Choosing bonds for family nest egg

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Mister A
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Joined: Tue Oct 21, 2014 4:17 pm

Choosing bonds for family nest egg

Post by Mister A »

Hi there,

So a close family member has unexpectedly passed and my father is his only beneficiary.

The amount involved is low six-figures, and after some discussion we've agreed that it should be placed in my name to retain as I am better positioned to benefit from any tax-loss harvesting.

Many of the funds are coming from Edward Jones and are currently invested 70/30 in equities/stocks, I'd like to move them to index funds at 60/40. Proceeds will be used to pay expenses on the family home where my father resides and where I am already on the title as co-owner.

I am currently 24% federal income tax, 6.33% NYS income tax. For the bond allocation, I'm looking at treasuries (short or intermediate) and a national muni ETF. I'm leaning toward an even split between short treasuries and intermediate munis to diversify duration risk a bit, but also wondering if I should buy an intermediate treasury fund and be done with it. Any ideas on how to think about this are welcome.
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dwickenh
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Re: Choosing bonds for family nest egg

Post by dwickenh »

Link for New York Long term shows a duration of 5.1 years which would match most intermediate bond funds.
Maybe take a look at it paired with a short term fund?

Added benefit of federal and state tax free.

https://investor.vanguard.com/mutual-fu ... olio/vnytx


Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
Topic Author
Mister A
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Joined: Tue Oct 21, 2014 4:17 pm

Re: Choosing bonds for family nest egg

Post by Mister A »

That is interesting. I'd evaluated NYF - an intermediate NYS ETF - but found it a little lackluster.

I was eyeing a multi-state ETF for risk diversification and also because it's 50/50 at best whether or not I'll remain in NY for more than a couple more years. I'm also likely doing this at Schwab rather than Vanguard.
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RickBoglehead
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Re: Choosing bonds for family nest egg

Post by RickBoglehead »

If your father is the beneficiary, then his putting the assets in your name will require him filing a form 709.

As far as tax loss harvesting, you do realize that the cost basis is adjusted to the person's date of death, so there are no losses or gains unless the market moves up or down between that date and the date you sell the assets.
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tibbitts
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Re: Choosing bonds for family nest egg

Post by tibbitts »

Mister A wrote: Mon Jul 26, 2021 8:03 am The amount involved is low six-figures, and after some discussion we've agreed that it should be placed in my name to retain as I am better positioned to benefit from any tax-loss harvesting.

Many of the funds are coming from Edward Jones and are currently invested 70/30 in equities/stocks, I'd like to move them to index funds at 60/40. Proceeds will be used to pay expenses on the family home where my father resides and where I am already on the title as co-owner.

I am currently 24% federal income tax, 6.33% NYS income tax. For the bond allocation, I'm looking at treasuries (short or intermediate) and a national muni ETF. I'm leaning toward an even split between short treasuries and intermediate munis to diversify duration risk a bit, but also wondering if I should buy an intermediate treasury fund and be done with it. Any ideas on how to think about this are welcome.
I'm not an expert but I don't understand what you're trying to accomplish. You're saying you want your father to gift this amount to you, with the attendant paperwork if it's above the per-year limit for not having to file (as a one-time gift of this amount would be)? Tax-loss harvesting on short/intermediate bonds would be about #379 on my list of reasons for deciding whose name assets should be in.
Topic Author
Mister A
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Re: Choosing bonds for family nest egg

Post by Mister A »

RickBoglehead wrote: Mon Jul 26, 2021 8:26 am If your father is the beneficiary, then his putting the assets in your name will require him filing a form 709.

As far as tax loss harvesting, you do realize that the cost basis is adjusted to the person's date of death, so there are no losses or gains unless the market moves up or down between that date and the date you sell the assets.
Yes. Any potential tax-loss harvesting would be if there's a major correction to take advantage of in the near-term, specifically because the cost basis has been adjusted. We're aware of the gift tax implications.
tibbitts wrote: Mon Jul 26, 2021 8:48 am I'm not an expert but I don't understand what you're trying to accomplish. You're saying you want your father to gift this amount to you, with the attendant paperwork if it's above the per-year limit for not having to file (as a one-time gift of this amount would be)? Tax-loss harvesting on short/intermediate bonds would be about #379 on my list of reasons for deciding whose name assets should be in.
Tax-loss harvesting on the equity, which would still be 60% of the account.

He is not an itemizer, so it makes more sense to us for me to take over the property tax payment. He is in a lower tax bracket, so any carried over losses that roll into personal income in the coming years would be more valuable in my name than in his. In addition, the balance will kick me over a threshold at Schwab to get a couple of modest relationship benefits there. There is also a potential Medicaid planning aspect.

The information about how we're arranging this and why is really just background information to explain the question of bond selection given the scenario. Calculating tax equivalencies is straightforward, but I'm not quite sure how to weigh duration risk and any increased risk in a muni fund against a slow draw for immediate income.
aristotelian
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Re: Choosing bonds for family nest egg

Post by aristotelian »

New York is a high tax state. I would go for it in taxable account. Should not be much tax cost to get out of later should you move. What is "lackluster" in your opinion?

Also consider putting more in stock and rebalancing to your allocation using retirement accounts.
Topic Author
Mister A
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Re: Choosing bonds for family nest egg

Post by Mister A »

aristotelian wrote: Mon Jul 26, 2021 12:09 pm New York is a high tax state. I would go for it in taxable account. Should not be much tax cost to get out of later should you move. What is "lackluster" in your opinion?

Also consider putting more in stock and rebalancing to your allocation using retirement accounts.
So that was in reference to NYF, specifically. The .25 fee is not unreasonable, but a little high relative to low-fee multi-state funds. The portfolio also has a very conservative credit profile.

That's fine, but as a result, when I tax-adjust the historical return over the last few years, it looks roughly comparable to low-fee multi-state ETFs VTEB (Vanguard) and MUB (iShares). Single-state ends up looking like more-or-less uncompensated risk using that particular fund. (VNYTX carries a transaction fee at Schwab, so I wasn't considering it.) I think the case would be stronger if I was paying City tax.

I'm certainly open to a more equity-heavy AA, but do want to plan an AA distinct from my other funds. In the unlikely event anything happens to me, my retirement funds are going elsewhere, but this should be returned to my father to continue to maintain the home and live there peacefully, so relative stability in this bucket is important.
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