Help me with a three-fund portfolio

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bonesly
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Joined: Mon Dec 18, 2017 9:28 pm
Location: WA

Re: Help me with a three-fund portfolio

Post by bonesly »

rich1day wrote: Mon Apr 01, 2024 9:09 pm I am not sure. I would want to ask What is the normal? When people are in retirement, they won’t be earning more than they use to during their employment before retirement correct?
I think that's a common assumption and it may even be what the majority experience, but it wasn't the case for me. I have a pension that's nearly 65% of my pre-retirement income and I started a part-time job supporting my old group as a contractor. Subsequently my income/tax bracket did NOT go down in retirement (I guess semi-retirement, but I don't expect it to drop when I leave part-time work and claim SS either). It's unique to each individual... Some retire completely, live off their taxable accounts until they claim SS, and in those years their income is definitely lower that in was when working full time. You can envision a different case where someone worked to 70, decided to work part-time for another 5 years, claimed SS (at 70), and tapped their retirement account for vacations (or whatever); even without a pension, that person's income likely didn't go down either.
rich1day wrote: Mon Apr 01, 2024 9:09 pm Are tax-deferred and tax-advantaged both the same or are they different? Can you help understand by providing example?
Between these vehicles, Roth IRA, Traditional IRA, 401K, HSA which are tax-advantaged and which are tax-deferred? And is there more that fit into either the classification?
Tax-deferred means when you withdraw from it you will taxes at the ordinary income rate. Tax-free means when you withdraw you owe no taxes at all (they were paid up front and earnings were tax-free). Tax advantaged means either tax-deferred or tax-free; not an ordinary taxable account.

If you draw $20K from a Roth IRA, it comes out tax-free (assuming it's been in existence 5 years and you're over age 59.5)

If you draw $20K from an HSA, it comes out tax-free (assuming you're over age 65)

If you draw $20K from a Trad IRA/401K, then you owe taxes on it at your ordinary income tax rate.

I think there's only three account classifications: taxable, tax-deferred, and tax-free.
rich1day wrote: Mon Apr 01, 2024 9:09 pm Shall the bond(20%) portion of the portfolio be invested in Traditional IRA instead of a Roth? Do you recommend this?
And once I max out the IRA where do I put the bonds? I believe in a taxable account?
It's preferable to hold all your bonds in a tax-deferred account. The Roth accounts should hold only stocks if that's possible. If you runt out of space in the Trad IRAs and 401ks, then it's probably better to buy I-Bonds, or nominal bonds, or municipal bonds (if your tax bracket is very high).
rich1day wrote: Mon Apr 01, 2024 9:09 pm Also, I wanted to ask guidance about investing in a HSA
Hopefully someone else will chime in as I'm not that familiar with HSAs.
rich1day wrote: Mon Apr 01, 2024 9:09 pm Finally, based on the answers for the above, can you please lay out a plan like you did earlier?
Once you identify how much money you have (or plan to have) in Taxable, Trad IRA, Trad 401k, Roth IRA, and HSA I can update the table I showed as a generic example. If you don't feel comfortable sharing the dollar amounts, then just provide percentages of your total (all accounts go to 100%).
Topic Author
rich1day
Posts: 28
Joined: Sat Apr 04, 2020 1:52 pm

Re: Help me with a three-fund portfolio

Post by rich1day »

@bonesly

I will need some time to get back with the details you requested. Thanks for sharing all the good info!!!
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