Help balancing for tax effeciency with multiple acounts

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Someguitarist
Posts: 2
Joined: Wed Jul 11, 2018 1:44 pm

Help balancing for tax effeciency with multiple acounts

Post by Someguitarist » Wed Jul 11, 2018 3:37 pm

Hi all,

I recently have been maxing out my tax advantaged space for retirement while paying student loans. Now that the loans are over (Yay!) I'd like to move into the taxable space, but I'm wondering how I should re-balance everything to be the most tax efficient since I'm in a high tax bracket. I read the article on Tax-Effecient Fund Placement here (https://www.bogleheads.org/wiki/Tax-eff ... _placement) and have also been reading posts about not putting bonds in Roth IRA's and International in taxable or not and I think I'm just in information overload. Any help you guys/gals could give would be much appreciated.

Details:
Single - 215k income. 35% tax bracket! Ouch!

401k ~50k with a hand-picked selection for lower fees.
43% JPMorgan Equity Enhanced A (Large Cap)
7% S&P 400 Midcap
39% International
8.6% Bond fund

Roth IRA is a Vanguard Target Date retirement fund with ~25k at
54.5% Total Stock Market Fund
35.5% International
10.2% Bond

HSA - 5k
Schwab 2060 Target Date fund

At this point I'm thinking I could realistically put ~6-7k into a 50/50 VTSAX/VTIAX a month in a taxable account while slowly increasing my bond percentage in my 401k to keep me at roughly ~10-15% bonds overall.

1) Is there a more tax-advantaged way to go about this? According to the Tax Efficient Placement bonds are moderately tax inefficient which is why I'd think I should increase the bond allocation in the 401k and let the taxable be VTSAX/VTIAX.
2) Should I just do VTSAX/VTIAX or Tax-Managed funds? According to https://www.bogleheads.org/wiki/Tax-man ... comparison it evens out, but I was thinking of just using the Total Index for simplicity.
3) Bonds in a Roth? Yes/no? I've been reading a lot of posts here and come up with mixed results.
4) International in a taxed account for the Foreign Tax credit, right?

Thoughts? Thanks everyone. I feel like I've done my homework but still just need that little bit of extra clarification. Much appreciated!

averagedude
Posts: 157
Joined: Sun May 13, 2018 3:41 pm

Re: Help balancing for tax effeciency with multiple acounts

Post by averagedude » Wed Jul 11, 2018 4:48 pm

Congratulations on paying off your student loans. I'm barely in the 22% percent bracket, mostly in the 12% bracket so take my answers to your questions with a grain of salt.
1. I think it is better for your taxable account to be 100% in stocks. VTSAX/VTIAX would be a great choice for this account. I would say 80% of the people that invest in these 2 funds in their taxable account does a better job of tax efficiently than other investors. You could do alot worse.
2. Again VTSAX/VTIAX would be great. Set your allocation between domestic and international, and rebalance with new money instead of selling.
3. My roth accounts are 100% stocks and i would recommend the same for you. A 100% portfolio should grow larger than a stock/bond portfolio and you never have to pay taxes on it. A traditional account with bonds in it should grow slower and you have to pay taxes on it later.
4. I have heard that you do get a foreign tax credit and the turnover for VTIAX is more tax efficient than the majority of other international funds.

CrazyCatLady
Posts: 33
Joined: Mon Apr 30, 2018 9:19 pm

Re: Help balancing for tax effeciency with multiple acounts

Post by CrazyCatLady » Wed Jul 11, 2018 8:03 pm

Someguitarist wrote:
Wed Jul 11, 2018 3:37 pm
Hi all,

I recently have been maxing out my tax advantaged space for retirement while paying student loans. Now that the loans are over (Yay!) I'd like to move into the taxable space, but I'm wondering how I should re-balance everything to be the most tax efficient since I'm in a high tax bracket. I read the article on Tax-Effecient Fund Placement here (https://www.bogleheads.org/wiki/Tax-eff ... _placement) and have also been reading posts about not putting bonds in Roth IRA's and International in taxable or not and I think I'm just in information overload. Any help you guys/gals could give would be much appreciated.

Details:
Single - 215k income. 35% tax bracket! Ouch!

401k ~50k with a hand-picked selection for lower fees.
43% JPMorgan Equity Enhanced A (Large Cap)
7% S&P 400 Midcap
39% International
8.6% Bond fund

Roth IRA is a Vanguard Target Date retirement fund with ~25k at
54.5% Total Stock Market Fund
35.5% International
10.2% Bond

HSA - 5k
Schwab 2060 Target Date fund

At this point I'm thinking I could realistically put ~6-7k into a 50/50 VTSAX/VTIAX a month in a taxable account while slowly increasing my bond percentage in my 401k to keep me at roughly ~10-15% bonds overall.

1) Is there a more tax-advantaged way to go about this? According to the Tax Efficient Placement bonds are moderately tax inefficient which is why I'd think I should increase the bond allocation in the 401k and let the taxable be VTSAX/VTIAX.
2) Should I just do VTSAX/VTIAX or Tax-Managed funds? According to https://www.bogleheads.org/wiki/Tax-man ... comparison it evens out, but I was thinking of just using the Total Index for simplicity.
3) Bonds in a Roth? Yes/no? I've been reading a lot of posts here and come up with mixed results.
4) International in a taxed account for the Foreign Tax credit, right?

Thoughts? Thanks everyone. I feel like I've done my homework but still just need that little bit of extra clarification. Much appreciated!
Congrats on paying off your loans!! :). I do that in December and can't wait.

More knowledgeable people than I will comment on your allocation, but I did want to suggest you read this thread and check out Tricertop's spreadsheet: viewtopic.php?p=4008697#p4008697. I thought VTIAX would be The most efficient for me in taxable, and it wasn't (by quite a lot).

Someguitarist
Posts: 2
Joined: Wed Jul 11, 2018 1:44 pm

Re: Help balancing for tax effeciency with multiple acounts

Post by Someguitarist » Thu Jul 12, 2018 11:54 am

First, thanks guys for the responses. Second, I only just realized I spelled 'accounts' wrong in the title and I'll never live it down! :)

@averagedude - Thanks. That pretty much answers my questions. I'll switch my Trad 401k to bonds, Roth over to stocks and start a taxable as VTSAX/VTIAX.
@CrazyCatLady - Oh wow, that's pretty informative. Thanks. Once I plugged in all my tax rates I ended up with VTI being *almost* the most tax efficient at ~0.42%. Lowest was 0.41, so I'll probably still stick with it for the international credits.

Sounds like I have a game plan! Thanks all!

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