Portfolio review - balanced fund bonds in taxable account?

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eggdarkmatter
Posts: 1
Joined: Wed May 25, 2022 5:19 pm

Portfolio review - balanced fund bonds in taxable account?

Post by eggdarkmatter »

Emergency funds: Yes
Debt: None
Tax Filing Status: Single
Tax Rate: 24% Federal, 9.3% State
State of Residence: CA
Age: 37

Desired Asset allocation: 80%-90% stocks, rest in bonds and lower risk
Desired International allocation: 25%

Please provide an approximate size of your total portfolio: 90K

Current retirement assets

Taxable
64% cash
11% I-bonds
3% - CDs
2% SPY (.0945)
1% iShares Core S&P Small Cap ETF (IJR) (0.06)
2% VUG (0.04)

Roth IRA
9% Fidelity Freedom Index 2050 Fund Investor Class (FIPFX) (0.12)
5% Fidelity 500 Index (FXAIX) (0.015)

403b
3% Target Date Fund through 2050 = 50% domestic stocks, 38% foreign stocks, 9% bonds, 3% cash/other, (0.07)
No company match

457b
0% currently

_______________________________________________________________
Note: Total percentage of all the above accounts together (not each account individually) should equal 100%.

Contributions

New annual Contributions

$20,500 403b (no match)
$0 457b (no match)
$18,000 Roth IRA
$12,000 taxable (for retirement, not short term goals)
Have another $6,000-12,000 I can allocate to accounts other than 403b

Available funds

Funds available in 403(b)
Target date funds
REITs Fund
Bond Fund
TIPS - regular and short term
Equities indexes - domestic large and small cap blend, domestic large growth, foreign large blend, emerging markets

Questions:
1. Should I contribute to 457b or split remaining money between Roth and taxable account

2.I have a large amount of cash I was saving for a house down payment. I have postponed this purchase due to unaffordability. I am considering saving long-term in a taxable account, so that I can withdraw a large amount and pay capital gains instead of income rate if I withdraw from 403b after age 60. I want a lower stock allocation for this money, but holding bonds is not advisable in taxable accounts. Would VTMFX (tax managed 50/50) be appropriate? Other tax-efficient bond funds or moderate risk options?
Staythecourse123
Posts: 21
Joined: Wed Apr 13, 2022 4:49 pm

Re: Portfolio review - balanced fund bonds in taxable account?

Post by Staythecourse123 »

Welcome to the forum- Hopefully others will chime in but here are some initial observations:

1a) how are you contributing 18k annually to roth ira when the contribution limit is 6k annually?

1b) Does your 457b offer a roth option? If so I would suggest it doesn’t matter and put as much as you can in either or both. Technically, I believe with a roth ira you can take out contributions (eg the $6000 per year you contribute if you max it out each year) after five years from first contribution, at any age, without penalty, which might help you pre-60 too.

If instead you are considering non-roth 457b vs roth ira, then this (roth vs traditional) is an oft-discussed topic here on this forum and you can find lots of content in previous posts related to this. IMO tl;dr it’s really hard to say because no one knows what taxes will be in the future, what your taxes will be in the future, etc etc. But this takes me to (2) below:

(2) As you pointed out you have a lot of cash currently for the reason you mentioned. Instead of your proposal, you could consider putting more in roth 457b in addition to roth IRA if your goal is to withdraw at or after 60. After 5 years from first contribution and if you are at least 59.5, you can withdraw it tax free. I believe with 457b you also need to be ‘separated’ from plan sponsor ie no longer working but if your thought is to use this money post-60 instead of earned income then presumably you wouldn’t be working. An alternative to this would be put more in traditional 457b (in equities), which I still would suggest over putting more in taxable because you’d be putting pre-tax money in whereas taxable account you’re getting no benefit at all.

Macro comment -> you mention your goals are 80-90% stocks yet currently you are significantly (by a lot a lot) less than that. I know you mentioned your reason for this, but you also mention wanting to put this cash into bonds and consider tax-advantaged bonds funds within taxable… imho this is barking up the wrong tree. I suggest you put more in roth and roth 457b and put it in whatever low cost total market equity funds are available. Especially if this money is for 60+. Otherwise you are not going to ‘live’ the stated goal of 80-90% equities (which, for better or for worse, seems like a sensible goal to me).
tashnewbie
Posts: 4230
Joined: Thu Apr 23, 2020 12:44 pm

Re: Portfolio review - balanced fund bonds in taxable account?

Post by tashnewbie »

Welcome to the forum!
eggdarkmatter wrote: Wed May 25, 2022 11:14 pm New annual Contributions

$20,500 403b (no match)
$0 457b (no match)
$18,000 Roth IRA
$12,000 taxable (for retirement, not short term goals)
Have another $6,000-12,000 I can allocate to accounts other than 403b
How are you adding $18k/year into Roth IRA? The annual limit for someone your age is $6k. Do you have Mega Backdoor Roth option in your 403b? If not, I don't see how you're getting $18k into the Roth IRA (you don't mention any pretax IRAs that you might be converting to Roth IRA).
1. Should I contribute to 457b or split remaining money between Roth and taxable account
Is the 457 governmental or non-governmental? If non-governmental, I'd lean towards not contributing, but depends on employer-specific factors such as how solvent you think the employer is.
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