keeping both stocks and bonds in tax deferred for rebalancing

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cruisefan
Posts: 20
Joined: Mon Sep 03, 2018 4:11 pm

keeping both stocks and bonds in tax deferred for rebalancing

Post by cruisefan » Sat Apr 13, 2019 2:07 pm

I understand the reason for keeping both stocks and bonds in tax deferred for rebalancing. I was wondering if there was any rule of thumb for determining the right amount or percentage of stocks to keep in the deferred account.

The current percentages of my total portfolio are:

60% TSP
22% taxable account
17% inherited traditional IRA
1% Roth IRA

I would like to maximize use of the G fund and maintain roughly a 35/65 stocks/bonds AA.
If I split the inherited into 12% stocks and 5% bonds, I could fill the TSP with G fund and fill the taxable and Roth with stocks. Would that leave enough stocks in the inherited for rebalancing?

thanks

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

Re: keeping both stocks and bonds in tax deferred for rebalancing

Post by livesoft » Sat Apr 13, 2019 2:16 pm

So the TSP would be 100% G fund because it is 60% of total assets and you want 65% of total assets in bonds.

That would mean 5% of total assets would be in bonds in the inherited IRA where it will fit.

Yes, that would leave 12% of total assets in the inherited IRA in equities.

Try it and see what happens. It is not like you cannot change it easily if you find it doesn't work. That's a rule of thumb: Try it and see what happens.
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JBTX
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Joined: Wed Jul 26, 2017 12:46 pm

Re: keeping both stocks and bonds in tax deferred for rebalancing

Post by JBTX » Sat Apr 13, 2019 4:08 pm

If you are going to hold your stocks in taxable for many years without liquidating, or else deferring gains via tax loss harvesting, to an early retirement or other low income period when you have lower rates, having stocks in taxable may lead to a modest benefit. Otherwise in most circumstances it probably doesn't make much difference long term.

trueblueky
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Joined: Tue May 27, 2014 3:50 pm

Re: keeping both stocks and bonds in tax deferred for rebalancing

Post by trueblueky » Sat Apr 13, 2019 5:21 pm

cruisefan wrote:
Sat Apr 13, 2019 2:07 pm
I understand the reason for keeping both stocks and bonds in tax deferred for rebalancing. I was wondering if there was any rule of thumb for determining the right amount or percentage of stocks to keep in the deferred account.

The current percentages of my total portfolio are:

60% TSP
22% taxable account
17% inherited traditional IRA
1% Roth IRA

I would like to maximize use of the G fund and maintain roughly a 35/65 stocks/bonds AA.
If I split the inherited into 12% stocks and 5% bonds, I could fill the TSP with G fund and fill the taxable and Roth with stocks. Would that leave enough stocks in the inherited for rebalancing?

thanks
TSP -- RMD at 70.5
taxable -- can hold forever, but pay tax now on interest, dividends, capital gains (TLH availability is a plus)
Inherited tIRA -- RMD now
Roth -- can hold forever

What is your divisor for RMD from the inherited tIRA? That and your age may be a consideration.

Added: I like the idea of being more aggressive with tIRA than with inherited IRA if the RMD divisors differ significantly.

Topic Author
cruisefan
Posts: 20
Joined: Mon Sep 03, 2018 4:11 pm

Re: keeping both stocks and bonds in tax deferred for rebalancing

Post by cruisefan » Sun Apr 14, 2019 6:07 am

livesoft wrote:
Sat Apr 13, 2019 2:16 pm
So the TSP would be 100% G fund because it is 60% of total assets and you want 65% of total assets in bonds.

That would mean 5% of total assets would be in bonds in the inherited IRA where it will fit.

Yes, that would leave 12% of total assets in the inherited IRA in equities.

Try it and see what happens. It is not like you cannot change it easily if you find it doesn't work. That's a rule of thumb: Try it and see what happens.
That's exactly it. I was so worried about getting it right the first time I hadnt thought about changing it.


JBTX wrote:
Sat Apr 13, 2019 4:08 pm
If you are going to hold your stocks in taxable for many years without liquidating, or else deferring gains via tax loss harvesting, to an early retirement or other low income period when you have lower rates, having stocks in taxable may lead to a modest benefit. Otherwise in most circumstances it probably doesn't make much difference long term.
the taxable account was started last year and I will start withdrawing in 2022, so not a long time


trueblueky wrote:
Sat Apr 13, 2019 5:21 pm

TSP -- RMD at 70.5
taxable -- can hold forever, but pay tax now on interest, dividends, capital gains (TLH availability is a plus)
Inherited tIRA -- RMD now
Roth -- can hold forever

What is your divisor for RMD from the inherited tIRA? That and your age may be a consideration.

Added: I like the idea of being more aggressive with tIRA than with inherited IRA if the RMD divisors differ significantly.
I'll be 54 this year. it's my first year of RMD's. the divisor is 30.5

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whodidntante
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Re: keeping both stocks and bonds in tax deferred for rebalancing

Post by whodidntante » Sun Apr 14, 2019 6:21 am

JBTX wrote:
Sat Apr 13, 2019 4:08 pm
If you are going to hold your stocks in taxable for many years without liquidating, or else deferring gains via tax loss harvesting, to an early retirement or other low income period when you have lower rates, having stocks in taxable may lead to a modest benefit. Otherwise in most circumstances it probably doesn't make much difference long term.
For those who fly in middle class plus, long-term capital gains and qualified dividends are taxed at a much lower rate than taxable bond interest or pre-tax account withdrawals. In that case you don't need to defer the LTCG most of your life to get a tax benefit to having held equities in taxable, although the LTCG tax deferral is also a benefit.

trueblueky
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Joined: Tue May 27, 2014 3:50 pm

Re: keeping both stocks and bonds in tax deferred for rebalancing

Post by trueblueky » Sun Apr 14, 2019 12:08 pm

cruisefan wrote:
Sun Apr 14, 2019 6:07 am
livesoft wrote:
Sat Apr 13, 2019 2:16 pm
So the TSP would be 100% G fund because it is 60% of total assets and you want 65% of total assets in bonds.

That would mean 5% of total assets would be in bonds in the inherited IRA where it will fit.

Yes, that would leave 12% of total assets in the inherited IRA in equities.

Try it and see what happens. It is not like you cannot change it easily if you find it doesn't work. That's a rule of thumb: Try it and see what happens.
That's exactly it. I was so worried about getting it right the first time I hadnt thought about changing it.


JBTX wrote:
Sat Apr 13, 2019 4:08 pm
If you are going to hold your stocks in taxable for many years without liquidating, or else deferring gains via tax loss harvesting, to an early retirement or other low income period when you have lower rates, having stocks in taxable may lead to a modest benefit. Otherwise in most circumstances it probably doesn't make much difference long term.
the taxable account was started last year and I will start withdrawing in 2022, so not a long time


trueblueky wrote:
Sat Apr 13, 2019 5:21 pm

TSP -- RMD at 70.5
taxable -- can hold forever, but pay tax now on interest, dividends, capital gains (TLH availability is a plus)
Inherited tIRA -- RMD now
Roth -- can hold forever

What is your divisor for RMD from the inherited tIRA? That and your age may be a consideration.

Added: I like the idea of being more aggressive with tIRA than with inherited IRA if the RMD divisors differ significantly.
I'll be 54 this year. it's my first year of RMD's. the divisor is 30.5
So when you are 70.5, your IRA divisor will be 27.4 and your inherited IRA divisor will be 14.5 or so. When you are 80, those divisors will be 18.7 and 4.5.

You have many years yet. Just something you may want to consider.

JBTX
Posts: 4937
Joined: Wed Jul 26, 2017 12:46 pm

Re: keeping both stocks and bonds in tax deferred for rebalancing

Post by JBTX » Sun Apr 14, 2019 12:22 pm

whodidntante wrote:
Sun Apr 14, 2019 6:21 am
JBTX wrote:
Sat Apr 13, 2019 4:08 pm
If you are going to hold your stocks in taxable for many years without liquidating, or else deferring gains via tax loss harvesting, to an early retirement or other low income period when you have lower rates, having stocks in taxable may lead to a modest benefit. Otherwise in most circumstances it probably doesn't make much difference long term.
For those who fly in middle class plus, long-term capital gains and qualified dividends are taxed at a much lower rate than taxable bond interest or pre-tax account withdrawals. In that case you don't need to defer the LTCG most of your life to get a tax benefit to having held equities in taxable, although the LTCG tax deferral is also a benefit.
If you are in 15% cap gains bracket and 22/24 ordinary income bracket, or higher, the additional returns on the stocks will offset the lower cap gains tax rates. I've modeled numerous scenarios and the results are usually very close. If interest rates went up quite a bit, then yes bonds in tax deferred would be preferable. If you are in a zero percent cap gains bracket, then bonds in tax deferred is preferable (but not by a whole lot). The only time it makes a material difference around current rates is if you' you can defer capital gains to a future date with lower tax rates.

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grabiner
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Re: keeping both stocks and bonds in tax deferred for rebalancing

Post by grabiner » Sun Apr 14, 2019 9:19 pm

cruisefan wrote:
Sat Apr 13, 2019 2:07 pm
I understand the reason for keeping both stocks and bonds in tax deferred for rebalancing. I was wondering if there was any rule of thumb for determining the right amount or percentage of stocks to keep in the deferred account.
There is no right percentage. If your taxable account is all stock for tax reasons (as mine is), then the ratio of stocks to bonds in your tax-deferred account is determined by your overall asset allocation.
The current percentages of my total portfolio are:

60% TSP
22% taxable account
17% inherited traditional IRA
1% Roth IRA

I would like to maximize use of the G fund and maintain roughly a 35/65 stocks/bonds AA.
If I split the inherited into 12% stocks and 5% bonds, I could fill the TSP with G fund and fill the taxable and Roth with stocks. Would that leave enough stocks in the inherited for rebalancing?
This looks like a good strategy. If you are unable to rebalance within the tax-deferred accounts, that would imply that the accounts are filled with bonds, and any further rebalancing would have to be done in the taxable account. That rebalancing should be done in your taxable account, even at a tax cost, since you need to reduce your taxable stock holding to control your risk level.
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