32% federal tax (which you would reach if you convert a significant amount) plus NY state tax is not a good idea. It is better to wait to withdraw from traditional accounts until you are in a lower bracket, as you lose a smaller fraction of the account to takes.

However, if your new job's 401(k) is good, and it accepts rollovers from your rollover IRA, you might want to do that. Getting rid of the rollover IRA will allow you to make backdoor Roth contributions. (As married filing separately, you cannot contribute to a Roth IRA otherwise, and you will be over the limit as a single taxpayer in future years.)
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by Aguilar »

grabiner wrote: Sun Jun 26, 2022 2:21 pm
However, if your new job's 401(k) is good, and it accepts rollovers from your rollover IRA, you might want to do that. Getting rid of the rollover IRA will allow you to make backdoor Roth contributions. (As married filing separately, you cannot contribute to a Roth IRA otherwise, and you will be over the limit as a single taxpayer in future years.)
My new job's 401k is with Fidelity and offers a lot of index funds. It does accept rollovers from my Rollover IRA. I never thought of doing that.

Does having a Rollover IRA prohibit me from doing backdoor Roth contributions? If that's the case, then if I moved my Rollover IRA to my new 401k, would I just need to plan to hold my 401k with Fidelity indefinitely, even if down the road I get a different job with a different 401k plan? In the past, I always transferred my 401k balance to my Rollover IRA when I left a job cause it seemed easier to manage my portfolio that way.

Once my divorce is signed by the courts, I'll return to filing single but as you pointed out, I will be over the limit for regular Roth contributions.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by grabiner »

Aguilar wrote: Wed Jul 27, 2022 7:30 pm
grabiner wrote: Sun Jun 26, 2022 2:21 pm
However, if your new job's 401(k) is good, and it accepts rollovers from your rollover IRA, you might want to do that. Getting rid of the rollover IRA will allow you to make backdoor Roth contributions. (As married filing separately, you cannot contribute to a Roth IRA otherwise, and you will be over the limit as a single taxpayer in future years.)
My new job's 401k is with Fidelity and offers a lot of index funds. It does accept rollovers from my Rollover IRA. I never thought of doing that.

Does having a Rollover IRA prohibit me from doing backdoor Roth contributions? If that's the case, then if I moved my Rollover IRA to my new 401k, would I just need to plan to hold my 401k with Fidelity indefinitely, even if down the road I get a different job with a different 401k plan? In the past, I always transferred my 401k balance to my Rollover IRA when I left a job cause it seemed easier to manage my portfolio that way.
Yes, having any traditional IRA prevents the backdoor Roth IRA from working. Therefore, if you want to use a backdoor Roth IRA, you have to either move your traditional IRA into something other than an IRA (such as your new employer's 401(k)), or else convert the traditional IRA in full and pay tax on it (not a good idea if the IRA is large).

If you have a new job, you can either leave the funds in your old 401(k), or roll them to the new employer's 401(k) if it is just as good, or roll them into a rollover IRA and forgo the backdoor Roth.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by Aguilar »

grabiner wrote: Sun Jun 26, 2022 2:21 pm However, since you are in a high combined federal and NY tax bracket, I would prefer NY munis over a taxable bond index. The only low-cost fund for that is Vanguard NY Long-Term Tax-Exempt.
Do you only prefer NY munis over a taxable bond index if I'm going to be holding some bonds in my taxable account? Up until now I never held bonds in my taxable so I didn't think holding a taxable bond index fund was an issue.

I'll have to read up more on VNYTX. From what I understand, I could report the % of New York income to avoid NYS taxation. Is that the main reason to opt for that fund?
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by Aguilar »

grabiner wrote: Wed Jul 27, 2022 8:43 pm
Yes, having any traditional IRA prevents the backdoor Roth IRA from working. Therefore, if you want to use a backdoor Roth IRA, you have to either move your traditional IRA into something other than an IRA (such as your new employer's 401(k)), or else convert the traditional IRA in full and pay tax on it (not a good idea if the IRA is large).

If you have a new job, you can either leave the funds in your old 401(k), or roll them to the new employer's 401(k) if it is just as good, or roll them into a rollover IRA and forgo the backdoor Roth.
I read up on backdoor Roth IRAs and I'm a little confused. Hoping you can give me a hand.

I read of three ways to do a backdoor Roth:

You can put money into a traditional IRA and then roll those funds over into a Roth IRA (or just roll over existing funds already in the IRA).
You can convert your whole IRA into a Roth IRA.
If you participate in a 401(k) plan that allows conversions, you can roll your 401(k) over (along with pretax deferrals and earnings) into a Roth IRA.

None of the material I found online speaks of rolling a TIRA into a 401k. So if I do this, I won't have to pay any taxes right? And am I then free to contribute up to $6K per year to my Roth IRA? Or would I need to do anything else first to activate the backdoor?
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by grabiner »

Aguilar wrote: Wed Aug 03, 2022 6:46 pm
grabiner wrote: Sun Jun 26, 2022 2:21 pm However, since you are in a high combined federal and NY tax bracket, I would prefer NY munis over a taxable bond index. The only low-cost fund for that is Vanguard NY Long-Term Tax-Exempt.
Do you only prefer NY munis over a taxable bond index if I'm going to be holding some bonds in my taxable account? Up until now I never held bonds in my taxable so I didn't think holding a taxable bond index fund was an issue.
Normally, I prefer bonds in tax-deferred, but in your situation, I would prefer NY munis in a taxable account. The reason is that your tax rate on stocks is almost double than the normal tax rate (15% federal tax on qualified dividends + 3.8% NIIT + about 10% NYC), while your tax cost on NY munis is the same as everyone else's (the difference between yields on munis and taxable bonds of comparable risk).

However, I would recommend having no more than half your bonds in NY munis, for diversification; you can hold the other half in your 401(k) bond fund at very low cost.
I'll have to read up more on VNYTX. From what I understand, I could report the % of New York income to avoid NYS taxation. Is that the main reason to opt for that fund?
(Use VNYUX, the Admiral share class, which is less expensive; you should have the $50K minimum).

The percent exempt from NY taxation (both state and city) will be almost 100% for this fund.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by grabiner »

Aguilar wrote: Wed Aug 03, 2022 7:07 pm
grabiner wrote: Wed Jul 27, 2022 8:43 pm
Yes, having any traditional IRA prevents the backdoor Roth IRA from working. Therefore, if you want to use a backdoor Roth IRA, you have to either move your traditional IRA into something other than an IRA (such as your new employer's 401(k)), or else convert the traditional IRA in full and pay tax on it (not a good idea if the IRA is large).

If you have a new job, you can either leave the funds in your old 401(k), or roll them to the new employer's 401(k) if it is just as good, or roll them into a rollover IRA and forgo the backdoor Roth.
I read up on backdoor Roth IRAs and I'm a little confused. Hoping you can give me a hand.

I read of three ways to do a backdoor Roth:

You can put money into a traditional IRA and then roll those funds over into a Roth IRA (or just roll over existing funds already in the IRA).
You can convert your whole IRA into a Roth IRA.
If you participate in a 401(k) plan that allows conversions, you can roll your 401(k) over (along with pretax deferrals and earnings) into a Roth IRA.

None of the material I found online speaks of rolling a TIRA into a 401k. So if I do this, I won't have to pay any taxes right? And am I then free to contribute up to $6K per year to my Roth IRA? Or would I need to do anything else first to activate the backdoor?
All three of these are ways to convert an IRA to a Roth IRA, but only the first is likely to be a backdoor Roth. For the other two, you would owe tax on the amount converted, which is not desirable for you given your very high combined federal and NY tax rate.

See Backdoor Roth on the wiki. To do a backdoor Roth, you make a non-deductible contribution to a traditional IRA, and then immediately convert it to a Roth IRA. You pay tax only on the gains when you convert a non-deductible contribution, and the gains should be very small.

The issue of rolling your traditional IRA into a 401(k) is that you have to have no deductible IRA (either a rollover or one funded with deductible contributions). Otherwise, the IRS prorates the conversion across all your IRAs, so you pay tax on most of the amount converted. So, if you roll your old employer's 401(k) into an IRA, you cannot use the backdoor. But if you then roll that IRA into your new employer's 401(k), you no longer have an IRA and you can use the backdoor again.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by Aguilar »

grabiner wrote: Wed Aug 03, 2022 7:26 pm
Normally, I prefer bonds in tax-deferred, but in your situation, I would prefer NY munis in a taxable account. The reason is that your tax rate on stocks is almost double than the normal tax rate (15% federal tax on qualified dividends + 3.8% NIIT + about 10% NYC), while your tax cost on NY munis is the same as everyone else's (the difference between yields on munis and taxable bonds of comparable risk).

However, I would recommend having no more than half your bonds in NY munis, for diversification; you can hold the other half in your 401(k) bond fund at very low cost.
So for people living in NYC NY munis are more tax efficient than equity index funds? I always thought all bond funds were less tax efficient.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by grabiner »

Aguilar wrote: Wed Aug 03, 2022 8:01 pm
grabiner wrote: Wed Aug 03, 2022 7:26 pm
Normally, I prefer bonds in tax-deferred, but in your situation, I would prefer NY munis in a taxable account. The reason is that your tax rate on stocks is almost double than the normal tax rate (15% federal tax on qualified dividends + 3.8% NIIT + about 10% NYC), while your tax cost on NY munis is the same as everyone else's (the difference between yields on munis and taxable bonds of comparable risk).

However, I would recommend having no more than half your bonds in NY munis, for diversification; you can hold the other half in your 401(k) bond fund at very low cost.
So for people living in NYC NY munis are more tax efficient than equity index funds? I always thought all bond funds were less tax efficient.
The relative tax efficiency of stocks and bonds depends on the taxes that you pay on them. This depends both on your tax situation (federal and state), and on the yields of the bonds. (While you don't pay tax on munis, the gap between muni and taxable yields for bonds of comparable risk is higher when bond yields are lower.)

My rule of thumb is that munis are break-even with taxable bonds of comparable risk at a 25% tax rate. For example, if you switch a muni fund with a 3% yield for a taxable bond fund in your 401(k) with a 4% yield, you haven't changed your risk level, so this would be a fair comparison.

Thus a fund like Vanguard NY Long-Term Tax-Exempt, with a 3.16% yield, has a 1.05% effective tax cost; a taxable fund of comparable risk would yield 4.21%. At a typical 15% tax rate on qualified dividends and 2% yield, the tax cost of a stock fund is 0.30% annually on the dividend, and probably about the same annualized loss to capital-gains tax when you sell. But in your tax situation, both the dividend tax and the capital-gains tax are doubled, and that causes the tax cost of a stock fund to be higher.

If bond yields rise so that stocks are more tax-efficient for you, then you can sell your NY munis (which will have a capital loss) and switch to bonds in your 401(k).
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by retiredjg »

As you invest this money that is sitting on the side, in order to keep the stock to bond ratio you want, you will have to put bonds in Roth IRA and/or your taxable account.

Of those two, taxable is the more attractive choice in my opinion. And in your case specifically because you are in a high tax state and there is a good low cost NY tax-exempt bond fund available.

However, you should not have all your bonds in any one state bond fund. Nor should you have all your bonds in tax-exempt bonds if you have another choice. You do have another choice because you can hold a broad taxable bond fund in your tIRA and your 401k.

My suggestion for your situation is to

1. If you wish to use the backdoor for Roth IRA, roll the tIRA into the 401k. Hold mostly bonds in the 401k. Keep a bit of a stock fund if you want to help with rebalancing. I would be sure the costs of your new 401k are low before doing this. If the costs are high, it might be better to just skip using the backdoor (put money in taxable instead).

2. Before using the backdoor, get familiar with how to document this on your taxes. Do not depend on a tax-preparer to do this because many do not know how.

3. Continue to buy I Bonds - this is a very tax-efficient way to hold bonds in taxable.

4. Use one of the NY tax-exempt bond funds in taxable as needed to achieve your stock to bond goal. If this balance becomes too large, start using a national tax-exempt bond fund in taxable to spread out the risk from just NY bonds.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by Aguilar »

grabiner wrote: Wed Aug 03, 2022 11:21 pm
If bond yields rise so that stocks are more tax-efficient for you, then you can sell your NY munis (which will have a capital loss) and switch to bonds in your 401(k).
Thanks for the explanation. I'm probably going to need to read it several times and do some addtl research to follow everything you shared. It's a bit over my head.

How would I know if bond yields rise enough to signal that stocks are more tax efficient for me? I need to get a grasp on the math here.

So if/when this happens, would I exchange my NY munis in my taxable account for stocks (my US stocks are VTSAX), and then exchange stocks to total bond market index in my 401k? This way my AA remains the same. Just want to be sure I have this right.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by Aguilar »

retiredjg wrote: Thu Aug 04, 2022 9:05 am As you invest this money that is sitting on the side, in order to keep the stock to bond ratio you want, you will have to put bonds in Roth IRA and/or your taxable account.

Of those two, taxable is the more attractive choice in my opinion. And in your case specifically because you are in a high tax state and there is a good low cost NY tax-exempt bond fund available.

However, you should not have all your bonds in any one state bond fund. Nor should you have all your bonds in tax-exempt bonds if you have another choice. You do have another choice because you can hold a broad taxable bond fund in your tIRA and your 401k.

My suggestion for your situation is to

1. If you wish to use the backdoor for Roth IRA, roll the tIRA into the 401k. Hold mostly bonds in the 401k. Keep a bit of a stock fund if you want to help with rebalancing. I would be sure the costs of your new 401k are low before doing this. If the costs are high, it might be better to just skip using the backdoor (put money in taxable instead).

2. Before using the backdoor, get familiar with how to document this on your taxes. Do not depend on a tax-preparer to do this because many do not know how.

3. Continue to buy I Bonds - this is a very tax-efficient way to hold bonds in taxable.

4. Use one of the NY tax-exempt bond funds in taxable as needed to achieve your stock to bond goal. If this balance becomes too large, start using a national tax-exempt bond fund in taxable to spread out the risk from just NY bonds.
1. I know my 401k has fund options with very low expense ratios. It's with Fidelity. What should I ask them to assess the costs of the plan? To tell you the truth, besides fund ERs, I've never paid attention to other costs of my 401k plans.

2. Right, I'll start researching this. I saw some info in the wiki https://www.bogleheads.org/wiki/Backdoor_Roth

3. Will do. I'll buy my lot for this year shortly.

4. I've received a few pieces of advice. Either a national tax-exempt fund, US treasuries, or TIPS. I have no idea right now how to assess one versus the other. Thoughts on this? Also, when do you know if your NY munis balance is too large? What constitutes too large?

I'm keen on developing and implementing a plan. I have a few things to work through including whether to pursue the backdoor Roth, when/how to invest my sidelined cash, and how to approach adding NY munis to my taxable account for greater tax efficiency. Lots to sort through.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by grabiner »

Aguilar wrote: Thu Aug 04, 2022 6:19 pm
grabiner wrote: Wed Aug 03, 2022 11:21 pm
If bond yields rise so that stocks are more tax-efficient for you, then you can sell your NY munis (which will have a capital loss) and switch to bonds in your 401(k).
Thanks for the explanation. I'm probably going to need to read it several times and do some addtl research to follow everything you shared. It's a bit over my head.

How would I know if bond yields rise enough to signal that stocks are more tax efficient for me? I need to get a grasp on the math here.
You need to estimate your tax costs. I would probably prefer bonds in taxable in your tax situation if munis yield more than about 4%.
So if/when this happens, would I exchange my NY munis in my taxable account for stocks (my US stocks are VTSAX), and then exchange stocks to total bond market index in my 401k? This way my AA remains the same. Just want to be sure I have this right.
Yes, this is the way to do it. Note that you can't easily switch back (selling stocks will lead to a capital gain), so it's probably best to keep munis in taxable if things are close.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by retiredjg »

Aguilar wrote: Thu Aug 04, 2022 6:38 pm 1. I know my 401k has fund options with very low expense ratios. It's with Fidelity. What should I ask them to assess the costs of the plan? To tell you the truth, besides fund ERs, I've never paid attention to other costs of my 401k plans.
There may not be any other costs. However, sometimes, the employer will pass along some administrative costs to the employee. I think you would see them in your statements. Or look under "fees" in the summary plan description that you have or have access to.

4. I've received a few pieces of advice. Either a national tax-exempt fund, US treasuries, or TIPS. I have no idea right now how to assess one versus the other. Thoughts on this? Also, when do you know if your NY munis balance is too large? What constitutes too large?
My preference is to hold most or all of the bonds in a tax-deferred account like a 401k or a traditional IRA when possible (which will not be possible for you if you invest all the cash you have on the side). However, I agree with Grabiner that in a high tax state, if there is a low cost state specific bond tax-exempt bond fund, holding the bonds in taxable can be even more tax-efficient at certain times than holding stocks in taxable.

My problem is the "at certain times". As interest rates change, things can switch and it would be better to do the reverse. I think that most investors are not going to pay attention and do the switching back and forth. So my suggestion is to set up the portfolio the way that will be "better" more of the time and not do the switching back and forth.


When an investor must or chooses to hold bonds in taxable, my general preference is no more than half your bonds in tax-exempt funds, and no more than half of those in one state specific fund. I believe this is consistent with what Grabiner has suggested in the past (and partly what he suggested above).

However, if 90% of your bonds are in a tax-deferred account and only 10% of your bonds are in taxable, I don't think it is absolutely necessary to split that 10% into a state fund and a national fund although you could if you wanted to. So, it depends on the situation.

What you want to avoid is having a large portion of your bonds in a fund that contains bonds from only one state even if you do pay less tax that way. It's a matter of spreading out the risk rather than concentrating it all in the one state.

As for national tax-exempt vs treasuries, I suggest national tax-exempt because that would be exempt from federal tax which is usually higher than state tax. Treasuries are only exempt from state tax, not federal. But I don't think treasuries are a bad choice. I don't have an opinion on TIPs in taxable.

I hope that was not too confusing.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by SnowBog »

+1

If a personal anecdote helps...

My 401k was getting "too full" of bonds, which forced me to start adding bonds elsewhere. I'm a fan of I Bonds, especially as they effectively extend your tax-advantaged space, but with their purchase limit, that wasn't enough.

I'm not a fan of TIPS in a taxable account, and am also in a higher federal tax bracket and a fairly high taxed state, which makes muni bonds typically a good option. While the muni bonds are ultimately a smaller portion of my overall bonds, they may grow over time as I continue to add to them to maintain our AA. So as to avoid having too much "state" risk, I basically split my muni bonds into 50% state muni fund and 50% national muni fund.

The state fund is free of federal and state taxes. The national fund is free from federal taxes (but state taxes owed - at least in my state). I just add to these as needed to maintain our AA.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by Aguilar »

I've enclosed my updated portfolio as of today. Underneath is my plan. grabiner and retiredjg, thank you for all your advice. can you weigh in on my plan?

Taxable
FTSE All World Ex-US (VFWAX): 174k
Total Intl Index Admiral (VTIAX): 29k
Total Stock Index Admiral (VTSAX): 1,040,000

Rollover IRA
Total Bond Index Admiral (VBTLX): 258.5k

Roth IRA
Total Stock Index Admiral (VTSAX): 122k
Total Intl Index Admiral (VTIAX): 11k
VBTLX: 117k

401k w/ old employer: 
fid us bond index FXNAX 37k
fid 500 index FXAIX 21k

401k w/ current employer: $0 (just got enrolled)
set to contribute 100% to fid us bond index FXNAX

Other:
etrade cash: 17k 
Cap One 360: 164.5k
BofA: 3k
I-Bonds: 5k
US Series EE Treasury Bonds: 2k

Total: $2,001,000
69.82% stocks, 30.18% bonds
target AA: 70/30 (age-10 in bonds. I'm 40)


My plan:

- My current employer's 401k doesn't charge admin fees whereas my old employer's 401k does so I am going to roll the old employer's 401k into my current employer's 401k. Both are with Fidelity and Fidelity told me they can process this without me being out of market at all. I will invest 100% of the transferred funds into Fid US Bond Index.
- Then convert 21k of VBTLX in Roth IRA to VTSAX to offset having converted 21k in my old employer's 401k to Fid US Bond Index. This would ensure my AA is maintained.
- Then, roll my Rollover IRA (all pre-tax) into my current employer's 401k and invest 100% of the transferred funds into Fid US Bond Index. Fidelity said I could open a Fidelity IRA and do an in-kind transfer from eTrade (where my Rollover IRA is currently) to the Fidelity IRA, and then they could roll the Fidelity IRA into my current employer's 401k. This way, I'd never be out of the market. Is this worth doing? Otherwise, I would have to get eTrade to cut me a check that I would mail to Fidelity, and I'd probably be out of market for 7-14 business days.
- Buy $50k NY munis VNYUX (admiral shares) in my taxable account
- Buy $10k ibonds
- Transfer more VBTLX in Roth IRA to VTSAX to offset the above purchases of bonds and to maintain AA
- Backdoor Roth: Open up new TIRA with eTrade and contribute 6k. Invest in cash reserves (is this option available?) to minimize taxable gains. Once TIRA is opened, immediately convert the balance to my existing Roth IRA to execute backdoor Roth.
- At this point, I'll have roughly 130k cash left. My emergency fund is 25K and covers 1 year of expenses. So that leaves 105K to invest. I'll invest the 105K over 4 months in monthly investments of 26,250. I'll purchase shares of [edited] VMLUX (Vanguard Limited-Term Tax-Exempt Fund Admiral Shares) and VNYUX (NY munis) in my taxable account and exchange equal amounts of VBTLX to VTSAX in my Roth IRA until my Roth is 100% equities. With remaining monies, I'll invest in VTSAX, VMLUX and VNYUX in my taxable account to maintain my AA.
- In the meantime, I'll be contributing to my current employer's 401k to max for 2022

How does this plan sound? Am I overlooking anything?
Last edited by Aguilar on Tue Aug 09, 2022 4:49 pm, edited 1 time in total.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by grabiner »

Your plan looks good. I have one minor suggestion:
Aguilar wrote: Mon Aug 08, 2022 5:00 pm I'll purchase shares of VTEAX (Tax-Exempt Bond Index Fund Admiral Shares)—is this the recommended natl tax exempt fund?—and VNYUX (NY munis) in my taxable account
If you want the risk of an intermediate-term duration (as you have with total-bond-market indexes), the non-NY half of your munis should be in Vanguard Limited-Term Tax-Exempt. With a national short-term fund and a NY long-term fund, you have an overall intermediate-term duration, and more than half your muni income is exempt from NY tax since the long-term fund has a higher yield. (Thus, I recommend this strategy even in CA, where Vanguard has an intermediate-term fund; I prefer Limited-Term and CA Long-Term rather than Intermediate-Term and CA Intermediate-Term.)
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by SnowBog »

Overall, plan sounds good. Couple of thoughts/tweaks.
Aguilar wrote: Mon Aug 08, 2022 5:00 pm - Then, roll my Rollover IRA (all pre-tax) into my current employer's 401k and invest 100% of the transferred funds into Fid US Bond Index. Fidelity said I could open a Fidelity IRA and do an in-kind transfer from eTrade (where my Rollover IRA is currently) to the Fidelity IRA, and then they could roll the Fidelity IRA into my current employer's 401k. This way, I'd never be out of the market. Is this worth doing? Otherwise, I would have to get eTrade to cut me a check that I would mail to Fidelity, and I'd probably be out of market for 7-14 business days.
In the grand scheme of your investing life, probably won't matter much...

But I'd probably take the effort to have the Fidelity IRA and avoid being out of the market. That avoids behavioral pitfalls of trying to analyze what would have happened if you transferred the funds a week earlier or later... Which if there's a big market movement while you are out of the market, you'll likely think about...
Aguilar wrote: Mon Aug 08, 2022 5:00 pm - Transfer more VBTLX in Roth IRA to VTSAX to offset the above purchases of bonds and to maintain AA
...
- Backdoor Roth: Open up new TIRA with eTrade and contribute 6k. Invest in cash reserves (is this option available?) to minimize taxable gains. Once TIRA is opened, immediately convert the balance to my existing Roth IRA to execute backdoor Roth
While not required, it's generally advised to have your tIRA and Roth IRA at the same brokerage, just to make the Backdoor process simple. And if that brokerage doesn't have these Vanguard funds (or charges you for them), then use a "no fee" fund that they offer.

Not sure about eTrade, but generally funds contributed to an IRA are not automatically invested. They just sit there in a "cash" equivalent holding (which may pay interest - but very little if any usually). That's usually the best option for "temporary" use getting the money into the "Backdoor" Roth, as usually they'd need to liquidate anything you purchased to transfer into the Roth as cash (where you'll invest it as you see fit).
Aguilar wrote: Mon Aug 08, 2022 5:00 pm - Buy $50k NY munis VNYUX (admiral shares) in my taxable account
...
- At this point, I'll have roughly 130k cash left. ... I'll purchase shares of VTEAX (Tax-Exempt Bond Index Fund Admiral Shares)—is this the recommended natl tax exempt fund?—and VNYUX (NY munis) in my taxable account and exchange equal amounts of VBTLX to VTSAX in my Roth IRA until my Roth is 100% equities. With remaining monies, I'll invest in VTSAX, VTEAX and VNYUX in my taxable account to maintain my AA.
The specific funds really depends on where your brokerage account is located. For example, if your taxable account is at Fidelity, those funds will all carry a cost to purchase, as such I would not recommend them at Fidelity. Instead of VTEAX, if at Fidelity something like FMBIX might be appropriate. https://fundresearch.fidelity.com/fund- ... assetClass

Again, the location of your brokerage account will drive your fund selection.

One other consideration for your taxable account is using ETFs instead of mutual funds.
https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

At most brokerages these days, ETFs can be used without transaction fees. They are also generally portable, so if you ever decide to move your taxable account to another brokerage, you can generally do so without any issues.

If you go the ETF route, you could use VTI in place of VTSAX, which are effectively the exact same thing. (Or a different but similar ETF, such as ITOT or SCHB.)

There is even an ETF version of VTEAX, which IIRC is VTEB. Although if you ever plan to "tax loss harvest" your muni bonds, you should be aware of the "finer points" related to them. https://www.bogleheads.org/wiki/Tax_loss_harvesting

Not sure you'll find an ETF for your NY Muni fund...
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by grabiner »

SnowBog wrote: Mon Aug 08, 2022 7:15 pm Overall, plan sounds good. Couple of thoughts/tweaks.

Aguilar wrote: Mon Aug 08, 2022 5:00 pm - Buy $50k NY munis VNYUX (admiral shares) in my taxable account
...
- At this point, I'll have roughly 130k cash left. ... I'll purchase shares of VTEAX (Tax-Exempt Bond Index Fund Admiral Shares)—is this the recommended natl tax exempt fund?—and VNYUX (NY munis) in my taxable account and exchange equal amounts of VBTLX to VTSAX in my Roth IRA until my Roth is 100% equities. With remaining monies, I'll invest in VTSAX, VTEAX and VNYUX in my taxable account to maintain my AA.
The specific funds really depends on where your brokerage account is located. For example, if your taxable account is at Fidelity, those funds will all carry a cost to purchase, as such I would not recommend them at Fidelity.
However, Vanguard NY Long-Term Tax-Exempt is the only low-cost NY muni fund; Fidelity's funds, and the existing ETFs, are significantly more expensive. If this is the only Vanguard fund you hold in your Fidelity account, you can reduce the transaction fee by moving money in and out in large chunks; the transaction fee on a $10K purchase of a fund with a $100K balance isn't that significant. Alternatively, you can hold all your muni funds in a Vanguard brokerage account to avoid the fees.

For VTEAX, you can use the ETF class VTEB, or a low-cost non-Vanguard muni ETF.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by SnowBog »

grabiner wrote: Mon Aug 08, 2022 7:28 pm
SnowBog wrote: Mon Aug 08, 2022 7:15 pm Overall, plan sounds good. Couple of thoughts/tweaks.

Aguilar wrote: Mon Aug 08, 2022 5:00 pm - Buy $50k NY munis VNYUX (admiral shares) in my taxable account
...
- At this point, I'll have roughly 130k cash left. ... I'll purchase shares of VTEAX (Tax-Exempt Bond Index Fund Admiral Shares)—is this the recommended natl tax exempt fund?—and VNYUX (NY munis) in my taxable account and exchange equal amounts of VBTLX to VTSAX in my Roth IRA until my Roth is 100% equities. With remaining monies, I'll invest in VTSAX, VTEAX and VNYUX in my taxable account to maintain my AA.
The specific funds really depends on where your brokerage account is located. For example, if your taxable account is at Fidelity, those funds will all carry a cost to purchase, as such I would not recommend them at Fidelity.
However, Vanguard NY Long-Term Tax-Exempt is the only low-cost NY muni fund; Fidelity's funds, and the existing ETFs, are significantly more expensive. If this is the only Vanguard fund you hold in your Fidelity account, you can reduce the transaction fee by moving money in and out in large chunks; the transaction fee on a $10K purchase of a fund with a $100K balance isn't that significant. Alternatively, you can hold all your muni funds in a Vanguard brokerage account to avoid the fees.

For VTEAX, you can use the ETF class VTEB, or a low-cost non-Vanguard muni ETF.
Guess it depends on your threshold for "low cost"... FTFMX is < 0.5% ER (just barely).

Compared with 20 years of VNYUX, it trails by roughly 0.15% CAGR. https://www.portfoliovisualizer.com/bac ... ion2_2=100

Depending on how many transactions they make (and at what cost), FTFMX likely comes out ahead vs. paying transaction fees regularly for VNYUX.

Of course, if that fund was held at Vanguard or elsewhere without transaction fees, that might be financially better. But you have the extra complexity of opening and managing an extra account. In that case, "good enough" would be a better option for me personally. But to each their own!
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by grabiner »

SnowBog wrote: Mon Aug 08, 2022 8:04 pm
grabiner wrote: Mon Aug 08, 2022 7:28 pm However, Vanguard NY Long-Term Tax-Exempt is the only low-cost NY muni fund; Fidelity's funds, and the existing ETFs, are significantly more expensive. If this is the only Vanguard fund you hold in your Fidelity account, you can reduce the transaction fee by moving money in and out in large chunks; the transaction fee on a $10K purchase of a fund with a $100K balance isn't that significant. Alternatively, you can hold all your muni funds in a Vanguard brokerage account to avoid the fees.

For VTEAX, you can use the ETF class VTEB, or a low-cost non-Vanguard muni ETF.
Guess it depends on your threshold for "low cost"... FTFMX is < 0.5% ER (just barely).
Fidelity charges a $49.95 transaction fee. If you hold VNYUX with a $100K balance, and add money once per year (when you do your annual rebalance), that fee is an extra 0.05%, so that would be a net cost of 0.14%.

And I wouldn't recommend FTMFX even to avoid the NY tax; it would have no better an after-tax yield than a national muni ETF of the same risk level. The SEC yield is 2.98%, so an ETF with the expense level of VTEB (0.46% versus 0.05%) holding bonds of the same risk would have an SEC yield of 3.39%. If you pay 10% NY tax, the after-tax yield on the ETF would be 3.05%. (The actual yield of VTEB is lower because it has significantly less risk, with a shorter duration; however, there is no long-term muni ETF with a cost close to that.)
Compared with 20 years of VNYUX, it trails by roughly 0.15% CAGR.
And that is a reasonable future expectation, since the current SEC yield difference is 0.14%; Vanguard's fund holds slightly less risky bonds as compensation.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by retiredjg »

Aguilar wrote: Mon Aug 08, 2022 5:00 pm How does this plan sound? Am I overlooking anything?
Your plan looks good to me. I agree with Grabiner about using the long term NY fund and Vanguard's Limited Term tax exempt fund....for the reasons he already stated.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by grabiner »

retiredjg wrote: Tue Aug 09, 2022 9:07 am
Aguilar wrote: Mon Aug 08, 2022 5:00 pm How does this plan sound? Am I overlooking anything?
Your plan looks good to me. I agree with Grabiner about using the long term NY fund and Vanguard's Limited Term tax exempt fund....for the reasons he already stated.
If you hold the funds at Fidelity, you might consider the iShares SUB (Short-Term National Muni Bond ETF) instead of Vanguard Limited-Term Tax-Exempt; SUB should be free to trade, while the Vanguard fund will cost $49.95 per trade.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by Aguilar »

grabiner wrote: Mon Aug 08, 2022 6:47 pm Your plan looks good. I have one minor suggestion:
Aguilar wrote: Mon Aug 08, 2022 5:00 pm I'll purchase shares of VTEAX (Tax-Exempt Bond Index Fund Admiral Shares)—is this the recommended natl tax exempt fund?—and VNYUX (NY munis) in my taxable account
If you want the risk of an intermediate-term duration (as you have with total-bond-market indexes), the non-NY half of your munis should be in Vanguard Limited-Term Tax-Exempt. With a national short-term fund and a NY long-term fund, you have an overall intermediate-term duration, and more than half your muni income is exempt from NY tax since the long-term fund has a higher yield. (Thus, I recommend this strategy even in CA, where Vanguard has an intermediate-term fund; I prefer Limited-Term and CA Long-Term rather than Intermediate-Term and CA Intermediate-Term.)
Thank you. I've updated my plan with VMLUX (Vanguard Limited-Term Tax-Exempt) and VNYUX (Vanguard New York Long-Term Tax-Exempt Fund Admiral Shares).
Last edited by Aguilar on Tue Aug 09, 2022 4:59 pm, edited 1 time in total.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by Aguilar »

SnowBog wrote: Mon Aug 08, 2022 7:15 pm
Aguilar wrote: Mon Aug 08, 2022 5:00 pm - Transfer more VBTLX in Roth IRA to VTSAX to offset the above purchases of bonds and to maintain AA
...
- Backdoor Roth: Open up new TIRA with eTrade and contribute 6k. Invest in cash reserves (is this option available?) to minimize taxable gains. Once TIRA is opened, immediately convert the balance to my existing Roth IRA to execute backdoor Roth
While not required, it's generally advised to have your tIRA and Roth IRA at the same brokerage, just to make the Backdoor process simple. And if that brokerage doesn't have these Vanguard funds (or charges you for them), then use a "no fee" fund that they offer.

Not sure about eTrade, but generally funds contributed to an IRA are not automatically invested. They just sit there in a "cash" equivalent holding (which may pay interest - but very little if any usually). That's usually the best option for "temporary" use getting the money into the "Backdoor" Roth, as usually they'd need to liquidate anything you purchased to transfer into the Roth as cash (where you'll invest it as you see fit).
My Roth is with eTrade so I plan to open up the new TIRA at eTrade as well. Before I execute this, I'll ask eTrade if the funds sit in cash. Like you said, that's ideal.

My brokerage is also with eTrade and the Vanguard funds I listed in my plan are available, from what I know. I'll double-check with eTrade.

About your comments regarding ETFs, I've never considered ETFs instead of good 'ol fashioned mutual funds. Is there an advantage I'm missing, besides being able to buy at any point in the day at a specific share price vs just getting the closing share price of the day?
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by Aguilar »

grabiner wrote: Mon Aug 08, 2022 7:28 pm
SnowBog wrote: Mon Aug 08, 2022 7:15 pm Overall, plan sounds good. Couple of thoughts/tweaks.

Aguilar wrote: Mon Aug 08, 2022 5:00 pm - Buy $50k NY munis VNYUX (admiral shares) in my taxable account
...
- At this point, I'll have roughly 130k cash left. ... I'll purchase shares of VTEAX (Tax-Exempt Bond Index Fund Admiral Shares)—is this the recommended natl tax exempt fund?—and VNYUX (NY munis) in my taxable account and exchange equal amounts of VBTLX to VTSAX in my Roth IRA until my Roth is 100% equities. With remaining monies, I'll invest in VTSAX, VTEAX and VNYUX in my taxable account to maintain my AA.
The specific funds really depends on where your brokerage account is located. For example, if your taxable account is at Fidelity, those funds will all carry a cost to purchase, as such I would not recommend them at Fidelity.
However, Vanguard NY Long-Term Tax-Exempt is the only low-cost NY muni fund; Fidelity's funds, and the existing ETFs, are significantly more expensive. If this is the only Vanguard fund you hold in your Fidelity account, you can reduce the transaction fee by moving money in and out in large chunks; the transaction fee on a $10K purchase of a fund with a $100K balance isn't that significant. Alternatively, you can hold all your muni funds in a Vanguard brokerage account to avoid the fees.

For VTEAX, you can use the ETF class VTEB, or a low-cost non-Vanguard muni ETF.

I planned on buying the NY muni fund (and later the Vanguard Limited-Term Tax-Exempt Fund Admiral Shares) in my brokerage, which is with eTrade. Am I better off opening up a second brokerage at Vanguard?
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by retiredjg »

Are they available at eTrade? Is there a transaction fee?

With the funds you currently have, I assumed your taxable account was at Vanguard.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by SnowBog »

Aguilar wrote: Tue Aug 09, 2022 4:54 pm About your comments regarding ETFs, I've never considered ETFs instead of good 'ol fashioned mutual funds. Is there an advantage I'm missing, besides being able to buy at any point in the day at a specific share price vs just getting the closing share price of the day?
If you haven't yet, check out https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

For me personally, the main benefits of ETF in taxable is portability and typically $0 trades.

For example, if I try to buy VTSAX in Fidelity, I'll have to pay a transaction fee, let's say $50 per trade as a guess. But I can trade the ETF equivalent VTI for $0.

Likewise, let's say I bought VTSAX anyway. But wanted to transfer to some brokerage who won't accept VTSAX. I'd either be restricted from moving to that brokerage, or would have to see that fund liquidated and deal with the tax impacts of doing so. By contrast, ETFs are nearly universal, meaning I could freely transfer VTI pretty much anywhere. Note, not all brokerages support "fractional" ETF shares, and not all support transferring fractional shares. But whole shares can be transferred.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by Aguilar »

retiredjg wrote: Tue Aug 09, 2022 5:18 pm Are they available at eTrade? Is there a transaction fee?

With the funds you currently have, I assumed your taxable account was at Vanguard.
I double checked with eTrade and VNYUX and VMLUX are NOT available for purchase. So, does this mean I should open a new brokerage at Vanguard? Not thrilled I have to manage another account but I can do it if need be.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by Aguilar »

SnowBog wrote: Tue Aug 09, 2022 10:11 pm
Aguilar wrote: Tue Aug 09, 2022 4:54 pm About your comments regarding ETFs, I've never considered ETFs instead of good 'ol fashioned mutual funds. Is there an advantage I'm missing, besides being able to buy at any point in the day at a specific share price vs just getting the closing share price of the day?
If you haven't yet, check out https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

For me personally, the main benefits of ETF in taxable is portability and typically $0 trades.

For example, if I try to buy VTSAX in Fidelity, I'll have to pay a transaction fee, let's say $50 per trade as a guess. But I can trade the ETF equivalent VTI for $0.

Likewise, let's say I bought VTSAX anyway. But wanted to transfer to some brokerage who won't accept VTSAX. I'd either be restricted from moving to that brokerage, or would have to see that fund liquidated and deal with the tax impacts of doing so. By contrast, ETFs are nearly universal, meaning I could freely transfer VTI pretty much anywhere. Note, not all brokerages support "fractional" ETF shares, and not all support transferring fractional shares. But whole shares can be transferred.
The three equity funds I have with eTrade in my brokerage don't have transaction fees. Just early redemption fees. Good point regarding portability, never thought of that. I'll read the wiki and will do further digging.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by retiredjg »

Aguilar wrote: Wed Aug 10, 2022 8:26 am
retiredjg wrote: Tue Aug 09, 2022 5:18 pm Are they available at eTrade? Is there a transaction fee?

With the funds you currently have, I assumed your taxable account was at Vanguard.
I double checked with eTrade and VNYUX and VMLUX are NOT available for purchase. So, does this mean I should open a new brokerage at Vanguard? Not thrilled I have to manage another account but I can do it if need be.
You are looking for Admiral shares instead of Investor shares. There are some funds that Vanguard does not allow other brokerages to sell in Admiral shares.

I used the fund screener and VNYTX and VMLTX (Investor Shares of what you are looking for) are both available. The ERs are a little higher, but that is better than opening an account at a separate brokerage.

I did not look to see if there are ETF versions of the Admiral share funds. That is possible as well.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by Aguilar »

retiredjg wrote: Wed Aug 10, 2022 9:18 am
Aguilar wrote: Wed Aug 10, 2022 8:26 am
retiredjg wrote: Tue Aug 09, 2022 5:18 pm Are they available at eTrade? Is there a transaction fee?

With the funds you currently have, I assumed your taxable account was at Vanguard.
I double checked with eTrade and VNYUX and VMLUX are NOT available for purchase. So, does this mean I should open a new brokerage at Vanguard? Not thrilled I have to manage another account but I can do it if need be.
You are looking for Admiral shares instead of Investor shares. There are some funds that Vanguard does not allow other brokerages to sell in Admiral shares.

I used the fund screener and VNYTX and VMLTX (Investor Shares of what you are looking for) are both available. The ERs are a little higher, but that is better than opening an account at a separate brokerage.

I did not look to see if there are ETF versions of the Admiral share funds. That is possible as well.
Oh, I see. What're the disadvantages to opening an account at a separate brokerage, besides having to monitor two accounts? Cause if that's the only hurdle, I'd probably opt for Admiral shares and lower ERs.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by retiredjg »

The disadvantage to me is having more than custodian. :happy
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by SnowBog »

retiredjg wrote: Wed Aug 10, 2022 12:07 pm The disadvantage to me is having more than custodian. :happy
+1

Ideally, your tax-advantaged accounts have "enough" of all your major asset classes so you can do 100% of any required rebalancing the - avoiding any tax impact as well. But if you are forced to rebalance in taxable, it makes it harder to rebalance. For example, say you needed to sell $20k of your muni funds to invest in your total stock market funds to maintain your AA. You'd to execute that in one brokerage (Vanguard), wait probably 2 days for the funds to settle, transfer to your other brokerage (eTrade) which likely takes 1-2+ days, and finally when the funds are available in your end brokerage (eTrade) you can finish the rebalance.

Candidly, it's for the reason above that I keep a healthy portion of stocks and international in my 401k. I want to ensure I can rebalance exclusively there. That drove me to add muni bonds and savings bonds "before" my 401k was full with bonds.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by SnowBog »

Aguilar wrote: Wed Aug 10, 2022 8:55 am The three equity funds I have with eTrade in my brokerage don't have transaction fees. Just early redemption fees. Good point regarding portability, never thought of that. I'll read the wiki and will do further digging.
Think about "today" and in the future.

For example, while your trades are free today, what happens if you want to switch to another brokerage. Some may not allow an "in-kind" transfer, which limits your options. Others might charge a fee for trades going forward. That might cause you to start using another fund to avoid the fees. But eventually you'll want to sell, and likely not all at once.

Again the portability and $0 trades of ETF are compelling to me in taxable. I like having more options available to me today and in the future.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by retiredjg »

Seems to me Aguilar can wait until there actually is a need to switch to ETFs....if that ever happens at all.

And switching from mutual fund to ETF at eTrade may not be like at Vanguard. It might have to be a sell and a buy at eTrade.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by SnowBog »

retiredjg wrote: Wed Aug 10, 2022 3:20 pm Seems to me Aguilar can wait until there actually is a need to switch to ETFs....if that ever happens at all.

And switching from mutual fund to ETF at eTrade may not be like at Vanguard. It might have to be a sell and a buy at eTrade.
For clarity, I'm not advocating they switch any existing holdings... That ship has already sailed, and it likely isn't worth the tax impact to change it now.

But my impression is they were considering adding new funds. And for those, I think it's worth looking at the pros and cons of picking a mutual fund or an ETF (if a viable choice exists).
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Aguilar
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by Aguilar »

retiredjg wrote: Wed Aug 10, 2022 9:18 am
Aguilar wrote: Wed Aug 10, 2022 8:26 am
retiredjg wrote: Tue Aug 09, 2022 5:18 pm Are they available at eTrade? Is there a transaction fee?

With the funds you currently have, I assumed your taxable account was at Vanguard.
I double checked with eTrade and VNYUX and VMLUX are NOT available for purchase. So, does this mean I should open a new brokerage at Vanguard? Not thrilled I have to manage another account but I can do it if need be.
You are looking for Admiral shares instead of Investor shares. There are some funds that Vanguard does not allow other brokerages to sell in Admiral shares.

I used the fund screener and VNYTX and VMLTX (Investor Shares of what you are looking for) are both available. The ERs are a little higher, but that is better than opening an account at a separate brokerage.

I did not look to see if there are ETF versions of the Admiral share funds. That is possible as well.
How do I check if there are ETF equivalents? This isn’t something I’m familiar with.
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Aguilar
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by Aguilar »

SnowBog wrote: Wed Aug 10, 2022 3:05 pm
retiredjg wrote: Wed Aug 10, 2022 12:07 pm The disadvantage to me is having more than custodian. :happy
+1

Ideally, your tax-advantaged accounts have "enough" of all your major asset classes so you can do 100% of any required rebalancing the - avoiding any tax impact as well. But if you are forced to rebalance in taxable, it makes it harder to rebalance. For example, say you needed to sell $20k of your muni funds to invest in your total stock market funds to maintain your AA. You'd to execute that in one brokerage (Vanguard), wait probably 2 days for the funds to settle, transfer to your other brokerage (eTrade) which likely takes 1-2+ days, and finally when the funds are available in your end brokerage (eTrade) you can finish the rebalance.

Candidly, it's for the reason above that I keep a healthy portion of stocks and international in my 401k. I want to ensure I can rebalance exclusively there. That drove me to add muni bonds and savings bonds "before" my 401k was full with bonds.
I see. I only have a little equities in a 401k now and part of my plan is to convert it to bonds, and in turn hold more equities in my Roth. Now I’m second guessing that. Is there another way I should consider approaching this?
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Aguilar
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by Aguilar »

SnowBog wrote: Wed Aug 10, 2022 5:06 pm
retiredjg wrote: Wed Aug 10, 2022 3:20 pm Seems to me Aguilar can wait until there actually is a need to switch to ETFs....if that ever happens at all.

And switching from mutual fund to ETF at eTrade may not be like at Vanguard. It might have to be a sell and a buy at eTrade.
For clarity, I'm not advocating they switch any existing holdings... That ship has already sailed, and it likely isn't worth the tax impact to change it now.

But my impression is they were considering adding new funds. And for those, I think it's worth looking at the pros and cons of picking a mutual fund or an ETF (if a viable choice exists).
I’ll definitely look into it, if there are ETFs of the admiral shares of the NY muni and natl long term exempt. Are you saying I should consider investing new money in ETFs of VTSAX, VTIAX, my total bond market fund, etc as well? That means holding a lot of funds.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by retiredjg »

Aguilar wrote: Thu Aug 11, 2022 4:30 pm How do I check if there are ETF equivalents? This isn’t something I’m familiar with.
Do you know how to look at a fund on the Vanguard website?

If yes, if there is an ETF version of that fund, the mutual fund webpage will tell you that. Up near the top it will say something like "also available as...."

In all cases, you need to check the page for both the mutual fund Investor share and the mutual fund Admiral share page of the same fund.

Once you get those tickers, check the etrade site to see if they are offered.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by retiredjg »

Aguilar wrote: Thu Aug 11, 2022 4:41 pm
SnowBog wrote: Wed Aug 10, 2022 5:06 pm
retiredjg wrote: Wed Aug 10, 2022 3:20 pm Seems to me Aguilar can wait until there actually is a need to switch to ETFs....if that ever happens at all.

And switching from mutual fund to ETF at eTrade may not be like at Vanguard. It might have to be a sell and a buy at eTrade.
For clarity, I'm not advocating they switch any existing holdings... That ship has already sailed, and it likely isn't worth the tax impact to change it now.

But my impression is they were considering adding new funds. And for those, I think it's worth looking at the pros and cons of picking a mutual fund or an ETF (if a viable choice exists).
I’ll definitely look into it, if there are ETFs of the admiral shares of the NY muni and natl long term exempt. Are you saying I should consider investing new money in ETFs of VTSAX, VTIAX, my total bond market fund, etc as well? That means holding a lot of funds.
No, not saying you need ETFs for mutual funds you already have.

But rather than open a separate account at Vanguard to hold the bond funds, maybe eTrade has the Vanguard ETFs available on their NTF list.
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Aguilar
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by Aguilar »

SnowBog wrote: Wed Aug 10, 2022 5:06 pm
retiredjg wrote: Wed Aug 10, 2022 3:20 pm Seems to me Aguilar can wait until there actually is a need to switch to ETFs....if that ever happens at all.

And switching from mutual fund to ETF at eTrade may not be like at Vanguard. It might have to be a sell and a buy at eTrade.
For clarity, I'm not advocating they switch any existing holdings... That ship has already sailed, and it likely isn't worth the tax impact to change it now.

But my impression is they were considering adding new funds. And for those, I think it's worth looking at the pros and cons of picking a mutual fund or an ETF (if a viable choice exists).
I checked the Vanguard site and the NY munis fund and Long term exempt do not come in ETFs. So I can either buy them in my eTrade brokerage as investor shares or buy them in a new brokerage at Vanguard in admiral shares.

I see your and retiredjg's points regarding having 1 brokerage and the ease of rebalancing and so forth. The point about having some equities in tax deferred for rebalancing makes sense, too. I'll think this through a bit more today.
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by retiredjg »

There is one other possibility - find ETFs from some fund family other than Vanguard to use for those two funds. There are a number of other really good fund families - iShares and Blackrock come to mind, but I am sure there are others worth using.

ETrade apparently has two separate screeners - one for mutual funds and one for ETFs. I feel sure eTrade offers some other national short term muni fund/ETF and they may also have something for a NY muni fund.

If you don't know how to use a fund screener, you'll just have to figure it out by fiddling wih it. Pick the asset class you want (in this case muni bond fund or state muni bond fund). You can tell it you want funds from only certain fund families, or ERs less than ___, and things like only no transaction fee funds (NTF).
SnowBog
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by SnowBog »

retiredjg wrote: Fri Aug 12, 2022 1:48 pm There is one other possibility - find ETFs from some fund family other than Vanguard to use for those two funds. There are a number of other really good fund families - iShares and Blackrock come to mind, but I am sure there are others worth using.

ETrade apparently has two separate screeners - one for mutual funds and one for ETFs. I feel sure eTrade offers some other national short term muni fund/ETF and they may also have something for a NY muni fund.

If you don't know how to use a fund screener, you'll just have to figure it out by fiddling wih it. Pick the asset class you want (in this case muni bond fund or state muni bond fund). You can tell it you want funds from only certain fund families, or ERs less than ___, and things like only no transaction fee funds (NTF).
+1

While Vanguard funds are great, and will be forever grateful for the industry they (via Jack Bogle) brought to the industry, there are tons of great low cost broadly diversified options.

If you already have a mutual fund that works, I'm not sure I'd "add" an ETF of something similar... But if you are adding a new investment (like international as example) to taxable, I'd definitely consider available ETFs.

The one place I still use mutual funds in taxable is muni bonds. There are very few ETFs, and in most states (mine at least), no state muni ETFs. Nationally VTEB and MUB are good options, and candidly that's what I used to use... But if you do TLH with them (like I've done this year), they add some interesting complexity (see the "finer points" in the TLH Wiki - think I linked to it above already). So I ended up switching back to mutual funds for my muni bonds...
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Aguilar
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Re: Portfolio check and 3 questions - tax efficiency when rebalancing, iBonds, Roth conversion

Post by Aguilar »

SnowBog wrote: Wed Aug 10, 2022 3:05 pm
Ideally, your tax-advantaged accounts have "enough" of all your major asset classes so you can do 100% of any required rebalancing the - avoiding any tax impact as well. But if you are forced to rebalance in taxable, it makes it harder to rebalance. For example, say you needed to sell $20k of your muni funds to invest in your total stock market funds to maintain your AA. You'd to execute that in one brokerage (Vanguard), wait probably 2 days for the funds to settle, transfer to your other brokerage (eTrade) which likely takes 1-2+ days, and finally when the funds are available in your end brokerage (eTrade) you can finish the rebalance.

Candidly, it's for the reason above that I keep a healthy portion of stocks and international in my 401k. I want to ensure I can rebalance exclusively there. That drove me to add muni bonds and savings bonds "before" my 401k was full with bonds.
This is what I'm trying to address in my plan now before I start implementing it. I want to avoid having tax consequences in my brokerage if I have to sell shares of a fund to rebalance my portfolio. Currently thinking through what I could do with my 401k so I can rebalance there. If, after moving my old 401k and TIRA into my new 401k, I exchange a sizeable portion of my bonds to equities, I'd need to buy A LOT of bonds in my brokerage to maintain my AA, and I don't plan on investing my cash all at once (prefer to DCA). Another option is to exchange stocks for bonds in my Roth but I don't want to do that because my goal with my Roth is to get to 100% equities.

How would you recommend I approach this?
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