Pre-Tax TIAA Traditional vs taxable VWITX

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blueman457
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Pre-Tax TIAA Traditional vs taxable VWITX

Post by blueman457 » Tue Oct 09, 2018 10:38 pm

Q: Where should I put my "bonds" investment in a pre-tax TIAA Traditional yielding 3.5% currently or taxable VWITX (SEC yield 2.56)?

All,

I've been debating the above question for a while and wanted to post it to the group. I'm in a relatively high marginal tax bracket (Fed 35%, State 5%) and currently use my pre-tax TIAA traditional as my bond fund. I wanted to know if I should move the bond portion of my portfolio to my taxable account (likely using VWITX for the tax-exemption aspect)? I don't know what factors to think about other than my tax bracket. In theory, this would allow higher return equities to grow for longer pre-tax.

Thanks,

Blue Man

bloom2708
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Re: Pre-Tax TIAA Traditional vs taxable VWITX

Post by bloom2708 » Wed Oct 10, 2018 9:41 am

Do you have space for your bond allocation in pre-tax? If so, I would go that route.

I transitioned (after many threads/discussions) to only Total US and Total International in taxable.

All bonds are in our Rollover/Traditional IRAs. Roth is also all stocks (also REIT or Tilts like Small Cap Value fit well in Roth).

If your taxable is designated for some nearer term (5+ years out) spending and you don't want to go 100% stocks, the Int-Term Tax-Exempt is a good choice. Or if your state has a state specific version (Vanguard offers NY, NJ, OH, PA, CA) options. More risk in these less diverse options. Good to mix/diversify.

In the end, it probably comes out quite similar. Your tax rates are at the highest point, so I'd take that 1% extra in pre-tax over a long time period. Keep taxable tax efficient.
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aristotelian
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Re: Pre-Tax TIAA Traditional vs taxable VWITX

Post by aristotelian » Wed Oct 10, 2018 10:05 am

Too complex to say without more information. The biggest consideration is whether you have a lot of your assets in the 401k subject to ordinary income tax on distributions. If your 401k is getting to big, you will want to put most of your fixed income there so as to have growth occur in Roth and taxable accounts. That can be mitigated if you anticipate early retirement with a lot of time and low tax bracket to convert your 401k to Roth before Social Security kicks in. I have about 50% of my bond allocation in TIAA Traditional in my employer plan, and just a small amount of muni bonds in my taxable account.

retiredjg
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Re: Pre-Tax TIAA Traditional vs taxable VWITX

Post by retiredjg » Thu Oct 11, 2018 9:12 am

blueman457 wrote:
Tue Oct 09, 2018 10:38 pm
...and currently use my pre-tax TIAA traditional as my bond fund.
I'd stick with this.

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grabiner
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Re: Pre-Tax TIAA Traditional vs taxable VWITX

Post by grabiner » Thu Oct 11, 2018 6:09 pm

If all else is equal, I generally recommend holding bonds in tax-deferred, but it often depends on your tax bracket and on bond yields.

But for you, all else is not equal; you have an unusually good fixed-income option in your 403(b). The TIAA Traditional Annuity that has a 3.5% current yield (Retirement Choice Plus) appears to have a 90-day effective duration, so it is almost as immune to interest-rate risk as a money-market fund; this is much better than the interest-rate risk of a retail bond fund.
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villars
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Re: Pre-Tax TIAA Traditional vs taxable VWITX

Post by villars » Thu Oct 11, 2018 7:31 pm

blueman457 wrote:
Tue Oct 09, 2018 10:38 pm
Q: Where should I put my "bonds" investment in a pre-tax TIAA Traditional yielding 3.5% currently or taxable VWITX (SEC yield 2.56)?

Standard answer is bonds go in Tax advantaged. Only reason to buy VWITX is if you anticipate running out of tax advantaged space for bonds by the time you retire. To estimate the likelihood of that , what % of your current portfolio is in taxable? and what is you eventual target allocation at retirement?

For example, if your taxable account is more than 50% of your total portfolio, but you desire an eventual 50/50 AA, it would be a good idea to start buying some VWITX now in taxable, and allow stocks in pre-tax to grow that space for you.

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