Should I put some international in Roth?

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Topic Author
sunny skies
Posts: 34
Joined: Wed Oct 03, 2018 6:10 pm

Should I put some international in Roth?

Post by sunny skies »

I currently have 15% of my stock allocation in international IXUS- IShares total International etf). All of my foreign holdings are currently in taxable. I'm at the threshold of getting close to the 300 in foreign tax paid, and will soon need to file the tax form 1116 if I don't come up with another strategy. From what I've been reading, 20% is optimal for the diversification benefit, and my target allocation.

My 403b is with Fidelity, and their only foreign fund is RERGX-American Funds Euro-Pacific Growth fund with an expense ratio of.46.

My questions are :

1. In order to increase my international holdings to reach 20%, should I add to the taxable, and deal with the tax complications? I'm in the 22% tax bracket, and pay NY income tax. Not sure if that matters one way or the other.

2. Would you add VXUS to next years Roth contribution in order to keep the fund expenses lower, even though most recommend 100% US equities for Roth?

3. Would you buy RERGX in the 403b, even though expenses are higher at .46, and there is a tilt to growth?

4. Lastly, being that I have IXUS in taxable, would you buy VXUS in Roth? Would this even help for TLH purposes, being that it would be my tax loss partner?

Thanks for your suggestions.
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Makaveli
Posts: 644
Joined: Mon May 19, 2014 11:18 pm

Re: Should I put some international in Roth?

Post by Makaveli »

sunny skies wrote: Tue Sep 15, 2020 7:09 am My questions are :

1. In order to increase my international holdings to reach 20%, should I add to the taxable, and deal with the tax complications? I'm in the 22% tax bracket, and pay NY income tax. Not sure if that matters one way or the other.

2. Would you add VXUS to next years Roth contribution in order to keep the fund expenses lower, even though most recommend 100% US equities for Roth?

3. Would you buy RERGX in the 403b, even though expenses are higher at .46, and there is a tilt to growth?

4. Lastly, being that I have IXUS in taxable, would you buy VXUS in Roth? Would this even help for TLH purposes, being that it would be my tax loss partner?

Thanks for your suggestions.
1. I would add to taxable and not introduce another position. Tax consequence shouldn't be the primary concern here since they'll be rather negligible if holding IXUS in taxable. It is very tax efficient.
2. No, and I would not agree with the 100% US EQ Roth recommendation
3. No, introduces another position plus has higher expenses than IXUS
4. This confirms the points above, adding complexity with more funds and TLH partners

If you have the ability to build to 20% in taxable, do so.
tibbitts
Posts: 11525
Joined: Tue Feb 27, 2007 6:50 pm

Re: Should I put some international in Roth?

Post by tibbitts »

sunny skies wrote: Tue Sep 15, 2020 7:09 am ... should I add to the taxable, and deal with the tax complications?
I think it's like with my ongoing battle with the 8606 and non-deductible IRA contributions that can't readily be converted to a Roth: virtually all Bogleheads will completely dismiss any added tax complexity from additional forms. All remaining Bogleheads will then immediately post questions or complaints about their difficulties in understanding or filing the additional form.

So I say disregard any limits and go for the foreign tax benefit. There's no reason you shouldn't be as miserable as the rest of us who are cursed with the 8606 forever. Even better, do a non-deductible IRA and increase your foreign tax earnings as well - bonus!
lakpr
Posts: 5973
Joined: Fri Mar 18, 2011 9:59 am

Re: Should I put some international in Roth?

Post by lakpr »

My perspective: even if the expense ratio is a bit higher in the 403b, go with RERGX (after selling the taxable investments gradually with as minimum taxes as you can get it down to, perhaps over the years). Ironically, this way Uncle Sam benefits (your taxes on withdrawals from the 403b in the future) if non-US investments do better; if not you do better (in terms of lower taxes due to lower growth in the 403b attributable to both under-performance of equities in the long run and higher expense ratio of the international fund). Roth account should be packed with only those asset classes that you *expect* to have largest returns going forward (all that growth is tax free and is yours), and in my book, that's US equities, not International Equities.
Topic Author
sunny skies
Posts: 34
Joined: Wed Oct 03, 2018 6:10 pm

Re: Should I put some international in Roth?

Post by sunny skies »

Thank you for the responses and suggestions. I suppose every placement has it's pros and cons, be it tax complications or higher expense ratio.

Lakpr, I always like appreciate your prospective and think I'll continue to keep my Roth 100% US equities for the highest growth.
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