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grabiner

Tax-equivalent yield is not based on total return, particularly for a fund which holds stocks; you don't pay tax at your full tax rate on the stocks every year. (Even on a bond fund, the tax cost is paid on the current yield, not the historical return which may include capital gains and losses.) Th...

grabiner

I view a mortgage as a negative bond. If you have a bond portfolio which pays you $X every year, and a loan on which you pay $X every year, you can ignore both of them since the bond portfolio pays the loan. I spent a bunch of time today reading about the concept of a mortgage being a negative bond...

grabiner

I view a mortgage as a negative bond. If you have a bond portfolio which pays you $X every year, and a loan on which you pay $X every year, you can ignore both of them since the bond portfolio pays the loan. Your interest rate is 2.75%, which is a pretty good risk-free rate for a long-term investme...

grabiner

This follows the historical pattern: many individual investors chase performance. This is what makes rebalancing so difficult; it goes against most investors' instincts to buy more stock when the market is falling. Balanced funds, such as target-date funds, avoid this behavioral issue; when the stoc...

grabiner

I like to keep investing simple. The target retirement fund seems like the simplest investment option. My question...is it a good idea to have everything in the TRF during the decumulation phase (retirement)? During a market downturn, it seems like it would be better to sell only bonds to take a di...

grabiner

Can I defer to your obvious expertise in such matters and expand the question a little? I have a large sum that I want to invest in a taxable account and I prefer a "sleep well" kind of investment. Currently, I use the CA muni fund and Wellesley to sleep well. I have looked at both of the...

grabiner

I often recommend paying down a mortgage for risk-free returns, but if you itemize deductions, your risk-free return on a prepayment is only 1.41% because you deduct at a 46.3% rate. This is a poor return on a long-term investment, so you should keep the mortgage. If you donate little to charity, y...

grabiner

Given your very high tax rate, I would recommend holding US stock in taxable where possible. You get the same foreign tax credit as everyone else, but you pay a higher tax cost on dividends, particularly on non-qualified dividends. Since international stock funds have higher dividend yields and mor...

grabiner

Yes there will be a difference. Interest rates at various maturites do not go up by a fixed % or a fixed ratio at each maturity term. Sometimes the shorter stuff goes up a lot more than longer or just the reverserve. Could another way to think about this be that if the yield curve maintained a cons...

grabiner

A few tax-related notes: Since you are in CA, your HSA is taxable for state tax. Thus it should be invested in Treasuries, which are exempt from CA tax. TIPS would likely be a good choice. And since you pay 35.1% tax (20% federal + 3.8% NIIT + 11.3% CA) on qualified dividends, but no more tax on CA ...

grabiner

One problem with this strategy is the tax cost, which is relevant even when you are withdrawing from the portfolio. If you need to spend $30K and have $30K in dividends, you pay tax on the dividend (at 15% if qualified; the tax would be even higher on non-qualified dividends such as those in the rea...

grabiner

The issue isn't the tax work, but the tax cost. No matter what you hold in your IRA or 401(k), the percentage lost to taxes is the same (zero for a Roth account, and your retirement tax rate for a traditional account). In an HSA in CA or NJ, you will pay a tax cost for dividends on a stock fund, and...

grabiner

One thing I just realized is that not all states seem to allow Foreign Tax Credit... My current state does not seem like it allows it, so I wonder if this tips things in favor of NOT putting international in taxable... This is a minor advantage for international in tax-deferred if your state does n...

grabiner

Since you are in the 10% federal tax bracket, you will pay no federal tax on your long-term capital gains. Thus, if you need to sell stock for a capital gain, it is better to sell for a long-term gain even if the gain on those shares is higher than on shares with short-term gains. (You will pay stat...

grabiner

I prefer my bonds be investment grade or government bonds. Therefore, I would not use this fund. Just my prerogative, though. I prefer my bonds have a certain level of safety, albeit arbitrary, and this fund doesn't meet that arbitrary level. Despite the name, this fund is not a junk-bond fund; it ...

grabiner

If your theory works for you, then it works for you. I think it’s nonsense. I think you should borrow money only when you can generate a greater after tax return than your after tax cost of debt. This misses the issue of risk. Paying down a loan, or not taking one out, or buying a bond, all give a ...

grabiner

Given your very high tax rate, I would recommend holding US stock in taxable where possible. You get the same foreign tax credit as everyone else, but you pay a higher tax cost on dividends, particularly on non-qualified dividends. Since international stock funds have higher dividend yields and more...

grabiner

I'm fine with car loans. If you don't have a home mortgage, it provides a boost to your credit score. I think putting $10,000 or more down on the car and borrowing the rest can be good for credit scores without the problems caused by depreciation. Taking out a loan to build your credit score isn't ...

grabiner

Great question - thank you! Consider: Use low cost debt to build an inflation hedge. Do you remember the 9-13% inflation of the 1970-80's*? If that returns in the next decade, then setting up 5-10 year's of 1-2% debt is brilliant. Too bad we have an unpredictable future... Not a good idea; this is ...

grabiner

Part of the reason for spending down the HSA may be the relative drawbacks of its tax treatment if eventually inherited by a non spouse. Good point. I'm generally aware of this but not the specifics. Can you elaborate ? Is the entire balance immediately taxable to the non-spouse heir ? Unpaid medic...

grabiner

I believe this is a case in the book where she's referring to a health spending account as opposed to a health savings account. Unfortunately both have the same abbreviation. A Health Care Flexible Spending Account is always abbreviated FSA or HCFSA, not the HSA which is used for a Health Savings A...

grabiner

If you are in a very low tax bracket, you might be able to sell some of the total stock and pay 0% on long term capital gains. In order to do this, your taxable income (not AGI) including the LTCG would need to be less than $80,800. However, if you are in the phase-in of Social Security taxation, y...

grabiner

Even if you don't need to report your HSA (and muni?) capital gains as California income, they will increase your taxes a bit, because those are based on "the rate you would have paid, using California rules, if you had been a full-year resident." Thanks. Where are you quoting from? I've ...

grabiner

Whether it is better to pay medical expenses from the HSA depends on where you will invest the money that you aren't using to pay out of pocket. Once you made the contribution to the HSA, you already got the primary benefit: your investment was tax-deductible when made, and will be tax-free when wit...

grabiner

2. I am in CA, so HSA is basically treated like a taxable account from what I understand. If I sell 6k to reimburse myself, would I be taxed on that even though it's a medical expense? I know in other states the answer is NO, not sure on CA You would be taxed only on the capital gain. If you invest...

grabiner

Hi - I'd like to hear your opinion about two investment strategies: - Option #1: 30% US equity, 20% International equity, 35% US Munis, 15% International bonds - Option #2: 30% US equity, 20% International equity, 50% US Munis Assume that scope is a taxable account and that the investor is in the h...

grabiner

1. Assuming I regularly rebalance and keep my target AA across all 3 accounts and I'm only investing in low cost index funds, does it matter whether I invest future funds in VTI or VXUS in my brokerage account? 2. If it matters, what's the risk if I go 100% VTSAX in my 401k and mixed in my taxable ...

grabiner

. When your stock holding gets too high for your risk tolerance, you do need to sell. While there is a tax cost, it isn't a total loss since these are shares you were planning to sell anyway; you just pay the tax earlier. (Selling for a gain, then buying back, would be more of a loss.) It would be r...

grabiner

Hi. I work in the field. There is a difference between the charge and the reimbursement for everything in medicine - doctor visits, labs, MRI, etc. The MRI facility will charge insurance say $1200 but expect to get about $300. Why? Once in a blue moon insurance will actually pay $1200 and that's mo...

grabiner

you'd incur taxes if like me you live in a state (CA) that taxes gains in HSAs. Never thought some states can tax HSA gains, good to know. It's now only CA and NJ. In those states, you may want to invest your HSA in Treasury bonds to avoid the tax, as long as Treasury bonds (including TIPS) fit you...

grabiner

I just tried to take a spin...and ran into the following conditions which made NONE OF MY CURRENT accounts eligible...(bold conditions) Assets within the brokerage account must be in your Settlement Fund, similar to being in cash. This is a serious problem with a taxable account. You would have to ...

grabiner

You made two mistakes, one explained by the post above. That first mistake is that you chose an asset allocation you don't understand based on vague information about a "good" fund. As mistakes go this is not a big deal. We live and learn, and, properly understood, it may not even be a mi...

grabiner

There are also three other tax costs: If your call is exercised, you have to sell the stock in the taxable account at the strike price, which will result in a capital gain. If you write a call against stock in the taxable account, you may make the dividends non-qualified. (Any time that you hold a c...

grabiner

There are improvements- Wellington now shows international component Domestic bond funds show international bond component REIT breakdown shows mid and small, not just small This is a big improvement. Vanguard funds are now allocated according to their proper style percentages, rather than their st...

grabiner

My normal recommendation for CA investors with a lot in munis is to split 50/50 between Vanguard CA Long-Term Tax-Exempt and Vanguard Limited-Term Tax-Exempt. This gives an overall intermediate-term duration, with only half the bonds in CA, but more than half the bond interest exempt from CA tax. T...

grabiner

Only if your credit is limited on Form 1116, which is not that common for investors. Is there any data to support the assertion that it isn't common for investors? Just the tax rates. If your foreign tax is less than $600, you aren't forced to adjust your qualified dividends (unless you are in the ...

grabiner

I was hoping for a reply from you David. Thanks for the time. By converting this to Roth, you are increasing the risk. If you retire at a 30% marginal tax rate, $X in any investment in a traditional IRA has 30% less value and 30% less risk than in a Roth IRA, since the IRS and state will take 30% o...

grabiner

Recharacterize those Traditional IRA contributions to Roth IRA contributions if your income allows for direct Roth IRA contributions. I'm new to all this. What is the benefit of this? Recharacterization of the Traditional IRA contribution to Roth IRA contribution will make it as though you had cont...

grabiner

If you try to include 1116 and it's not required I believe you will get less of a credit than just using the proper line on 1040 Only if your credit is limited on Form 1116, which is not that common for investors. (However, if your tax software incorrectly adjusts qualified dividends, you might fin...

grabiner

Not maxing out the 401k yet, figure could do that after. My mortgage doesn't necessarily bother me, and if it would take me 10-15 years to pay it off I wouldn't even worry about it, but it just seems like its right there with a couple years of discipline that it seems appealing. Max out the 401(k) ...

grabiner

Regardless, doing a 60-day rollover to an IRA is likely what you want to do now. That's the process for getting your money into the IRA and your taxes back (when you next file, unless you reduce your withholding in other ways). I am perhaps reading between the lines here, but I think the issue migh...

grabiner

Hello I qualify FOR HDSP Plan just didn’t know if it’s still worth contributing to my HsA for 2020 if I can’t do it via payroll. Looks like I won’t be getting the FICA tax savings but I will get the FED and State tax deduction. I’m below the FICA cutoff This is definitely worth doing. Money going i...

grabiner

Rebalancing a 3-fund portfolio is quite simple. Multiply the total portfolio balance by the desired allocation in each fund. Compare this to the amount you actually hold in each fund. The difference is the amount you need to buy or sell. Say that you have a $100K portfolio, with a target allocation ...

grabiner

Thinking strongly about taking a large tax hit on a large roth conversion even though we are somewhat high earners because my self directed IRA is made up of company shares of a co-investment. This came to be from ESOP funds when our company sold to private equity and some of us were able to co-inv...

grabiner

I am 29 and I make about 140k a year. My retirement plan is currently set aside 15% 1. Get employer 401k match 2. Max Traditional IRA 3. Fund 401k more 4. If needed, fund HSA Funding the HSA (if eligible) should be preferred to unmatched contributions to either traditional or Roth accounts. Traditi...

grabiner

...with 0% tax rate Roth seems like a no brainer It would be if your marginal tax rate were 0%, but it isn't. ;) You are so close to various credit income limits that your exact income and other deductions matter. E.g., what drops your gross income from $60-$65K to an AGI of $51-$55K? Also, IRA con...

grabiner

I’m in a similar boat. I just closed on March 15. My first mortgage payment isn’t due until May 1 and I’m trying to figure out what to do. I’m firmly in the invest camp, but also HATE debt. Income about $400k (physician), single filer. Mortgage: $436k at 2.625% 30-yr fixed, conventional. At your 35...

grabiner

Interesting. Vanguard includes VTABX in all its Fund-of-Funds, which are put forth as an appropriate default choice in thousands of 401k/403b/457 retirement plans across the country. Vanguard has thus openly stated that this fund is an appropriate investment instrument for John Q Public to rely on ...

grabiner

I’m in a similar boat. I just closed on March 15. My first mortgage payment isn’t due until May 1 and I’m trying to figure out what to do. I’m firmly in the invest camp, but also HATE debt. Income about $400k (physician), single filer. Mortgage: $436k at 2.625% 30-yr fixed, conventional. At your 35...

grabiner

I use VFVA (Vanguard Factor Value ETF) rather than VFMF; I have more faith in the value factor, and don't want to give up the deep-value exposure to hold other factors. I do use VSS for international small-cap blend, but I also hold value factors in international stock: IVLU (iShares EAFE Factor Val...

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