Huge tax-exempt holding in wrong place

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Topic Author
Tony
Posts: 227
Joined: Sat Mar 10, 2007 4:20 pm
Location: California

Huge tax-exempt holding in wrong place

Post by Tony »

Dear Boglehead Friends,
I don't post very often, but I read here and I appreciate very much the helpfulness of you all.

Right now I have a question which has been plaguing me for many years.
I have set my portfolio at around 30:70. My problem is that the 70% bonds are almost all tax exempt - Limited Term Tax Exempt. They should be in taxable: My Federal Marginal tax rate is 12%; Effective 17.6%. California Marginal is 6%; Effective 2.2%.

I've been shifting some of the Ltd Term Tax Ex into Total Bond and Short Term Bond, but at the rate I'm shifting, it will be a year or two before I've put it all in taxable accounts.

Shall I do it all at once?

Thank you very much for your advice.
Tony
barnaclebob
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Joined: Thu Aug 09, 2012 10:54 am

Re: Huge tax-exempt holding in wrong place

Post by barnaclebob »

Your post isnt super clear.

What bonds are in what types of accounts right now?

What are you trying to get it to?

You can sell within tax advantaged accounts without tax consequences. So if you are trying to switch from tax exempt bonds to total bond market within a roth or trad ira/401k you can do that now.
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grabiner
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Re: Huge tax-exempt holding in wrong place

Post by grabiner »

In the 12% tax bracket, it makes sense to get rid of muni bonds now and replace them with taxable bonds; use whichever fund is consistent with your risk level. If you do have a capital gain on your muni fund, it will be small, and you will pay only CA tax, as the federal tax is zero in your bracket.

It is also probably better for you to hold stocks in a taxable account, since you pay no federal tax on qualified dividends or long-term gains. This does not mean that you should change your asset allocation, but you could sell stocks in your IRA to buy bonds, and sell bonds in your taxable account to buy an equal amount of a stock index funds.
Wiki David Grabiner
Topic Author
Tony
Posts: 227
Joined: Sat Mar 10, 2007 4:20 pm
Location: California

Re: Huge tax-exempt holding in wrong place

Post by Tony »

barnaclebob wrote: Sun Sep 19, 2021 12:51 pm Your post isnt super clear.

What bonds are in what types of accounts right now?

What are you trying to get it to?

You can sell within tax advantaged accounts without tax consequences. So if you are trying to switch from tax exempt bonds to total bond market within a roth or trad ira/401k you can do that now.
Hello BBob,
Thank you for your good comments.
I have almost no access to IRA's, but in a Roth and a SEP, I have some of Vanguard's Tips fund. The total amount is only about 5% of my portfolio
The huge amount of Ltd Term Tax-Ex is all in a regular account. Given my tax rate, I am planning to move it all into taxable bonds. Based on advice here (Taylor), I favor Total Bond. But I could keep some in Short Term Bond.

My question is whether I can move it all now to taxable or should I do it over a period of time.

Thanks!
Tony
Topic Author
Tony
Posts: 227
Joined: Sat Mar 10, 2007 4:20 pm
Location: California

Re: Huge tax-exempt holding in wrong place

Post by Tony »

grabiner wrote: Sun Sep 19, 2021 1:34 pm In the 12% tax bracket, it makes sense to get rid of muni bonds now and replace them with taxable bonds; use whichever fund is consistent with your risk level. If you do have a capital gain on your muni fund, it will be small, and you will pay only CA tax, as the federal tax is zero in your bracket.

It is also probably better for you to hold stocks in a taxable account, since you pay no federal tax on qualified dividends or long-term gains. This does not mean that you should change your asset allocation, but you could sell stocks in your IRA to buy bonds, and sell bonds in your taxable account to buy an equal amount of a stock index funds.
I will go ahead and exchange the Ltd Term Tax Ex for Total Bond and Short Term Bond. Do those choices seem advisable?
In my IRA's I do have about 20% Short Term Investment Grade. It's not Admiral level, so I should probably get rid of it.

All of my stocks are in taxable. And so is this huge holding of Ltd Term Tax Ex, as will be Total Bond Fund and Short Term Bond fund. My risk level is pretty low, as I have all I need and so do my potential heirs. Maybe Total Bond Fund is a bit too risky? What do you think?

I have no stocks in IRA's.

Thank you BBob and Graviner for your helpful comments. And any further comments will be much appreciated!
Tony
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FiveK
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Re: Huge tax-exempt holding in wrong place

Post by FiveK »

Tony wrote: Sun Sep 19, 2021 12:42 pm My Federal Marginal tax rate is 12%; Effective 17.6%.
It is unusual for an effective tax rate to be higher than a marginal tax rate. Is there a typo or do you have an unusual situation?
Topic Author
Tony
Posts: 227
Joined: Sat Mar 10, 2007 4:20 pm
Location: California

Re: Huge tax-exempt holding in wrong place

Post by Tony »

FiveK wrote: Sun Sep 19, 2021 6:59 pm
Tony wrote: Sun Sep 19, 2021 12:42 pm My Federal Marginal tax rate is 12%; Effective 17.6%.
It is unusual for an effective tax rate to be higher than a marginal tax rate. Is there a typo or do you have an unusual situation?
Those figures are correct. I don't know what accounts for that. I'll ask my CPA.
Thanks for checking in.
Tony
wetgear
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Joined: Thu Apr 06, 2017 10:14 am

Re: Huge tax-exempt holding in wrong place

Post by wetgear »

Tony wrote: Sun Sep 19, 2021 2:39 pm
barnaclebob wrote: Sun Sep 19, 2021 12:51 pm Your post isnt super clear.

What bonds are in what types of accounts right now?

What are you trying to get it to?

You can sell within tax advantaged accounts without tax consequences. So if you are trying to switch from tax exempt bonds to total bond market within a roth or trad ira/401k you can do that now.
Hello BBob,
Thank you for your good comments.
I have almost no access to IRA's, but in a Roth and a SEP, I have some of Vanguard's Tips fund. The total amount is only about 5% of my portfolio
The huge amount of Ltd Term Tax-Ex is all in a regular account. Given my tax rate, I am planning to move it all into taxable bonds. Based on advice here (Taylor), I favor Total Bond. But I could keep some in Short Term Bond.

My question is whether I can move it all now to taxable or should I do it over a period of time.

Thanks!
Can you list which funds you have in which accounts, what percentage of your total portfolio they represent, and what funds/percentages you are trying to move to? We don't really have enough information to answer your question, if you provide that information in this format (viewtopic.php?f=1&t=6212) you'll get better and more complete advice.
Topic Author
Tony
Posts: 227
Joined: Sat Mar 10, 2007 4:20 pm
Location: California

Re: Huge tax-exempt holding in wrong place

Post by Tony »

wetgear wrote: Mon Sep 20, 2021 2:43 pm
Tony wrote: Sun Sep 19, 2021 2:39 pm
barnaclebob wrote: Sun Sep 19, 2021 12:51 pm Your post isnt super clear.

What bonds are in what types of accounts right now?

What are you trying to get it to?

You can sell within tax advantaged accounts without tax consequences. So if you are trying to switch from tax exempt bonds to total bond market within a roth or trad ira/401k you can do that now.
Hello BBob,
Thank you for your good comments.
I have almost no access to IRA's, but in a Roth and a SEP, I have some of Vanguard's Tips fund. The total amount is only about 5% of my portfolio
The huge amount of Ltd Term Tax-Ex is all in a regular account. Given my tax rate, I am planning to move it all into taxable bonds. Based on advice here (Taylor), I favor Total Bond. But I could keep some in Short Term Bond.

My question is whether I can move it all now to taxable or should I do it over a period of time.

Thanks!
Can you list which funds you have in which accounts, what percentage of your total portfolio they represent, and what funds/percentages you are trying to move to? We don't really have enough information to answer your question, if you provide that information in this format (viewtopic.php?f=1&t=6212) you'll get better and more complete advice.
Hi Wet,
I'm not comfortable putting all of that info about myself out in cyberspace... And i fact, the replies I've received have answered my main question.
Thanks a lot for checking in.
Tony
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