Asset Location Review

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Topic Author
Call_Me_Op
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Asset Location Review

Post by Call_Me_Op »

Right now, my asset location is quite non-optimal from a taxation standpoint. Since starting in January 2024 I will have a brokerage window in my retirement account, I have the opportunity to improve the asset location with minimum of deviation from my desired portfolio mix.

Brief background - Single, a few years until retirement, marginal income tax rates 35/5. Portfolio about 50/50 split taxable/tax-deferred. No Roth.

Desired Overall AA: 30/70 stocks/bonds

Current Asset Location:

Tax deferred: 30/70

Taxable: 30/70 (the 70 mostly in nominal treasuries, small amount in iBonds)

Proposed Asset Location:

Tax deferred: 0/100

Taxable: 60/40 (the 40 would be 10% IBonds, 20% Muni Bond Funds, 10% Cash)

Comments appreciated. I am particularly interested in any reasons I would NOT want to make the proposed asset location change.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
mhalley
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Joined: Tue Nov 20, 2007 5:02 am

Re: Asset Location Review

Post by mhalley »

Are their any tax consequences to changing the aa in taxable? I imagine not with what bonds have done lately.
Topic Author
Call_Me_Op
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Re: Asset Location Review

Post by Call_Me_Op »

mhalley wrote: Mon Nov 20, 2023 5:32 pm Are their any tax consequences to changing the aa in taxable? I imagine not with what bonds have done lately.
Not really. I mostly have individual treasuries whose proceeds (when they mature) would be used to buy stock. At the same time, I would replace the taxable treasuries with treasuries or brokered CDs in tax-deferred - which would replace stocks in tax-deferred. This would not be a transition I make "in one fell swoop," as I also have a few brokered CDs in taxable that would be maturing over the next year or so.
Last edited by Call_Me_Op on Mon Nov 20, 2023 6:04 pm, edited 2 times in total.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
WhitePuma
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Joined: Fri May 05, 2023 6:34 pm

Re: Asset Location Review

Post by WhitePuma »

Definitely the right idea. A few questions to ponder:

1. Given how close you are to retirement, what are your expected marginal brackets once you retire? It’s possible the muni option isn’t ideal.

2. What do you plan to tap into once you retire, and how do you plan to hold your AA as you decumulate?
Topic Author
Call_Me_Op
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Re: Asset Location Review

Post by Call_Me_Op »

WhitePuma wrote: Mon Nov 20, 2023 6:03 pm Given how close you are to retirement, what are your expected marginal brackets once you retire?

What do you plan to tap into once you retire, and how do you plan to hold your AA as you decumulate?
Great questionsI am low 60's now, and would defer SS until 70. So the only income before age 70 would be from my portfolio. The AA I am talking about would be the same one I use in decumulation. I plan to use taxable in the early years and also do some Roth conversions from tax-deferred. Once I hit 75 (assuming I get there), I will probably be thrust into a high tax bracket (similar to today) because of RMDs. There are lots of variables - which is why I want to really think through it before doing anything drastic.

Can you elaborate on why the muni option may not be ideal? I could make that treasuries instead. Maybe munis will not be ideal between retirement and age 70, when tax rate is lower.
Last edited by Call_Me_Op on Mon Nov 20, 2023 6:10 pm, edited 1 time in total.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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Wiggums
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Re: Asset Location Review

Post by Wiggums »

I don’t see any problems with this plan. You are just making adjustments as fixed income matures.

I got rid of my municipal bonds now that we are retired we are in a lower tax bracket now and need a shorter duration to pay for lumpy expenses and big travel.
Last edited by Wiggums on Mon Nov 20, 2023 6:13 pm, edited 1 time in total.
"I started with nothing and I still have most of it left."
Topic Author
Call_Me_Op
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Re: Asset Location Review

Post by Call_Me_Op »

Thanks Wiggums. Perhaps a decent plan might be to hold munis until I retire and then consider replacing them with short treasuries.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
WhitePuma
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Re: Asset Location Review

Post by WhitePuma »

Call_Me_Op wrote: Mon Nov 20, 2023 6:11 pm Thanks Wiggums. Perhaps a decent plan might be to hold munis until I retire and then consider replacing them with short treasuries.
Yes, this is what I was getting at in my post upthread.
Topic Author
Call_Me_Op
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Re: Asset Location Review

Post by Call_Me_Op »

There is one issue that changes the calculus a bit. $1 in SAFE assets in taxable is worth considerably more than $1 in SAFE assets in tax-deferred, because of taxes due on the latter. So if I want to consider this "value weighting" - it might temper how much in SAFE assets in taxable I would replace with stocks.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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