Shifting Towards Bonds - but in 401k

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beaverclea
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Joined: Sun Sep 17, 2017 11:12 pm

Shifting Towards Bonds - but in 401k

Post by beaverclea »

I am nearing retirement in the next two years and attempting to shift more of my portfolio towards bonds, but to avoid tax consequences, most of the shift towards bonds has occurred in my 401K, which includes both Roth as well as non-Roth assets.

General investments - $3.4 invested assets, not including the home.
80% equity/ 20% bond current. Most of those bonds are in 401K

Is this a stupid approach because the 401k and Roth 401k are the last assets I would actually withdraw, or would they help to provide some ballast in case of an economic downturn that would actually be useful? Thoughts?
dewey
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Re: Shifting Towards Bonds - but in 401k

Post by dewey »

I wouldn’t fill the Roth with bonds but my IRA is where all my bond funds are with the exception of the Intermediate Tax Exempt fund in my taxable account. I see this as working in my favor since I’m at the RMD phase and the bonds will not grow much for a while which means my RMDs will be affected accordingly. Others may see flaws in my thinking and I hope they’ll weigh in.
“The only freedom that is of enduring importance is freedom of intelligence…” John Dewey
Dougroseville
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Re: Shifting Towards Bonds - but in 401k

Post by Dougroseville »

Personally, I want all my highest expected return assets in my Roth account.

If you are retiring early, perhaps you can take advantage of the zero capital gains rate prior to the onset of RMDs, Social Security and any pensions.
placeholder
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Re: Shifting Towards Bonds - but in 401k

Post by placeholder »

Remember that money is fungible so you can hold fixed income (you might want to investigate whether there is stable value available) and when you need money in the future sell stocks in taxable and rebalance in the 401k.
ivk5
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Re: Shifting Towards Bonds - but in 401k

Post by ivk5 »

I prefer bonds in tax-deferred (pretax, not Roth), equities in Roth.

In my 401k I can allocate the pretax and Roth assets separately - assume you may be able to as well. (In Vanguard’s employer plan interface, you have to view assets “by source” to do this if I recall correctly.)
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climber2020
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Re: Shifting Towards Bonds - but in 401k

Post by climber2020 »

beaverclea wrote: Sun May 02, 2021 11:40 pm I am nearing retirement in the next two years and attempting to shift more of my portfolio towards bonds, but to avoid tax consequences, most of the shift towards bonds has occurred in my 401K, which includes both Roth as well as non-Roth assets.
I shifted a chunk of money recently from stocks to bonds within my 401k. From what people here told me, there's no disadvantage to filling up your traditional (not Roth) 401k with bonds if that's what your investment plan requires.

Since a traditional 401k will eventually require RMDs, it's better to have that account grow slower relative to your other accounts so you have more control of how much cash you take out each year.
retiredjg
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Re: Shifting Towards Bonds - but in 401k

Post by retiredjg »

Where you hold your bonds depends on what types of accounts you have available, your tax bracket, and your personal preferences. So far, you have only hinted at having a taxable account and the 401k. What else do you have?

If there is a traditional IRA available, that is where I'd put the bonds (or most of the bonds). If not, the 401k may be the best place even if some of it is Roth.

When your retirement does happen, you can roll the 401k into traditional and Roth IRA.
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anon_investor
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Re: Shifting Towards Bonds - but in 401k

Post by anon_investor »

ivk5 wrote: Mon May 03, 2021 12:53 am I prefer bonds in tax-deferred (pretax, not Roth), equities in Roth.

In my 401k I can allocate the pretax and Roth assets separately - assume you may be able to as well. (In Vanguard’s employer plan interface, you have to view assets “by source” to do this if I recall correctly.)
Every 401k plan I have had did/does not allow for different allocation between pre-tax and Roth funds. It is all just one giant bucket when it comes to allocation. I assume the OP's plan is similar.
chw
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Re: Shifting Towards Bonds - but in 401k

Post by chw »

Sounds reasonable. accounts like a Traditional 401k (not Roth 401k) or Traditional IRA are preferred for bond investments. You might check the interest rate on the stable value fund if your 401k has one- it may be worth consideration to hold a portion of your bond allocation until yields rise a bit in traditional bond investments.
Katietsu
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Re: Shifting Towards Bonds - but in 401k

Post by Katietsu »

beaverclea wrote: Sun May 02, 2021 11:40 pm
Is this a stupid approach because the 401k and Roth 401k are the last assets I would actually withdraw, or would they help to provide some ballast in case of an economic downturn that would actually be useful? Thoughts?
I think you are linking asset allocation and asset location as if they can not be changed independently.

Assume $1 million in a 401k with 50% equity/50% bond. And you have $1 million in taxable in all equities. You retire and start spending from taxable. You sell $100,000 in equities in taxable for your expenses. But, if your desired allocation is 75/25, you also sell bonds and buy equities in the 401k to maintain your asset allocation.

Curious, are you comfortable being so aggressive because you have a pension?
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