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Post by retiredat48 on Feb 17, 2023 18:20:48 GMT
retiredat48 , anovice , What is throwing me off is why the "next most tax-inefficient funds in your Roth(s)"? Why not the next most tax-inefficient funds in your 401ks, 403bs, Traditional IRAs and similar retirement accounts? ______________________________________________________________________________________________________________________________________ I am not sure retiredat48 is making that distinction as much as sequence of investing in different vehicles because of higher limits, matching perhaps and tax breaks for before tax monies. I could very possibly be wrong and probably am. I presented what is the CONVENTIONAL WISDOM (boglehead mantra)...then my alternate method for those who do portfolio changes other than buy and hold (forever). Obviously personal circumstances may alter where assets go in terms of tax inefficiencies in the conventional model. No problem either way. Note also 401.Ks usually have very limited fund selections (like 10 to 25), whereas a ROTH has fifteen thousand funds from which to select. This can influence choices. In fact, I consider your 401.K fund choices should be made first, to make sure you don't end up with poor funds/poor choices. R48
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Post by Deleted on Feb 17, 2023 18:38:12 GMT
retiredat48 , anovice , What is throwing me off is why the "next most tax-inefficient funds in your Roth(s)"? Why not the next most tax-inefficient funds in your 401ks, 403bs, Traditional IRAs and similar retirement accounts? ______________________________________________________________________________________________________________________________________ I am not sure retiredat48 is making that distinction as much as sequence of investing in different vehicles because of higher limits, matching perhaps and tax breaks for before tax monies. I could very possibly be wrong and probably am. Also, I look at it as " highest growth vehicles" in Roth until maxed out, then 401K/IRA. Finally, tax-free, low-income and LT CG entities in taxable.
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Post by chang on Mar 4, 2023 8:27:53 GMT
The conventional guidance (accreditation T. Larimore) is to put more fixed income into IRAs, avoiding the definite tax on interest and dividends if kept in taxable. Here is a handy guide for placing such assets into IRAs: Four Step Rule for Tax Efficient Fund Placement: 1. Put your most tax-inefficient funds in 401ks, 403bs, Traditional IRAs and similar retirement accounts. When full.. 2. Put your next most tax-inefficient funds in your Roth(s). When your Roth(s) are full- 3. Put what's left into your taxable account. 4. Try to use only tax-efficient funds in taxable accounts. Here is a list of securities in approximate order of their tax-efficiency. (Least tax efficient at the top.): Hi-Yield Bonds Taxable Bonds TIPS REIT Stocks Stock trading accounts Balanced Funds Small-Value stocks Small-Cap stocks Large Value stocks International stocks Large Growth Stocks Most stock index funds Tax-Managed Funds EE and I-Bonds Tax-Exempt Bonds --------------------------------------------------- I look at this differently. The above is, of course, correct from a pure tax-efficiency standpoint. But I take a wider view, and reason as follows: - I use income producing assets for daily expenses, so my bonds are in taxable. I don't want to start depleting my T-IRAs and Roth until I'm much older. (In fact, I can't now, anyway.)
- LCG funds are generally tax efficient because they pay little/no dividends (although actively managed funds can pay big CGs), but I keep LCG in my IRAs because they are my longest-term plays. They are also the most volatile, and it's much easier to stomach volatility in a Roth that you don't plan to tap for 20 years than in an Individual account that serves to fund your day to day expenses. (My Roth is 100% LCG; I have a little more LCG in my T-IRAs.)
- I keep foreign funds / stocks in taxable, so that I can claim a tax credit for any foreign taxes withheld. (Except Canada/FICDX, because by a special agreement, taxes on Canadian dividends are not withheld if the assets are in a U.S. IRA.)
Tax efficiency isn't the whole story.
On the other hand, the rankings shown above IMO do not distinguish clearly enough between index funds and actively managed funds. Actively managed funds can throw off horrendous CGs that take a big chunk of working capital out of your pocket now (instead of later). Hence, a more important rule for me would be: Index funds and ETFs in taxable; actively managed funds in tax-deferred. That is why I own SCHD and VIG in taxable, but own (actively managed funds) Vanguard Windsor I & II, Dividend Growth, Primecap; and Fidelity FBGRX/FICDX, in my IRAs.
I also own FISMX in an IRA, which breaks my rule about keeping foreign in taxable ... but it's hard to create and maintain the perfect portfolio. I've also got VWILX in taxable, and I should fix that (e.g., by swapping it with VDIGX which I have in an IRA, and swapping the VDIGX for VIG or SCHD).
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Post by steadyeddy on Mar 5, 2023 1:34:16 GMT
For me, tax efficiency tail should not wag the investments dog. I usually do not pay a whole lot of attention to asset location, and instead focus on AA in the accounts and available fund options.
Like Chang, I hold quite a few income producing widgets in taxable - with a view to generate monthly distributions for covering my cost of living along with SS when I retire.
In IRAs, I pay attention to market sentiment - if lose your dollars there it may take a whole lot of time to get them back AND there is no tax-loss-harvesting.
Just keep in mind, the market exploded from 2020-2021 due to excess liquidity introduced into the system so a lot of gains have been brought forward and the stock market future for the next few years might not be as rosy.
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Post by Chahta on Mar 8, 2023 20:14:24 GMT
When I posted this thread originally my thought was "I have my AA across 2 IRAs and my taxable accounts. As I start to withdraw RMDs for 2025 taxes I have the urge to mostly move them to my taxable account and I have the urge to own a lot of muni funds to beat taxes. However if I want to own 50% equities and my TIRA goes to 45% across all accounts then I need to "suck it up make sure I have tax efficient equities in my taxable, in addition to what is in my Roth. I was also curious about how you all that buy single stocks handle them. Do you really suck it up and own them in a taxable account?
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Post by liftlock on Mar 8, 2023 22:11:59 GMT
When I posted this thread originally my thought was "I have my AA across 2 IRAs and my taxable accounts. As I start to withdraw RMDs for 2025 taxes I have the urge to mostly move them to my taxable account and I have the urge to own a lot of muni funds to beat taxes. However if I want to own 50% equities and my TIRA goes to 45% across all accounts then I need to "suck it up make sure I have tax efficient equities in my taxable, in addition to what is in my Roth. I was also curious about how you all that buy single stocks handle them. Do you really suck it up and own them in a taxable account? Holding individual stocks in a taxable account can be very tax efficient, especially if they generate qualified dividends, return of capital dividends or no dividends. Same applies to CEFs and ETFs. One has to be more careful holding mutual funds in taxable accounts as they can be very tax inefficient due to loss of control over when gains are taken. It's worth remembering that all types of investment gains in non-Roth tax deferred accounts (e.g. 401k, T-IRA) are taxed at ordinary income rates when withdrawn. So it can be more tax efficient to take gains and dividends in taxable accounts. When taking RMDs, the withdrawals will be taxed at ordinary rates unless the RMDs are used for QCDs. I believe buying annuities may be another non-taxable withdrawal exception but I am not up to speed on those rules. (Don't take that to the bank.) The remaining taxable RMD withdrawals can be transferred to Income Tax Withholding or to taxable accounts. When distributing RMDs to a taxable account one can move cash or in-kind shares. Distributing RMDs to Roth accounts is not allowed.
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Post by Mustang on Mar 9, 2023 18:59:21 GMT
I am probably the only one on this forum that doesn't worry about taxes. But then I don't sell and there are very few short term capital gains on the 1099s I receive.
We have no earned income so, as I understand it, roll overs into Roths are not available.
I can't do anything about RMDs. They are taxed as ordinary income. I pay the taxes and reinvest the rest in taxable mutual funds. I also reinvest all dividends and capital gains from those funds. Most of the distributions are long term capital gains which are taxed at a lower rate.
I don't worry about paying the taxes on dividends and capital gains. They are reinvested and they increase the cost basis of those funds. If and when they are sold the taxable portion of the sale will be lower.
Deferring taxes into the future will not reduce overall taxes and may actually increase them. When I'm gone my wife will need withdrawals from those funds to pay living expenses. Her income is estimated to be as much as ours now and if investments are good it may be more. She will pay more taxes than we do now because she will be taxed at the single rate not the married rate.
Perhaps I am wrong but I really don't see any reason to sweat over current taxes when you think tax savings now will increase future taxes.
P.S. There is going to be a lot of pressure to increase future tax rates. The President's budget want to increase capital gains tax to 39.5%.
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Post by retiredat48 on Mar 9, 2023 21:30:09 GMT
Mustang,, who posted: "We have no earned income so, as I understand it, roll overs into Roths are not available." I don't understand this statement, Mustang. I have had no earned income for 30 years, yet have often "rolled over" trad IRAs to roths. If you do not have any Trads, then earned income placed into ROTHs is not a "rollover"; but a direct purchase. R48
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Post by Capital on Mar 9, 2023 23:26:13 GMT
Mustang, Looks like you have a plan and are happy with it. Just want to add that earned income is required to add additional funds to your IRAs. You can do a Roth conversion without earned income because you are not adding new money to your IRAs.
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Post by Mustang on Mar 10, 2023 0:22:05 GMT
Thanks for the information. I'll look at that a little closer.
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Post by racqueteer on Mar 10, 2023 0:57:59 GMT
If you're in a low bracket, it may make sense to convert a little each year to max out your bracket and or reduce the eventual impact of your RMDs.
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Post by Chahta on Mar 10, 2023 14:38:09 GMT
Exactly what I am doing. This year is my third conversion. I may push it more this and next year, my last before RMDs.
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Post by johntaylor on Nov 11, 2023 23:17:14 GMT
Ellis, in Winning the Loser's Game, said "Don't do anything in investing primarily for tax reasons" but explained some exceptions (Fifth Edition, p 127)
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Post by kathiel on Nov 21, 2023 18:03:53 GMT
This year, the excess RMD is going to charities.
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