Optimal allocation amongst account types?

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nptit
Posts: 57
Joined: Sun Mar 29, 2015 5:51 pm

Optimal allocation amongst account types?

Post by nptit »

What would be the optimal allocation amongst account types? Yes, nobody knows what the optimal allocation will be, but what do you all think is optimal?

To clarify, for example my allocation amongst account types currently while accumulating is:
46.8% Taxable Brokerage
26.2% Roth IRA
23.4% Traditional IRA/401k
3.7% HSA
For simplicity assume they all have the same stock/bond allocation across accounts and that is not a discussion point.

Thanks!
02nz
Posts: 6085
Joined: Wed Feb 21, 2018 3:17 pm

Re: Optimal allocation amongst account types?

Post by 02nz »

This has been asked a million times, and there isn't one answer. It depends on how much you have, current and future income, what your goals are for that money, when you retire, and probably dozens of other factors, some of which cannot be known with certainty (e.g., future tax rates). Unless you provide detailed information about yourself to make it actionable, what's the point?

To take just your own numbers: Those numbers are definitely not optimal if you're not maxing out tax-advantaged accounts. But if you are, they could be in the ballpark. There are just too many variables.
Topic Author
nptit
Posts: 57
Joined: Sun Mar 29, 2015 5:51 pm

Re: Optimal allocation amongst account types?

Post by nptit »

02nz wrote: Sun Mar 29, 2020 6:10 pm This has been asked a million times, and there isn't one answer. It depends on how much you have, current and future income, what your goals are for that money, when you retire, and probably dozens of other factors, some of which cannot be known with certainty (e.g., future tax rates). Unless you provide detailed information about yourself to make it actionable, what's the point?

To take just your own numbers: Those numbers are definitely not optimal if you're not maxing out tax-advantaged accounts. But if you are, they could be in the ballpark. There are just too many variables.
Yes maxing out tax advantaged accounts, then the extra goes to taxable.
DSInvestor
Posts: 11410
Joined: Sat Oct 04, 2008 11:42 am

Re: Optimal allocation amongst account types?

Post by DSInvestor »

nptit wrote: Sun Mar 29, 2020 6:29 pm
Yes maxing out tax advantaged accounts, then the extra goes to taxable.
That's about optimal then. The contribution limits for the tax advantaged accounts are fixed with some adjustments for inflation. If you have a dramatic increase in income, that could mean that you contribute much more to taxable after maxing out the tax advantaged accounts.

How much tax advantaged space available to an individual depends greatly on the employer. Many employers offer no 401k or retirement plan whatsoever. Some offer SIMPLE-IRA 12K limit. Some offer 401k, others offer 401k plus match or 401k plus profit share, or 401k plus 457b. some self employed folks have solo 401k or SEP-IRA with 56K contribution limits compared to 19K for employee contribution to 401k.

Once you contribute to taxable, you should pay attention to tax efficient fund placement. When one practices tax efficient fund placement, one may find that it is not optimal to have the same asset allocation in each account.
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