401k is already 100% full of bonds, but my AA calls for more bonds. Put in taxable or Roth IRA?

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Topic Author
firefighter973
Posts: 53
Joined: Wed Jun 24, 2020 12:55 pm

401k is already 100% full of bonds, but my AA calls for more bonds. Put in taxable or Roth IRA?

Post by firefighter973 »

I'm doing a 70/30 AA (with equity as 75% VTSAX / 25% VTIAX)

52.5% VTSAX
17.5% VTIAX
30% VBTLX
Total assets $3 mm

My 401k is currently 100% VBTLX ($260,000)
My Roth IRA has room for $170k
My HSA has room for $25k

I read that putting bonds in Roth IRA is bad because your highest growth should go there (VTSAX)
But I also read putting bonds in Taxable is bad too.

Where should I put the extra $640,000 for VBTLX?
Also does this AA make sense for me? I'm 35 and retiring this year, planning a 3-3.5% withdrawal rate ($90k - $105k)
Last edited by firefighter973 on Mon May 10, 2021 9:33 am, edited 1 time in total.
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retired@50
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Location: Living in the U.S.A.

Re: 401k is already 100% full of bonds, but my AA calls for more bonds. Put in taxable or Roth IRA?

Post by retired@50 »

firefighter973 wrote: Mon May 10, 2021 9:26 am I'm doing a 70/30 AA (with equity as 75% VTSAX / 25% VTIAX)

52.5% VTSAX
17.5% VTIAX
30% VBTLX
Total assets $3 mm

My 401k is currently 100% VBTLX ($260,000)
My Roth IRA has room for $170k

I read that putting bonds in Roth IRA is bad because your highest growth should go there (VTSAX)
But I also read putting bonds in Taxable is bad too.

Where should I put the extra $640,000 for VBTLX?
Also does this AA make sense for me? I'm 35 and retiring this year, planning a 3-3.5% withdrawal rate ($90k - $105k)
Since the Roth IRA isn't big enough to hold all the bonds you want to hold, it appears you'll have to use the taxable account (at least partially). Depending on your tax bracket, you might want to consider a municipal bond fund (or two) for the taxable account.

Some folks like the Vanguard Limited Term Tax Exempt fund, or the Intermediate Term Tax Exempt Fund. Check out VMLUX and/or VWIUX.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Topic Author
firefighter973
Posts: 53
Joined: Wed Jun 24, 2020 12:55 pm

Re: 401k is already 100% full of bonds, but my AA calls for more bonds. Put in taxable or Roth IRA?

Post by firefighter973 »

retired@50 wrote: Mon May 10, 2021 9:33 am
firefighter973 wrote: Mon May 10, 2021 9:26 am I'm doing a 70/30 AA (with equity as 75% VTSAX / 25% VTIAX)

52.5% VTSAX
17.5% VTIAX
30% VBTLX
Total assets $3 mm

My 401k is currently 100% VBTLX ($260,000)
My Roth IRA has room for $170k

I read that putting bonds in Roth IRA is bad because your highest growth should go there (VTSAX)
But I also read putting bonds in Taxable is bad too.

Where should I put the extra $640,000 for VBTLX?
Also does this AA make sense for me? I'm 35 and retiring this year, planning a 3-3.5% withdrawal rate ($90k - $105k)
Since the Roth IRA isn't big enough to hold all the bonds you want to hold, it appears you'll have to use the taxable account (at least partially). Depending on your tax bracket, you might want to consider a municipal bond fund (or two) for the taxable account.

Some folks like the Vanguard Limited Term Tax Exempt fund, or the Intermediate Term Tax Exempt Fund. Check out VMLUX and/or VWIUX.

Regards,
I'm in 22% bracket with 0% state.
Would you max out Roth IRA with bonds, then put the extra in taxable? Or keep VTSAX in Roth IRA and just do the bonds in taxable?
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retired@50
Posts: 12835
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Location: Living in the U.S.A.

Re: 401k is already 100% full of bonds, but my AA calls for more bonds. Put in taxable or Roth IRA?

Post by retired@50 »

firefighter973 wrote: Mon May 10, 2021 9:35 am
retired@50 wrote: Mon May 10, 2021 9:33 am
firefighter973 wrote: Mon May 10, 2021 9:26 am I'm doing a 70/30 AA (with equity as 75% VTSAX / 25% VTIAX)

52.5% VTSAX
17.5% VTIAX
30% VBTLX
Total assets $3 mm

My 401k is currently 100% VBTLX ($260,000)
My Roth IRA has room for $170k

I read that putting bonds in Roth IRA is bad because your highest growth should go there (VTSAX)
But I also read putting bonds in Taxable is bad too.

Where should I put the extra $640,000 for VBTLX?
Also does this AA make sense for me? I'm 35 and retiring this year, planning a 3-3.5% withdrawal rate ($90k - $105k)
Since the Roth IRA isn't big enough to hold all the bonds you want to hold, it appears you'll have to use the taxable account (at least partially). Depending on your tax bracket, you might want to consider a municipal bond fund (or two) for the taxable account.

Some folks like the Vanguard Limited Term Tax Exempt fund, or the Intermediate Term Tax Exempt Fund. Check out VMLUX and/or VWIUX.

Regards,
I'm in 22% bracket with 0% state.
Would you max out Roth IRA with bonds, then put the extra in taxable? Or keep VTSAX in Roth IRA and just do the bonds in taxable?
Personally, I'd probably put a sprinkle of bonds in the Roth IRA, maybe $25k or so, just to help with re-balancing without tax consequences if it becomes necessary. Then, I'd put the remainder of the bonds in the taxable account. At the 22% bracket you're probably better off using VBTLX in taxable given the current yield (when compared to VWIUX).

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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David Jay
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Location: Michigan

Re: 401k is already 100% full of bonds, but my AA calls for more bonds. Put in taxable or Roth IRA?

Post by David Jay »

With only 170K in Roth (compared to many times that amount in taxable), I would protect the Roth and put the additional bonds in taxable.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
Topic Author
firefighter973
Posts: 53
Joined: Wed Jun 24, 2020 12:55 pm

Re: 401k is already 100% full of bonds, but my AA calls for more bonds. Put in taxable or Roth IRA?

Post by firefighter973 »

David Jay wrote: Mon May 10, 2021 9:47 am With only 170K in Roth (compared to many times that amount in taxable), I would protect the Roth and put the additional bonds in taxable.
Thanks.
Do you agree with the other poster that VBTLX in taxable is better than a tax-exempt bond fund?
22% tax bracket and 0% state.
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MrBobcat
Posts: 1292
Joined: Fri Jan 11, 2019 4:19 pm

Re: 401k is already 100% full of bonds, but my AA calls for more bonds. Put in taxable or Roth IRA?

Post by MrBobcat »

firefighter973 wrote: Mon May 10, 2021 9:35 am
retired@50 wrote: Mon May 10, 2021 9:33 am
firefighter973 wrote: Mon May 10, 2021 9:26 am I'm doing a 70/30 AA (with equity as 75% VTSAX / 25% VTIAX)

52.5% VTSAX
17.5% VTIAX
30% VBTLX
Total assets $3 mm

My 401k is currently 100% VBTLX ($260,000)
My Roth IRA has room for $170k

I read that putting bonds in Roth IRA is bad because your highest growth should go there (VTSAX)
But I also read putting bonds in Taxable is bad too.

Where should I put the extra $640,000 for VBTLX?
Also does this AA make sense for me? I'm 35 and retiring this year, planning a 3-3.5% withdrawal rate ($90k - $105k)
Since the Roth IRA isn't big enough to hold all the bonds you want to hold, it appears you'll have to use the taxable account (at least partially). Depending on your tax bracket, you might want to consider a municipal bond fund (or two) for the taxable account.

Some folks like the Vanguard Limited Term Tax Exempt fund, or the Intermediate Term Tax Exempt Fund. Check out VMLUX and/or VWIUX.

Regards,
I'm in 22% bracket with 0% state.
Would you max out Roth IRA with bonds, then put the extra in taxable? Or keep VTSAX in Roth IRA and just do the bonds in taxable?
Will you still be in a 22% bracket after you retire? If not I'd definitely put the bonds in taxable.
3funder
Posts: 1814
Joined: Sun Oct 15, 2017 9:35 pm

Re: 401k is already 100% full of bonds, but my AA calls for more bonds. Put in taxable or Roth IRA?

Post by 3funder »

David Jay wrote: Mon May 10, 2021 9:47 am With only 170K in Roth (compared to many times that amount in taxable), I would protect the Roth and put the additional bonds in taxable.
+1
Global stocks, US bonds, and time.
User avatar
David Jay
Posts: 14587
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: 401k is already 100% full of bonds, but my AA calls for more bonds. Put in taxable or Roth IRA?

Post by David Jay »

firefighter973 wrote: Mon May 10, 2021 9:50 am
David Jay wrote: Mon May 10, 2021 9:47 am With only 170K in Roth (compared to many times that amount in taxable), I would protect the Roth and put the additional bonds in taxable.
Thanks.
Do you agree with the other poster that VBTLX in taxable is better than a tax-exempt bond fund?
22% tax bracket and 0% state.
Most likely, yes. A 30+ percent (federal + state) marginal tax rate is where a tax exempt “state” muni fund shows a clear advantage.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
Topic Author
firefighter973
Posts: 53
Joined: Wed Jun 24, 2020 12:55 pm

Re: 401k is already 100% full of bonds, but my AA calls for more bonds. Put in taxable or Roth IRA?

Post by firefighter973 »

MrBobcat wrote: Mon May 10, 2021 9:54 am
firefighter973 wrote: Mon May 10, 2021 9:35 am
retired@50 wrote: Mon May 10, 2021 9:33 am
firefighter973 wrote: Mon May 10, 2021 9:26 am I'm doing a 70/30 AA (with equity as 75% VTSAX / 25% VTIAX)

52.5% VTSAX
17.5% VTIAX
30% VBTLX
Total assets $3 mm

My 401k is currently 100% VBTLX ($260,000)
My Roth IRA has room for $170k

I read that putting bonds in Roth IRA is bad because your highest growth should go there (VTSAX)
But I also read putting bonds in Taxable is bad too.

Where should I put the extra $640,000 for VBTLX?
Also does this AA make sense for me? I'm 35 and retiring this year, planning a 3-3.5% withdrawal rate ($90k - $105k)
Since the Roth IRA isn't big enough to hold all the bonds you want to hold, it appears you'll have to use the taxable account (at least partially). Depending on your tax bracket, you might want to consider a municipal bond fund (or two) for the taxable account.

Some folks like the Vanguard Limited Term Tax Exempt fund, or the Intermediate Term Tax Exempt Fund. Check out VMLUX and/or VWIUX.

Regards,
I'm in 22% bracket with 0% state.
Would you max out Roth IRA with bonds, then put the extra in taxable? Or keep VTSAX in Roth IRA and just do the bonds in taxable?
Will you still be in a 22% bracket after you retire? If not I'd definitely put the bonds in taxable.
Yes 22% Federal and 0% state in retirement also.
Katietsu
Posts: 7677
Joined: Sun Sep 22, 2013 1:48 am

Re: 401k is already 100% full of bonds, but my AA calls for more bonds. Put in taxable or Roth IRA?

Post by Katietsu »

The interest rates on bonds today mean that bonds in taxable are not the tax problem they once were, for better or worse.
MrJedi
Posts: 3540
Joined: Wed May 06, 2020 11:42 am

Re: 401k is already 100% full of bonds, but my AA calls for more bonds. Put in taxable or Roth IRA?

Post by MrJedi »

Bonds are tax efficient now. Low yield thus low income thus low tax.
lakpr
Posts: 11613
Joined: Fri Mar 18, 2011 9:59 am

Re: 401k is already 100% full of bonds, but my AA calls for more bonds. Put in taxable or Roth IRA?

Post by lakpr »

Calls for i-Bonds. For a married filing jointly couple you can load up to $45k per year. $10k per person, $10k per each person's living trust, plus $5k through deliberately paying estimated taxes higher by that amount than necessary.

You get the "tax deferred" nature of tax advantaged accounts with i-Bonds, as you can defer the interest until you actually redeem them. Which can be up to 30 years.

$640k will take 20 years, is there a hurry that you must do that rebalancing right now? You are only 35 .... You do have that 20 years ramp time.

It does require a bit of planning, setting up living trusts, and dealing with the clunky Treasury Direct website. But on the positive side, they are going to yield 3.54% for the next 6 months, higher yield than any bond fund. Then guaranteed to never lose value to inflation, on the full faith and credit of Uncle Sam.

<< All this to say, no bonds in Roth IRA >>
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