Do you have bonds in Roths as a retiree?

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Cody
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Do you have bonds in Roths as a retiree?

Post by Cody » Sun Dec 17, 2017 10:36 am

I would appear, due to my the ratio between my personal tax deferred account and my Roths, that I will have to place some bonds into those Roths. This will be done either with a 4 fund portfolio or more likely with a balanced fund of some kind (probably Life Strategy 40).

This of course will mean having equity in tax deferred.

So do you have bonds in Roths as a retiree? And are you ok with that?

Best and thanks,
Cody

Katietsu
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Re: Do you have bonds in Roths as a retiree?

Post by Katietsu » Sun Dec 17, 2017 10:53 am

I initially thought you were asking about bonds in a Roth because your tax deferred accounts were already 100% bonds. But then you speak of equities in tax deferred accounts. Can you better explain?

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Re: Do you have bonds in Roths as a retiree?

Post by sport » Sun Dec 17, 2017 10:55 am

We are retired. Our situation is that our Roth IRAs are the smallest part of our holdings due to the shorter time they have existed. I also expect that we will never spend the Roth money. So, our Roth holdings are all small cap and mid cap index funds. These are some of our highest growth holdings and they are really invested for our heirs.

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Rob54keep
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Re: Do you have bonds in Roths as a retiree?

Post by Rob54keep » Sun Dec 17, 2017 11:00 am

I have very little bonds in Roth. A small percentage is associated with a Wellington fund but the largest percentage is in Total Stock Index. Is there a planning reason why you are thinking about doing so?

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Re: Do you have bonds in Roths as a retiree?

Post by Nowizard » Sun Dec 17, 2017 11:06 am

As someone in the exact same position, we have chosen to invest more aggressively in our Roth accounts. As with you, they are smaller and we are very likely investing for our heirs. Reasoning is that increased volatility does not produce any itchiness to make changes and withdrawal for our RMD's is not required. It does increase our allocation to stocks marginally, resulting in a higher stock-to-bond ratio that we do not consider in the equation when rebalancing due to the recent stock market advances. We do not have bonds in Roth accounts and have adequate room in Traditional IRA's to avoid holding bonds in taxable accounts. Assets resulting from RMD's that are not spent, though that has not occurred since we are accumulating cash, will go toward tax free bonds.

Tim

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Re: Do you have bonds in Roths as a retiree?

Post by DrGoogle2017 » Sun Dec 17, 2017 11:22 am

I have mostly stocks in my Roth and I’m going to let it ride.

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Kalo
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Re: Do you have bonds in Roths as a retiree?

Post by Kalo » Sun Dec 17, 2017 11:56 am

I do have 20% bonds in my Roth, nearly 45% bonds in the total portfolio. Part of the reason is that, being a terrible forecaster, I've been convinced stocks would fall at some point, but we are apparently in a new paradigm where they only go up.

Another reason is that 80/20 may be better than 100 equities.

But mainly I am in the process of converting the traditional to Roth over the next 13 years. Not sure I will be able to get it all over before RMD's kick in. One could argue that I should have all my bonds in the traditional, but if stocks go down, that may not have been best. I think eventually I will be all in Roth so what matters is my overall AA. I've been lowering stocks and raising bonds in my traditional, so I just have been leaving the bonds in the Roth alone. If we get a correction I might sell bonds in the Roth and buy bonds in the traditional.

Kalo
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Re: Do you have bonds in Roths as a retiree?

Post by SGM » Sun Dec 17, 2017 12:27 pm

I have had about 30% bonds in my Roth, but I am considering decreasing the bond allocation in the Roth accounts considerably because I too will not touch the Roth account for many years if ever. My bond allocation in taxable are muni bond funds. Munis are riskier than funds that contain treasury bonds and some authors have warned against having too much in muni bonds. I think the authors are too conservative for my personal situation. I have rental and pension income that I consider to be bond-like and I think I can afford to take more risk in my portfolio. My regular expenses are exceeded by the other income streams. I have been withdrawing less than 2% from my portfolio despite having several unusual expenses this year.

I have been retired less than 4 years so I decided to be more conservative. I am rethinking this because of the income streams outside of my portfolio. I think my situation is atypical for someone who is early in retirement. Soon I will start taking delayed SS and it will give me an additional $40k of steady COLA income a year. Basically I am liability matched without bonds.

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Re: Do you have bonds in Roths as a retiree?

Post by Nowizard » Sun Dec 17, 2017 1:01 pm

We do not.

Tim

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Re: Do you have bonds in Roths as a retiree?

Post by heyyou » Sun Dec 17, 2017 1:09 pm

Bonds in RIRA? No.
RIRA is for tax free, long term growth, perhaps for long term care, so I try for equity funds there. When those fluctuate in value, I try to rebalance in other accounts. I try to keep my bond funds in my tIRA since their slower growth eventually helps to have smaller RMDs. Dang, my assets don't precisely fit in the optimal location for each type. Doesn't keep me awake at night. C'est la vie.

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siamond
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Re: Do you have bonds in Roths as a retiree?

Post by siamond » Sun Dec 17, 2017 1:15 pm

I definitely do not. Bonds are slow-growth vehicles, better leave them in tax-deferred vehicles, while using higher-growth vehicles (e.g. stocks) in Roth accounts. No need to give uncle Sam a gratuitous tip...

This being said, if you decide to go to a fund of funds for simplicity, then you're making a conscious decision to no longer try to optimize to death, and this may not be such a big deal. And LifeStrategy is a great choice imho, avoiding the overly aggressive glidepath implemented by target-date funds.

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Re: Do you have bonds in Roths as a retiree?

Post by retiredjg » Sun Dec 17, 2017 1:34 pm

I am retired and have some bonds in Roth IRA.

I started out with just stocks there, but needed to add a bond fund to make rebalancing easier. It started out just being a small amount, but has grown a lot this year because the market has caused my stocks to need a few haircuts. :D

My Roth is mostly stock funds, but adding the bond fund made things much easier.

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Re: Do you have bonds in Roths as a retiree?

Post by retiredjg » Sun Dec 17, 2017 1:40 pm

By the way, there is no problem having stocks in your tax-deferred accounts. In fact, it would be hard to avoid unless you are not using all the tax-deferred space you have available.

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Re: Do you have bonds in Roths as a retiree?

Post by duckcalldan » Sun Dec 17, 2017 1:41 pm

No. I used to until I realized the benefits of equities in a Roth.

HOWEVER.

As I get ready for my first-ever Roth conversion next week, I will be converting bond funds that are now in my rollover IRA. I’ll be converting a small portion, less than 5%, of my overall IRA. So, on a rolling basis, going forward I will have more and more bonds in my Roth to keep my AA stable.

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Re: Do you have bonds in Roths as a retiree?

Post by LadyGeek » Sun Dec 17, 2017 2:02 pm

Cody - You had a duplicate post, which I've removed. The replies are merged into here. The combined thread is in the Investing - Theory, News & General forum (general question).
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Re: Do you have bonds in Roths as a retiree?

Post by Dandy » Sun Dec 17, 2017 5:45 pm

Yes. I have no problem with having some bond funds in tax advantaged TIRA and Roths. Roths are special and most like to have them heavily invested in equities - for good reason since they may be the last dollars to draw upon.

I have always been conflicted about this. I tend to want to preserve this nice island of tax free withdrawals and not put it at maximum equity risk. So initially I did about 75% equities 25% short term bond funds.

Now in retirement I want to keep my overall equity allocation at about 43%. This bull market has been a joy but the challenge is that to avoid re balancing in my equity heavy taxable account and incurring taxes, I have been moving some Roth (and TIRA equities) into fixed income. Next year's RMDs will only make the challenge more difficult and the tax "penalty" of redeeming taxable equities will cost more.

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blueblock
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Re: Do you have bonds in Roths as a retiree?

Post by blueblock » Sun Dec 17, 2017 5:56 pm

I'm retired with no bonds in Roth and no plans to put any there for the standard reason.

retire57
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Re: Do you have bonds in Roths as a retiree?

Post by retire57 » Sun Dec 17, 2017 6:31 pm

Yes. 100%. Was necessary to achieve our 50/50 AA.

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Re: Do you have bonds in Roths as a retiree?

Post by Sheepdog » Sun Dec 17, 2017 6:56 pm

Yes. Roths total amount is 36% of my investments of which 60% are bonds. I am 84 and my wife is 77. I am still investing for us, but when my wife reaches 90 I might start investing for the beneficiaries. ;-)
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Re: Do you have bonds in Roths as a retiree?

Post by RadAudit » Sun Dec 17, 2017 7:15 pm

DrGoogle2017 wrote:
Sun Dec 17, 2017 11:22 am
I have mostly stocks in my Roth and I’m going to let it ride.
+1

I'm retired. Use to have bonds in a Roth. Then I read about the advantage of having stocks in Roth. I switched. And, I'm going to let it ride. I'll let the kids fight over it, if they want to.

Of course, the Roth is 0.4% of the portfolio. So not much to fight over. Tax deferred is 92% of the portfolio.
Last edited by RadAudit on Sun Dec 17, 2017 9:50 pm, edited 2 times in total.
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Re: Do you have bonds in Roths as a retiree?

Post by evofxdwg » Sun Dec 17, 2017 8:06 pm

No, for same reasons as a couple others have pointed out. Roth is about 5% and regular IRA is 95% of portfolio. Roth is 2% money market and 98% stock funds (which is 75/25 Total stock market/Total International). I retired less than 1yr ago and at that time, directed the Roth cap gains and dividends to money market, anticipating needing it for a bit of tax free living expenses, which I have not used/needed. Overall portfolio is 54/43/3 stock/bond/short term funds.

Indeed, I am rethinking setting the Roth back to reinvest and setting up a plan to convert a few K a year to Roth due to our expected tax bracket with the new tax bill. Due to market levels, those first conversions may be bond funds in Roth to provide some rebalancing fodder when needed.

Both spouse and I have small pensions, with bulk of living expenses coming from regular IRA, which I switched all gains/dividends to settlement fund about a year before retirement. We will be taking SS at 66 so should have a little more low bracket space then to convert then. ( if SS will continue to be only partially taxed with the new tax law - I don’t know the answer yet)

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Re: Do you have bonds in Roths as a retiree?

Post by SpringMan » Sun Dec 17, 2017 8:25 pm

Our tax deferred accounts are all bond funds. Our taxable accounts are all index stock funds both domestic and foreign. Our Roths contain some bonds too, Wellesley income for example. Overall we are 60/40, bonds to stocks (age-10 in bonds).
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Re: Do you have bonds in Roths as a retiree?

Post by MotoTrojan » Sun Dec 17, 2017 10:41 pm

sport wrote:
Sun Dec 17, 2017 10:55 am
We are retired. Our situation is that our Roth IRAs are the smallest part of our holdings due to the shorter time they have existed. I also expect that we will never spend the Roth money. So, our Roth holdings are all small cap and mid cap index funds. These are some of our highest growth holdings and they are really invested for our heirs.
Heirs will get a step-up basis. I imagine that makes Roth the worst possible place for these assets.

sport
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Re: Do you have bonds in Roths as a retiree?

Post by sport » Mon Dec 18, 2017 11:09 am

MotoTrojan wrote:
Sun Dec 17, 2017 10:41 pm
sport wrote:
Sun Dec 17, 2017 10:55 am
We are retired. Our situation is that our Roth IRAs are the smallest part of our holdings due to the shorter time they have existed. I also expect that we will never spend the Roth money. So, our Roth holdings are all small cap and mid cap index funds. These are some of our highest growth holdings and they are really invested for our heirs.
Heirs will get a step-up basis. I imagine that makes Roth the worst possible place for these assets.
I would rather have the tax-free growth.

Cody
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Re: Do you have bonds in Roths as a retiree?

Post by Cody » Mon Dec 18, 2017 1:09 pm

So it looks like the consensus is not bonds in Roths. (though some do have bonds in Roths).

Again we have about 50% of our funds in Roths (currently almost all equity) (due to some major Roth Converversions).

So then, if I want to exchange all 4 funds we own and purchase LS40 (Life Stragey 40 with 60% bonds) does that move to simplicity get swamped by inefficient placement of bonds in Roths?

Thanks much for you ideas.
Cody

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Re: Do you have bonds in Roths as a retiree?

Post by MrDrinkingWater » Mon Dec 18, 2017 1:38 pm

I think the percentages of stock and bond that you hold in Roth IRA accounts can be influenced by your desire for preservation of principal year to year during retirement. Do what feels right for you now. You can always change your mind.

You can get into a thought-provoking discussion with others about the sleep-well-at-night value of any asset allocation. Some folks just can't stomach seeing a -30% return in any one year in any account, even if they statistically know that average return over a decade might very well be +8% per year if invested more aggressively.

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Re: Do you have bonds in Roths as a retiree?

Post by Gill » Mon Dec 18, 2017 2:47 pm

What am I missing? I have a Roth that represents about 15% of my total portfolio and I have it 100% in Vanguard Intermediate Term Bond Fund. My thinking has always been to keep the ordinary income it generates out of my gross income and have equities in my taxable account with a maximum tax of 15% and a basis stepup at death. I'm surprised at all the discussion above suggesting going the other way. Yes, growth would be nice in my Roth but I'd rather not risk the principal there and have reasonable assurance it will be a nice size account to pass on to the next generation.
Gill

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Re: Do you have bonds in Roths as a retiree?

Post by DrGoogle2017 » Mon Dec 18, 2017 3:18 pm

You don’t have to worry about 15% tax bracket for retirement account. They are all treated as income. Are you thinking of after tax account?

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Re: Do you have bonds in Roths as a retiree?

Post by Gill » Mon Dec 18, 2017 3:20 pm

DrGoogle2017 wrote:
Mon Dec 18, 2017 3:18 pm
You don’t have to worry about 15% tax bracket for retirement account. They are all treated as income. Are you thinking of after tax account?
Yes, of course. As I said in my post," ...and have equities in my taxable account with a maximum tax of 15% and a basis stepup at death."
Gill

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Re: Do you have bonds in Roths as a retiree?

Post by DrGoogle2017 » Mon Dec 18, 2017 3:25 pm

I think for this thread, people usually refer to Roth and traditional IRA.

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Re: Do you have bonds in Roths as a retiree?

Post by Gill » Mon Dec 18, 2017 3:42 pm

DrGoogle2017 wrote:
Mon Dec 18, 2017 3:25 pm
I think for this thread, people usually refer to Roth and traditional IRA.
Are you responding to me? I'm talking about equities in a taxable individual account, not in a traditional IRA or Roth. I have all three and understand the difference.
Gill

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Re: Do you have bonds in Roths as a retiree?

Post by DrGoogle2017 » Mon Dec 18, 2017 4:02 pm

Gill wrote:
Mon Dec 18, 2017 3:42 pm
DrGoogle2017 wrote:
Mon Dec 18, 2017 3:25 pm
I think for this thread, people usually refer to Roth and traditional IRA.
Are you responding to me? I'm talking about equities in a taxable individual account, not in a traditional IRA or Roth. I have all three and understand the difference.
Gill
Yes, I know you are. But others might be thinking of just Roth and regular IRA.

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Re: Do you have bonds in Roths as a retiree?

Post by Gill » Mon Dec 18, 2017 4:35 pm

DrGoogle2017 wrote:
Mon Dec 18, 2017 4:02 pm
Gill wrote:
Mon Dec 18, 2017 3:42 pm
DrGoogle2017 wrote:
Mon Dec 18, 2017 3:25 pm
I think for this thread, people usually refer to Roth and traditional IRA.
Are you responding to me? I'm talking about equities in a taxable individual account, not in a traditional IRA or Roth. I have all three and understand the difference.
Gill
Yes, I know you are. But others might be thinking of just Roth and regular IRA.
Why would you distinguish between the two? Neither are currently taxable.
Gill

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Re: Do you have bonds in Roths as a retiree?

Post by retiredjg » Mon Dec 18, 2017 5:00 pm

Cody wrote:
Mon Dec 18, 2017 1:09 pm
So it looks like the consensus is not bonds in Roths. (though some do have bonds in Roths).
There may be a majority (I didn't count) but there is not a consensus. Not even close. :happy

So then, if I want to exchange all 4 funds we own and purchase LS40 (Life Stragey 40 with 60% bonds) does that move to simplicity get swamped by inefficient placement of bonds in Roths?
No. It does not get swamped. Have a balanced fund in both accounts is a fine plan. Simplicity has value. Lots of value. And it gets more valuable as you get older.

DrGoogle2017
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Re: Do you have bonds in Roths as a retiree?

Post by DrGoogle2017 » Mon Dec 18, 2017 10:07 pm

Gill wrote:
Mon Dec 18, 2017 4:35 pm
DrGoogle2017 wrote:
Mon Dec 18, 2017 4:02 pm
Gill wrote:
Mon Dec 18, 2017 3:42 pm
DrGoogle2017 wrote:
Mon Dec 18, 2017 3:25 pm
I think for this thread, people usually refer to Roth and traditional IRA.
Are you responding to me? I'm talking about equities in a taxable individual account, not in a traditional IRA or Roth. I have all three and understand the difference.
Gill
Yes, I know you are. But others might be thinking of just Roth and regular IRA.
Why would you distinguish between the two? Neither are currently taxable.
Gill
Because Roth is not taxable ever, with IRA you will have to take RMDs and that’s when it’s taxed.

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Re: Do you have bonds in Roths as a retiree?

Post by hawkfan55 » Mon Dec 18, 2017 11:47 pm

Yes, we have bond funds in our Roth IRAs. Our Tax Deferred RO IRA/403b accounts make up 70% of our total portfolio with Roth IRAs making up 30%. Our overall portfolio has an asset allocation of 45/55 Stocks/Bonds. I am retired, early 60s and DW is late 50s with about a year and half to go before she retires. I am going to do a Roth Conversion from my Rollover IRA to my Roth IRA towards the end of week and plan to convert each year for the next four years. We are also going to make our 13k Roth Contributions this week since DW has earned income. Should have done it earlier this year. :oops:

Our Roth Accounts are 33.3 percent Bond Funds and 66.7% Stock Funds. The Bond Funds value represents the amount we currently owe on our mortgage, 10 years left at 2.75% and a car loan, 2 years left at 0%. Just enjoy knowing that we can pay off both at any time, although we don't have any plans to do so. I also feel better that we can spend from our Roth IRAs during a stock market downturn if we decide to complement our Deferred Withdrawals with tax free Roth Withdrawals to stay in a desired tax bracket. Roth Contributions and Conversions will be done in Total Stock Market. BTW, our Tax Deferred RO IRA/403b accounts have an AA of 36% Stocks and 64% Bonds. As we complete Roth Conversions, the Stock funds in deferred will be decreased and Roth IRA AA will increase.
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