I think the following is a good plan, but I am no expert. There could very well be a misconception or error lurking in the plan.
The following is mom's-portfolio-related information.
Emergency funds: ready for emergency
Debt: $0
Tax Filing Status: Single
Tax Rate
Federal:
- Marginal tax rate - Ordinary income 10.0%
- Marginal tax rate - Capital income 0.0%
State: 4.90% Marginal tax rate
State of Residence: New Mexico
Age: 80 and expect to live into her 90s
Desired Asset allocation: 50% stock / 25% bond / 25% Inflation-Protected Securities
Desired International allocation: 10% of stock
Taxable account
33% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
10% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
5% Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
10% Vanguard Inflation-Protected Securities Fund Admiral Shares (VAIPX)
11% Vanguard Balanced Index Fund Admiral Shares (VBIAX)
-- VBIAX is legacy, do not purchase.
traditional IRA account
15% Vanguard Inflation-Protected Securities Fund Admiral Shares (VAIPX)
15% Vanguard Short-Term Bond Index Fund Admiral Shares (VBIRX)
No Roth IRA account because viewtopic.php?p=6066903#p6066903
Balancing portfolios
- Set all fund cost basis to Specific ID.
- Check asset allocations annually or quarterly after distributions.
- Withdraw RMD from tIRA overweight funds.
- For withdraw from taxable account, use Specific ID to sell the most expensive shares (minimize LTCG) that are more than 1 year old (to avoid STCG)
- Reinvest taxable distributions into underweight funds.
- Rebalance if asset allocation is off by more than 5%.
- At end of year, if there is unused 0% capital gains tax, sell lowest-cost taxable underweight VTSAX, VTIAX, or VBIAX (useful if mom ever withdraws from taxable account).
Current portfolio
Taxable account
$347k at broker containing eight mutual funds (will be liquidated this month to buy lower exp ratio Vanguard funds)
$108k Vanguard Balanced Index Fund Admiral Shares (VBIAX)
$213k Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
traditional IRA account
$289k annuity (will be terminated this month) (annuity drama posted at viewtopic.php?f=1&t=350196)
(no Roth IRA)
Putting it all together
Mom is living off her IRA RMD, Social Security payments, and pension.
She can withdraw more money at any time.
One concern is tax-efficiency for the family (mom and her heirs).
The following is my understanding of how to be tax efficient.
Heirs pay ordinary income on withdrawals from Traditional IRA.
Heirs pay no tax on inherited Roth IRA or taxable account.
Assuming that
- the money would be invested regardless of who possesses the money (rather than spending it)
- tax bracket of heirs is same or higher than mom's
- IRA RMD, Social Security payments, pension (this is more than she spends)
- interest, dividends, capital gains from taxable account (in a fund set aside for spending, giving, or reinvesting)
- principal from taxable account (mom pay 0% cap gains tax - heirs pay 0% gains tax = mom pays same cap gains as heirs)
- traditional IRA (mom pay 10% income tax - heirs pay 0% to 12% income tax = mom pays about same income tax as heirs)
Questions
1. Is the plan too complicated?
2. How would Vanguard Personal Advisor Service set it up?
3. I appreciate you pointing out any errors you found.