Should I way some bonds in my Roth for this situation

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Cody
Posts: 863
Joined: Sun Dec 02, 2007 9:19 am
Location: Stillwater, Mn

Should I way some bonds in my Roth for this situation

Post by Cody » Tue May 23, 2017 9:47 am

I have tried to put most or all of my equity in my Roth's. But have a "what if question."

The market drops substantially. RmD puts me at the top of the 15% tax bracket and I need $10,000 for a medical procedure (just hypothetical). So I take if from the Roth side so as to not breach the tax bracket. But I have sold equity in a down market because I have no bonds there to sell.

Would I be advised to have "some bonds" in my Roths for this possible situation. Then I could sell the bonds rather the selling equity in this down market.

Thanks,
cody

DSInvestor
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Joined: Sat Oct 04, 2008 11:42 am

Re: Should I way some bonds in my Roth for this situation

Post by DSInvestor » Tue May 23, 2017 9:57 am

You may have bonds in your Roth IRA, but do you have bonds in your Traditional accounts? If you need to withdraw 10K from Roth IRA (all stocks) and prefer not to sell stocks from the portfolio, simply add an exchange 10K of bonds for stocks in your Traditional IRA at the same time.

1) In Roth IRA, sell 10K stocks to fund the withdrawal.
2) In Traditional IRA, exchange 10K bonds for stocks.

These two steps combined have you doing a 10K withdrawal from Roth IRA but you've only sold bonds from your portfolio. If your two transactions happen on the same day, your stock sale in Roth IRA and the stock purchase in Traditional IRA will be at the same NAV.
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Cody
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Joined: Sun Dec 02, 2007 9:19 am
Location: Stillwater, Mn

Re: Should I way some bonds in my Roth for this situation

Post by Cody » Tue May 23, 2017 10:04 am

I think that will work. If I want to keep it dollar for dollar I could adjust for taxes value.

Sell $10K in Roth equity. In tax deferred exchange maybe $12K equity to 12K bonds. Could do the exact math at the time.

Seem right?

cody

DSInvestor
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Joined: Sat Oct 04, 2008 11:42 am

Re: Should I way some bonds in my Roth for this situation

Post by DSInvestor » Tue May 23, 2017 10:20 am

Cody wrote:I think that will work. If I want to keep it dollar for dollar I could adjust for taxes value.

Sell $10K in Roth equity. In tax deferred exchange maybe $12K equity to 12K bonds. Could do the exact math at the time.

Seem right?

cody
I think you have it backwards in your tax deferred accts - exchange bonds for stocks to offset the sale of equity in your Roth IRA. I do not tax adjust my asset allocation so for me I'd do 10K Roth equity and in tax deferred exchange 10K bonds for stocks. If you do tax adjusted your AA, 12K would be OK assuming 15% fed and some extra for state income taxes.
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Cody
Posts: 863
Joined: Sun Dec 02, 2007 9:19 am
Location: Stillwater, Mn

Re: Should I way some bonds in my Roth for this situation

Post by Cody » Tue May 23, 2017 10:27 am

Yup! I did say the backward didn't I. Thanks.

Just curious why you don't tax adjust?

Thanks
cody

DSInvestor
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Joined: Sat Oct 04, 2008 11:42 am

Re: Should I way some bonds in my Roth for this situation

Post by DSInvestor » Tue May 23, 2017 11:44 am

Cody wrote:Yup! I did say the backward didn't I. Thanks.

Just curious why you don't tax adjust?

Thanks
cody
I don't have much income tax liability. I do not have a defined benefit pension and am at least 10-15 years from starting social security. My assets are in Taxable accounts, Trad IRA and Roth IRA. Living off the taxable account is very tax efficient due to 0% tax rate on LTCG and QDI. This allows me to do Roth conversions every year for zero tax. With the right mix of income, I can have income up to the top of the 15% tax bracket and still have zero tax liability.
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