Portfolio Question

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Topic Author
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Portfolio Question

Post by roccodean »

Emergency funds: $500,000 in Ally savings (currently 2% yield) (I understand much more that necessary but this is our comfort level leaving this much w no risk )

Debt: No debt. House paid off (worth about $450k).

Tax Filing Status: Married Filing Jointly

Tax Rate: highest Federal, 5 .75 % State

State of Residence: Ohio

Age: 40

Desired Asset allocation: 60 stocks / 40 bonds , ok with a little more stock exposure in retirement accounts (70/30 ish)
Desired International allocation: unsure


Taxable
Chase brokerage: Essentially goal is to mimic vanguard mod lifestrategy funds (60/40 stock/bond ratio) but use ETFs for low expense rate (very similar to the boglehead 4 fund portfolio) but I split the bond funds into tax and tax exempt
Total 900k
36% VANGUARD INDEX FUNDS VANGUARD TOTAL STOCK MARKEt (VTI)
24% ANGUARD STAR FD VANGUARD TOTAL INTL STOCK INDEX (VXUS)
14% VANGUARD MUNICIPAL BOND FUNDS VANGUARD TAX EXEmpt (VTEB)
14% Vanguard Total Bond Market Index Fund (BND)
12% Vanguard Total International Bond Index Fund (BNDX)

His 401k
472k
50% FID FREEDOM 2030 K (FSNQX)
50% FID FREEDOM 2035 K (FSNUX)
Split so that 68/32 stock/bond ratio
40% of total amount is roth deferred (was doing Roth 401k for some time)


His Roth IRA at Vanguard
$36k
VTTHX- 2035 target retirement


Her 403b
$230k
Fidelity 2030 fund class K ( FSNQX) 64/36 stock/bond

Her Roth IRA- vanguard
$162k
VTTHX- 2035 target retirement

Her traditional IRA - vanguard (rolled over from previous employer 403b after buy out)
88k
VTTHX

Kids (age 6 and 9) 2 529s
1) 9 year old: $35k
2) 6 year old: $30k
Both in vanguard age based which is currently about 50/50 stock/bond.

Contributions

New annual Contributions
$20,500 his deductible 401k + employer matches addition $30,000
His mega backdoor roth (post tax dollars convert to Roth): additonal $11,000 approx
$20,500 her 403b + additional $10,000 employer match
$6000 his backdoor Roth IRA
$6000 her backdoor Roth IRA
$300,000 taxable (for retirement, not short term goals) into chase brokerage
His HSA $3650
Kids 529: $6k each child

Questions:
1) Input on making portfolio more tax efficient
2) As you can see, bulk of income going into taxable brokerage account- is this a good portfolio if goal is 60/40 stock/bond?


His 401k options:
(Fidelity)

Name/Inception Date Asset Class Category Plan-specific option Gross Expense Ratio** Shareholder Fees
FID 500 INDEX (FXAIX)
02/17/1988
Stock Investments Large Cap No 0.015% No additional fees apply.
NVN W LG CAP GR S
12/09/2010
Stock Investments Large Cap Yes 0.45% No additional fees apply.
PUTN LG CP VAL TR IA
07/03/2018
Stock Investments Large Cap Yes 0.33% No additional fees apply.
FID EXTD MKT IDX (FSMAX)
11/05/1997
Stock Investments Mid-Cap No 0.035% No additional fees apply.
AF NEW WORLD R6 (RNWGX)
06/17/1999
Stock Investments International Yes 0.57% No additional fees apply.
FID TOTAL INTL IDX (FTIHX)
06/07/2016
Stock Investments International No 0.06% No additional fees apply.
DFA REAL EST SEC I (DFREX)
01/05/1993
Stock Investments Specialty Yes 0.2% No additional fees apply.
AB US SM CAP GRTH S
08/03/2020
Stock Investments N/A Yes 0.59% No additional fees apply.
CT SM CAP VAL II A
05/01/2019
Stock Investments N/A Yes 0.72% No additional fees apply.
MFS INTL GROWTH 4
06/12/2007
Stock Investments N/A Yes 0.57% No additional fees apply.
AF GLOBAL BAL R6 (RGBGX)
02/01/2011
Blended Fund Investments* N/A Yes 0.48% No additional fees apply.
FID FDM IDX 2005 PRM (FBLPX)
10/02/2009
Blended Fund Investments* N/A Yes 0.06% No additional fees apply.
FID FDM IDX 2010 PRM (FCYPX)
10/02/2009
Blended Fund Investments* N/A Yes 0.06% No additional fees apply.
FID FDM IDX 2015 PRM (FFYPX)
10/02/2009
Blended Fund Investments* N/A Yes 0.06% No additional fees apply.
FID FDM IDX 2020 PRM (FKIPX)
10/02/2009
Blended Fund Investments* N/A Yes 0.06% No additional fees apply.
FID FDM IDX 2025 PRM (FLIPX)
10/02/2009
Blended Fund Investments* N/A Yes 0.06% No additional fees apply.
Investments you currently own FID FDM IDX 2030 PRM (FMKPX)
10/02/2009
Blended Fund Investments* N/A Yes 0.06% No additional fees apply.
Investments you currently own FID FDM IDX 2035 PRM (FNIPX)
10/02/2009
Blended Fund Investments* N/A Yes 0.06% No additional fees apply.
FID FDM IDX 2040 PRM (FPIPX)
10/02/2009
Blended Fund Investments* N/A Yes 0.06% No additional fees apply.
FID FDM IDX 2045 PRM (FQIPX)
10/02/2009
Blended Fund Investments* N/A Yes 0.06% No additional fees apply.
FID FDM IDX 2050 PRM (FRLPX)
10/02/2009
Blended Fund Investments* N/A Yes 0.06% No additional fees apply.
FID FDM IDX 2055 PRM (FTYPX)
06/01/2011
Blended Fund Investments* N/A Yes 0.06% No additional fees apply.
FID FDM IDX 2060 PRM (FUIPX)
08/05/2014
Blended Fund Investments* N/A Yes 0.06% No additional fees apply.
FID FDM IDX 2065 PRM (FVIPX)
06/28/2019
Blended Fund Investments* N/A Yes 0.06% No additional fees apply.
FID FDM IDX INC PRM (FAPIX)
10/02/2009
Blended Fund Investments* N/A Yes 0.06% No additional fees apply.
VANG WELLESLEY ADM (VWIAX)
07/01/1970
Blended Fund Investments* N/A Yes 0.16% No additional fees apply.
GALLIARD MGD INC D
01/02/1998
Bond Investments Stable Value Yes 0.39% No additional fees apply.
BAIRD CORE PLUS INST (BCOIX)
09/29/2000
Bond Investments Income No 0.3% No additional fees apply.
FID US BOND IDX (FXNAX)
03/08/1990
Bond Investments Income No 0.025% No additional fees apply.
VANG INFL PROT ADM (VAIPX)
06/29/2000
Bond Investments Income Yes 0.1% No additional fees apply.
FIMM GOVT CL I (FIGXX)
07/25/1985
7 day yield as of
08/31/2022 2.03%
Short Term Investments N/A No 0.2% No additional fees apply.


HER 403b options (Fidelity)


Name/Inception Date Asset Class Category Plan-specific option Gross Expense Ratio** Shareholder Fees
FID 500 INDEX (FXAIX)
02/17/1988
Stock Investments Large Cap No 0.015% No additional fees apply.
FID BLUE CHIP GR K (FBGKX)
12/31/1987
Stock Investments Large Cap Yes 0.71% No additional fees apply.
FID CONTRAFUND K (FCNKX)
05/17/1967
Stock Investments Large Cap Yes 0.74% No additional fees apply.
FID GROWTH CO K (FGCKX)
01/17/1983
Stock Investments Large Cap Yes 0.73% No additional fees apply.
FID LARGE CAP STOCK (FLCSX)
06/22/1995
Stock Investments Large Cap No 0.54% No additional fees apply.
INVS DIVRS DIVD R5 (DDFIX)
12/31/2001
Stock Investments Large Cap Yes 0.52% No additional fees apply.
FID EXTD MKT IDX (FSMAX)
11/05/1997
Stock Investments Mid-Cap No 0.035% No additional fees apply.
FID LOW PRICED STK K (FLPKX)
12/27/1989
Stock Investments Mid-Cap Yes 0.56% No additional fees apply.
FID SM CAP DISCOVERY (FSCRX)
09/26/2000
Stock Investments Small Cap No 0.98% No additional fees apply.
FID GLB EX US IDX (FSGGX)
09/08/2011
Stock Investments International No 0.055% No additional fees apply.
FID INTL DISCOVERY K (FIDKX)
12/31/1986
Stock Investments International Yes 0.9% No additional fees apply.
HRDG LVNR IS EMG MKT (HLMEX)
10/17/2005
Stock Investments International No 1.1% No additional fees apply.
FID FREEDOM 2005 K (FSNJX)
11/06/2003
Blended Investments N/A Yes 0.42% No additional fees apply.
FID FREEDOM 2010 K (FSNKX)
10/17/1996
Blended Investments N/A Yes 0.44% No additional fees apply.
FID FREEDOM 2015 K (FSNLX)
11/06/2003
Blended Investments N/A Yes 0.47% No additional fees apply.
FID FREEDOM 2020 K (FSNOX)
10/17/1996
Blended Investments N/A Yes 0.51% No additional fees apply.
FID FREEDOM 2025 K (FSNPX)
11/06/2003
Blended Investments N/A Yes 0.54% No additional fees apply.
Investments you currently own FID FREEDOM 2030 K (FSNQX)
10/17/1996
Blended Investments N/A Yes 0.58% No additional fees apply.
FID FREEDOM 2035 K (FSNUX)
11/06/2003
Blended Investments N/A Yes 0.61% No additional fees apply.
FID FREEDOM 2040 K (FSNVX)
09/06/2000
Blended Investments N/A Yes 0.65% No additional fees apply.
FID FREEDOM 2045 K (FSNZX)
06/01/2006
Blended Investments N/A Yes 0.65% No additional fees apply.
FID FREEDOM 2050 K (FNSBX)
06/01/2006
Blended Investments N/A Yes 0.65% No additional fees apply.
FID FREEDOM 2055 K (FNSDX)
06/01/2011
Blended Investments N/A Yes 0.65% No additional fees apply.
FID FREEDOM 2060 K (FNSFX)
08/05/2014
Blended Investments N/A Yes 0.65% No additional fees apply.
FID FREEDOM 2065 K (FFSDX)
06/28/2019
Blended Investments N/A Yes 0.65% No additional fees apply.
FID FREEDOM INC K (FNSHX)
10/17/1996
Blended Investments N/A Yes 0.42% No additional fees apply.
FID PURITAN K (FPUKX)
04/16/1947
Blended Investments N/A Yes 0.43% No additional fees apply.
PRINCIPAL FIXED ACCT
05/31/1996
Bond/Stable Value Inv Stable Value Yes -- No additional fees apply.
FID TOTAL BOND (FTBFX)
10/15/2002
Bond/Stable Value Inv Income No 0.45% No additional fees apply.
FID US BOND IDX (FXNAX)
03/08/1990
Bond/Stable Value Inv Income No 0.025% No additional fees apply.
FID GOVT MMKT (SPAXX)
02/05/1990
7 day yield as of
08/31/2022 1.80%
Short-Term Investments N/A No 0.42% No additional fees apply.
Last edited by roccodean on Sun Oct 02, 2022 6:55 am, edited 2 times in total.
stan1
Posts: 14235
Joined: Mon Oct 08, 2007 4:35 pm

Re: Portfolio Question

Post by stan1 »

What are the unrealized gains/losses in these ETFs:
14% Vanguard Total Bond Market Index Fund (BND)
12% Vanguard Total International Bond Index Fund (BNDX)

I realize some high profile individuals were advocating buying these in taxable accounts a few years ago when yields were low, but I thought that to be short sighted and would not be a good choice as interest rates rise (as they are now doing). From a decades long tax efficiency perspective total bond funds would best be held in your Traditional accounts, and put equities with qualified dividends into your taxable account.

The most tax efficient portfolio for you will mean breaking out the target date funds into their constituent parts, putting equities in Roth and Taxable accounts, total bond in Traditional accounts, and fine to have the muni bonds in the taxable account if you want.
User avatar
retired@50
Posts: 12709
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Portfolio Question

Post by retired@50 »

I agree with stan1 about relocating the BND and BNDX funds to the 401k or 403b account space.

You haven't listed the choices in the workplace plans, which would be helpful.
Please add them to your post by using the pencil icon to edit.

Also, please include the expense ratios for the fund choices.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Question

Post by retiredjg »

As you can see, bulk of income going into taxable brokerage account- is this a good portfolio if goal is 60/40 stock/bond?
You do not have a "bad portfolio" but it is not very tax efficient because of the taxable bonds in the taxable account.

The first thing you need to do is see the portfolio as a whole, not as a bunch of separate accounts. It looks like this.
  • Total portfolio = $1,888,000 not including the 529 accounts.

    Taxable. Total 900k 47.7%
    17.2% VANGUARD INDEX FUNDS VANGUARD TOTAL STOCK MARKEt (VTI)
    11.4 % ANGUARD STAR FD VANGUARD TOTAL INTL STOCK INDEX (VXUS) <---typo? Do you hold the STAR fund too?
    6.7% VANGUARD MUNICIPAL BOND FUNDS VANGUARD TAX EXEmpt (VTEB)
    6.7% Vanguard Total Bond Market Index Fund (BND)
    5.7% Vanguard Total International Bond Index Fund (BNDX)

    His 401k 472k 25%
    12.5 FID FREEDOM 2030 K (FSNQX)
    12.5 FID FREEDOM 2035 K (FSNUX)


    His Roth IRA at Vanguard $36k 1.9%
    1.9% VTTHX- 2035 target retirement


    Her 403b $230k 12.2%
    12.2% Fidelity 2030 fund class K ( FSNQX) 64/36 stock/bond

    Her Roth IRA- vanguard $250K 13.2%
    13.2% VTTHX- 2035 target retirement
I believe you have set it up that way intentionally, to take advantage of the easy target funds in all the accounts except taxable. The way to make this more tax-efficient is to

1. fill His 401k and Her 403b with a taxable bond fund (whatever your best choice is)

2. Sell all the total bond and total international bond in the taxable account

3. Keep only as much of the tax-exempt bond as needed to reach your 60/40 desired allocation. Since your taxable contributions account for such a large portion of total contributions, the tax-exempt bond percentage in taxable will grow over time. If you are not comfortable with that much in VTEB, put some into a short term treasury fund (lower dividends and no state tax).

4. Put a 500 index fund (or 500 index plus extended market index) in the Roth IRAs.

It would look like this:
  • Taxable. Total 900k 47.7%
    24.7% VANGUARD INDEX FUNDS VANGUARD TOTAL STOCK MARKEt (VTI)
    20% % ANGUARD STAR FD VANGUARD TOTAL INTL STOCK INDEX (VXUS) <---typo? Do you hold the STAR fund too?
    3% % VANGUARD MUNICIPAL BOND FUNDS VANGUARD TAX EXEmpt (VTEB)


    His 401k 472k 25%
    25% best bond fund


    His Roth IRA at Vanguard $36k 1.9%
    1.9% 500 index or extended market index


    Her 403b $230k 12.2%
    12.2% best bond fund


    Her Roth IRA- vanguard $250K 13.2%
    13.2% 500 index



Contributions

New annual Contributions
$20,500 his deductible 401k + employer matches addition $30,000 <--all to bonds
His mega backdoor roth (post tax dollars convert to Roth): additonal $11,000 approx <--all to bonds
$20,500 her 403b + additional $10,000 employer match <--all to bonds
$6000 his backdoor Roth IRA <--all to stocks
$6000 her backdoor Roth IRA<--all to stocks
$300,000 taxable (for retirement, not short term goals) into chase brokerage <--split between US stocks, foreign stocks and VTEB to attain your 60/40.


A different alternative, if you don't like this idea, is to keep things much as they are but replace the 2 taxable bond funds with VTEB and maybe a short term treasury fund.
Topic Author
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

retired@50 wrote: Mon Sep 05, 2022 9:34 am I agree with stan1 about relocating the BND and BNDX funds to the 401k or 403b account space.

You haven't listed the choices in the workplace plans, which would be helpful.
Please add them to your post by using the pencil icon to edit.

Also, please include the expense ratios for the fund choices.

Regards,
Just included in my original post. Thanks.
Topic Author
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Mon Sep 05, 2022 9:43 am
As you can see, bulk of income going into taxable brokerage account- is this a good portfolio if goal is 60/40 stock/bond?
You do not have a "bad portfolio" but it is not very tax efficient because of the taxable bonds in the taxable account.

The first thing you need to do is see the portfolio as a whole, not as a bunch of separate accounts. It looks like this.
  • Total portfolio = $1,888,000 not including the 529 accounts.

    Taxable. Total 900k 47.7%
    17.2% VANGUARD INDEX FUNDS VANGUARD TOTAL STOCK MARKEt (VTI)
    11.4 % ANGUARD STAR FD VANGUARD TOTAL INTL STOCK INDEX (VXUS) <---typo? Do you hold the STAR fund too?
    6.7% VANGUARD MUNICIPAL BOND FUNDS VANGUARD TAX EXEmpt (VTEB)
    6.7% Vanguard Total Bond Market Index Fund (BND)
    5.7% Vanguard Total International Bond Index Fund (BNDX)

    His 401k 472k 25%
    12.5 FID FREEDOM 2030 K (FSNQX)
    12.5 FID FREEDOM 2035 K (FSNUX)


    His Roth IRA at Vanguard $36k 1.9%
    1.9% VTTHX- 2035 target retirement


    Her 403b $230k 12.2%
    12.2% Fidelity 2030 fund class K ( FSNQX) 64/36 stock/bond

    Her Roth IRA- vanguard $250K 13.2%
    13.2% VTTHX- 2035 target retirement
I believe you have set it up that way intentionally, to take advantage of the easy target funds in all the accounts except taxable. The way to make this more tax-efficient is to

1. fill His 401k and Her 403b with a taxable bond fund (whatever your best choice is)

2. Sell all the total bond and total international bond in the taxable account

3. Keep only as much of the tax-exempt bond as needed to reach your 60/40 desired allocation. Since your taxable contributions account for such a large portion of total contributions, the tax-exempt bond percentage in taxable will grow over time. If you are not comfortable with that much in VTEB, put some into a short term treasury fund (lower dividends and no state tax).

4. Put a 500 index fund (or 500 index plus extended market index) in the Roth IRAs.

It would look like this:
  • Taxable. Total 900k 47.7%
    24.7% VANGUARD INDEX FUNDS VANGUARD TOTAL STOCK MARKEt (VTI)
    20% % ANGUARD STAR FD VANGUARD TOTAL INTL STOCK INDEX (VXUS) <---typo? Do you hold the STAR fund too?
    3% % VANGUARD MUNICIPAL BOND FUNDS VANGUARD TAX EXEmpt (VTEB)


    His 401k 472k 25%
    25% best bond fund


    His Roth IRA at Vanguard $36k 1.9%
    1.9% 500 index or extended market index


    Her 403b $230k 12.2%
    12.2% best bond fund


    Her Roth IRA- vanguard $250K 13.2%
    13.2% 500 index



Contributions

New annual Contributions
$20,500 his deductible 401k + employer matches addition $30,000 <--all to bonds
His mega backdoor roth (post tax dollars convert to Roth): additonal $11,000 approx <--all to bonds
$20,500 her 403b + additional $10,000 employer match <--all to bonds
$6000 his backdoor Roth IRA <--all to stocks
$6000 her backdoor Roth IRA<--all to stocks
$300,000 taxable (for retirement, not short term goals) into chase brokerage <--split between US stocks, foreign stocks and VTEB to attain your 60/40.


A different alternative, if you don't like this idea, is to keep things much as they are but replace the 2 taxable bond funds with VTEB and maybe a short term treasury fund.

thank you very much for this. I will look into it in more detail.

Regarding the VXUS fund, it is Vanguard Total International Stock Index Fund (VXUS)
Topic Author
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

Can someone explain why it is best to have taxable bonds in 401k and Stock ETFs in taxable accounts?
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Question

Post by retiredjg »

His 401k...FID US BOND IDX (FXNAX) 0.025%

Her 403b...FID US BOND IDX (FXNAX) 0.025%
User avatar
retired@50
Posts: 12709
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Portfolio Question

Post by retired@50 »

roccodean wrote: Mon Sep 05, 2022 10:00 am Can someone explain why it is best to have taxable bonds in 401k and Stock ETFs in taxable accounts?
There is a wiki page called tax efficient fund placement that goes into the details, but the short version is that bond interest is taxed differently (at a higher rate typically) than stock dividends. Since those are the rules, and you're in a high tax bracket, it pays to learn about these sorts of things.

See link: https://www.bogleheads.org/wiki/Tax-eff ... _placement

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Mon Sep 05, 2022 10:00 am Can someone explain why it is best to have taxable bonds in 401k and Stock ETFs in taxable accounts?
Taxable bonds in a taxable account throw off dividends which are taxed every year (whether you sell or not) at your ordinary income tax rate of 37%. Bond returns are small anyway and you are giving 37% of that away. Plus your state rate.

If you instead hold tax-exempt bonds in taxable, they will likley return less, but you are not giving that 37% away to Uncle Sam. You end up with more money by using the tax-exempt bonds.

If you hold stock funds in taxable, they will only be taxed at 20% Cap gains rate + 3.8% NIIT. Plus your state rate probably.

See the link (linked above) to the tax-efficient placement of funds. It's complex but you'll get the idea.
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Mon Sep 05, 2022 9:58 am Regarding the VXUS fund, it is Vanguard Total International Stock Index Fund (VXUS)
I get that part. I was wondering about this part...

ANGUARD STAR FD

Do you also hold the Vanguard STAR fund? If yes, it does not belong in taxable either.
User avatar
Duckie
Posts: 9767
Joined: Thu Mar 08, 2007 1:55 pm

Re: Portfolio Question

Post by Duckie »

roccodean wrote: Mon Sep 05, 2022 8:18 am Desired Asset allocation: 60 stocks / 40 bonds , ok with a little more stock exposure in retirement accounts (70/30 ish)
You should look at the portfolio as a whole and put just stocks in Roth accounts and all your bonds in pre-tax if possible. With your large taxable contributions it won't be possible so use tax-efficient muni bond funds in taxable.
Taxable
The only funds that belong here are VTI, VXUS, and VTEB. But since selling the other two funds might create a tax-hit at the very least make sure all automatic dividends/distributions reinvestments are turned OFF. If BND and BNDX have a loss or small gain consider selling them.
His 401k
The best options are:
  • FID 500 INDEX (FXAIX) 0.015% -- Large caps, 80% of US stocks
  • FID EXTD MKT IDX (FSMAX) 0.035% -- Mid/small caps, 20% of US stocks
  • FID TOTAL INTL IDX (FTIHX) 0.06% -- Complete international stocks
  • FID US BOND IDX (FXNAX) 0.025% -- US bonds
Is this 401k held at Fidelity?
40% of total amount is roth deferred (was doing Roth 401k for some time)
Are you allowed to hold different funds in the pre-tax side than the Roth side of the 401k or do they have to be the same?
His Roth IRA at Vanguard
Put just stocks in a Roth IRA.
Her 403b
The best options are:
  • FID 500 INDEX (FXAIX) 0.015% -- Large caps, 80% of US stocks
  • FID EXTD MKT IDX (FSMAX) 0.035% -- Mid/small caps, 20% of US stocks
  • FID GLB EX US IDX (FSGGX) 0.055% -- Almost complete international stocks
  • FID US BOND IDX (FXNAX) 0.025% -- US bonds
Is this 403b held at Fidelity?
Her Roth IRA- vanguard
Put just stocks in a Roth IRA.
________________________________

The following portfolio example has an AA of 60% stocks, 40% bonds, with 25% of stocks in international. That breaks down to 45% US stocks, 15% international stocks, and 40% bonds. Ignoring the tax consequences of selling in taxable you could shortly have something like this:

Taxable at Chase -- $900K -- 48%
30% (VTI) Vanguard Total Stock Market ETF (0.03%)
15% (VXUS) Vanguard Total International Stock ETF (0.07%)
3% (VTEB) Vanguard Tax-Exempt Bond ETF (0.05%)

His 401k -- $472K -- 25%
25% (FXNAX) Fidelity U.S. Bond Index Fund (0.025%)

Her 403b -- $230K -- 12%
12% (FXNAX) Fidelity U.S. Bond Index Fund (0.025%)

His Roth IRA at Vanguard -- $36K -- 2%
2% (VFIAX) Vanguard 500 Index Fund Admiral Shares (0.04%)

Her Roth IRA at Vanguard -- $250K -- 13%
13% (VFIAX) Vanguard 500 Index Fund Admiral Shares (0.04%)

Just some possibilities.
Topic Author
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Mon Sep 05, 2022 10:11 am
roccodean wrote: Mon Sep 05, 2022 9:58 am Regarding the VXUS fund, it is Vanguard Total International Stock Index Fund (VXUS)
I get that part. I was wondering about this part...

ANGUARD STAR FD

Do you also hold the Vanguard STAR fund? If yes, it does not belong in taxable either.
I do not hold STAR fund.
Topic Author
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

Duckie wrote: Mon Sep 05, 2022 6:18 pm
roccodean wrote: Mon Sep 05, 2022 8:18 am Desired Asset allocation: 60 stocks / 40 bonds , ok with a little more stock exposure in retirement accounts (70/30 ish)
You should look at the portfolio as a whole and put just stocks in Roth accounts and all your bonds in pre-tax if possible. With your large taxable contributions it won't be possible so use tax-efficient muni bond funds in taxable.
Taxable
The only funds that belong here are VTI, VXUS, and VTEB. But since selling the other two funds might create a tax-hit at the very least make sure all automatic dividends/distributions reinvestments are turned OFF. If BND and BNDX have a loss or small gain consider selling them.
His 401k
The best options are:
  • FID 500 INDEX (FXAIX) 0.015% -- Large caps, 80% of US stocks
  • FID EXTD MKT IDX (FSMAX) 0.035% -- Mid/small caps, 20% of US stocks
  • FID TOTAL INTL IDX (FTIHX) 0.06% -- Complete international stocks
  • FID US BOND IDX (FXNAX) 0.025% -- US bonds
Is this 401k held at Fidelity?
40% of total amount is roth deferred (was doing Roth 401k for some time)
Are you allowed to hold different funds in the pre-tax side than the Roth side of the 401k or do they have to be the same?
His Roth IRA at Vanguard
Put just stocks in a Roth IRA.
Her 403b
The best options are:
  • FID 500 INDEX (FXAIX) 0.015% -- Large caps, 80% of US stocks
  • FID EXTD MKT IDX (FSMAX) 0.035% -- Mid/small caps, 20% of US stocks
  • FID GLB EX US IDX (FSGGX) 0.055% -- Almost complete international stocks
  • FID US BOND IDX (FXNAX) 0.025% -- US bonds
Is this 403b held at Fidelity?
Her Roth IRA- vanguard
Put just stocks in a Roth IRA.
________________________________

The following portfolio example has an AA of 60% stocks, 40% bonds, with 25% of stocks in international. That breaks down to 45% US stocks, 15% international stocks, and 40% bonds. Ignoring the tax consequences of selling in taxable you could shortly have something like this:

Taxable at Chase -- $900K -- 48%
30% (VTI) Vanguard Total Stock Market ETF (0.03%)
15% (VXUS) Vanguard Total International Stock ETF (0.07%)
3% (VTEB) Vanguard Tax-Exempt Bond ETF (0.05%)

His 401k -- $472K -- 25%
25% (FXNAX) Fidelity U.S. Bond Index Fund (0.025%)

Her 403b -- $230K -- 12%
12% (FXNAX) Fidelity U.S. Bond Index Fund (0.025%)

His Roth IRA at Vanguard -- $36K -- 2%
2% (VFIAX) Vanguard 500 Index Fund Admiral Shares (0.04%)

Her Roth IRA at Vanguard -- $250K -- 13%
13% (VFIAX) Vanguard 500 Index Fund Admiral Shares (0.04%)

Just some possibilities.
Thank you very much.

I do not believe I can hold different funds on pretax v post tax. I think it has to be one contribution selection, butI will look into it.
User avatar
retired@50
Posts: 12709
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Portfolio Question

Post by retired@50 »

roccodean wrote: Tue Sep 06, 2022 6:47 am
Duckie wrote: Mon Sep 05, 2022 6:18 pm
40% of total amount is roth deferred (was doing Roth 401k for some time)
Are you allowed to hold different funds in the pre-tax side than the Roth side of the 401k or do they have to be the same?
I do not believe I can hold different funds on pretax v post tax. I think it has to be one contribution selection, but I will look into it.
You might also want to look into the possibility of transferring out the Roth 401k money to an outside Roth IRA. Some plans allow this sort of activity. It could allow you some additional freedom to allocate assets in the most tax-efficient way.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Question

Post by retiredjg »

About transferring out...you are not allowed to transfer out your elective deferrals (traditional or Roth) until age 59.5 and only some plans allow it.

The law does allow transferring out your in-plan Roth rollovers. You might see if your plan allows that. However, it is unclear if you are using in-plan Roth rollover or rolling out to Roth IRA for your mega-backdoor.
Topic Author
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Mon Sep 05, 2022 10:11 am
roccodean wrote: Mon Sep 05, 2022 9:58 am Regarding the VXUS fund, it is Vanguard Total International Stock Index Fund (VXUS)
I get that part. I was wondering about this part...

ANGUARD STAR FD

Do you also hold the Vanguard STAR fund? If yes, it does not belong in taxable either.
So, I just relooked at my Chase Brokerage and my 2021 tax documents and I am confused.

I am in VXUS (when I click it, it takes me to screen that says Vanguard Total International Stock Index Fund ) , but underneath it says "VANGUARD STAR FD VANGUARD TOTAL INTL STOCK INDEX" and on my 1099 some of the dividends of this fund are "nonqualified dividends" and some are "qualified dividends" .
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Question

Post by retiredjg »

Well...we all know that VXUS does not contain the STAR fund. That's why I wondered if you had an editing typo in your post and that you own both STAR and Total International.

This sounds like a webpage typing error at Chase. My guess is that you own only Total International Index and they have a typo goof.

It is not unusual that some of the dividends would be qualified and some non-qualified. That's normal.
Topic Author
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Wed Sep 07, 2022 9:19 am Well...we all know that VXUS does not contain the STAR fund. That's why I wondered if you had an editing typo in your post and that you own both STAR and Total International.

This sounds like a webpage typing error at Chase. My guess is that you own only Total International Index and they have a typo goof.

It is not unusual that some of the dividends would be qualified and some non-qualified. That's normal.
Ok. Bc the only other non qualified were the total international bond and total bond funds. Hence, I was confused and thought they had it in the incorrect fund.
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Wed Sep 07, 2022 9:56 am
retiredjg wrote: Wed Sep 07, 2022 9:19 am Well...we all know that VXUS does not contain the STAR fund. That's why I wondered if you had an editing typo in your post and that you own both STAR and Total International.

This sounds like a webpage typing error at Chase. My guess is that you own only Total International Index and they have a typo goof.

It is not unusual that some of the dividends would be qualified and some non-qualified. That's normal.
Ok. Bc the only other non qualified were the total international bond and total bond funds. Hence, I was confused and thought they had it in the incorrect fund.
Total International VXUS does have some unqualified dividends. But you can get the foreign tax credit if you hold the fund in taxable. This usually makes VXUS and VTI somewhat close in terms of tax-efficiency. Which one is "better" goes back and forth from time to time. They are both excellent choices (the best in my opinion) for a taxable account.

How long you hold shares has a little to do with whether your dividends are qualified or not. I believe you must hold them for 60 days (?) in order for the dividends to be qualified.
Topic Author
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

Duckie wrote: Mon Sep 05, 2022 6:18 pm
roccodean wrote: Mon Sep 05, 2022 8:18 am Desired Asset allocation: 60 stocks / 40 bonds , ok with a little more stock exposure in retirement accounts (70/30 ish)
You should look at the portfolio as a whole and put just stocks in Roth accounts and all your bonds in pre-tax if possible. With your large taxable contributions it won't be possible so use tax-efficient muni bond funds in taxable.
Taxable
The only funds that belong here are VTI, VXUS, and VTEB. But since selling the other two funds might create a tax-hit at the very least make sure all automatic dividends/distributions reinvestments are turned OFF. If BND and BNDX have a loss or small gain consider selling them.
His 401k
The best options are:
  • FID 500 INDEX (FXAIX) 0.015% -- Large caps, 80% of US stocks
  • FID EXTD MKT IDX (FSMAX) 0.035% -- Mid/small caps, 20% of US stocks
  • FID TOTAL INTL IDX (FTIHX) 0.06% -- Complete international stocks
  • FID US BOND IDX (FXNAX) 0.025% -- US bonds
Is this 401k held at Fidelity?
40% of total amount is roth deferred (was doing Roth 401k for some time)
Are you allowed to hold different funds in the pre-tax side than the Roth side of the 401k or do they have to be the same?
His Roth IRA at Vanguard
Put just stocks in a Roth IRA.
Her 403b
The best options are:
  • FID 500 INDEX (FXAIX) 0.015% -- Large caps, 80% of US stocks
  • FID EXTD MKT IDX (FSMAX) 0.035% -- Mid/small caps, 20% of US stocks
  • FID GLB EX US IDX (FSGGX) 0.055% -- Almost complete international stocks
  • FID US BOND IDX (FXNAX) 0.025% -- US bonds
Is this 403b held at Fidelity?
Her Roth IRA- vanguard
Put just stocks in a Roth IRA.
________________________________

The following portfolio example has an AA of 60% stocks, 40% bonds, with 25% of stocks in international. That breaks down to 45% US stocks, 15% international stocks, and 40% bonds. Ignoring the tax consequences of selling in taxable you could shortly have something like this:

Taxable at Chase -- $900K -- 48%
30% (VTI) Vanguard Total Stock Market ETF (0.03%)
15% (VXUS) Vanguard Total International Stock ETF (0.07%)
3% (VTEB) Vanguard Tax-Exempt Bond ETF (0.05%)

His 401k -- $472K -- 25%
25% (FXNAX) Fidelity U.S. Bond Index Fund (0.025%)

Her 403b -- $230K -- 12%
12% (FXNAX) Fidelity U.S. Bond Index Fund (0.025%)

His Roth IRA at Vanguard -- $36K -- 2%
2% (VFIAX) Vanguard 500 Index Fund Admiral Shares (0.04%)

Her Roth IRA at Vanguard -- $250K -- 13%
13% (VFIAX) Vanguard 500 Index Fund Admiral Shares (0.04%)

Just some possibilities.
I noticed you do not have any international bond funds. Is this bc our 401k's don't have any (or any cheap/good ones) ?
User avatar
Duckie
Posts: 9767
Joined: Thu Mar 08, 2007 1:55 pm

Re: Portfolio Question

Post by Duckie »

roccodean wrote: Sat Sep 10, 2022 8:45 am I noticed you do not have any international bond funds. Is this bc our 401k's don't have any (or any cheap/good ones) ?
I didn't notice a specific international bond option in either employer plan and those types of bonds should go into a pre-tax account, not Roth or taxable. But the main reason I did not choose international bonds is because I personally see no need for them. To me bonds are for relative stability and international options are more risky than US options. I prefer to take my risks on the stock side of my portfolio.
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Question

Post by retiredjg »

roccodean, I didn't see any foreign bond funds in either plan, but I would not have included them in my portfolio suggestion (above) either.

Vanguard is a big believer in using their international bond index fund. However, many of us never got on that bandwagon when someone (Vanguard) finally came up with a low cost index fund in that asset class.

While I'm not opposed to using international bonds (at the right price), I doubt it adds much (if anything) to a portfolio. And you don't have one available in the accounts where that asset class should be held anyway.
User avatar
retired@50
Posts: 12709
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Portfolio Question

Post by retired@50 »

Just in case anyone is interested in reading the Vanguard paper that discusses the rationale for using international bonds...

Here's a link: https://web.archive.org/web/20190121035 ... ICRIFI.pdf

You can also see the (small positive) impact of holding 25% of your bonds in the total international fund mixed with 75% of US bonds in this PV link since 2013 when the fund was started.

Link: https://www.portfoliovisualizer.com/bac ... tion2_1=25

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
snowday2022
Posts: 698
Joined: Sun Jan 16, 2022 1:48 pm

Re: Portfolio Question

Post by snowday2022 »

I would invest most of the EF, make huge contributions to the 529s (probably superfund both), change AA within the 529s to all equities given your large taxable portfolio. Keep it up for another 10 years and you’ll be set.
Topic Author
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

Duckie wrote: Mon Sep 05, 2022 6:18 pm
roccodean wrote: Mon Sep 05, 2022 8:18 am Desired Asset allocation: 60 stocks / 40 bonds , ok with a little more stock exposure in retirement accounts (70/30 ish)
You should look at the portfolio as a whole and put just stocks in Roth accounts and all your bonds in pre-tax if possible. With your large taxable contributions it won't be possible so use tax-efficient muni bond funds in taxable.
Taxable
The only funds that belong here are VTI, VXUS, and VTEB. But since selling the other two funds might create a tax-hit at the very least make sure all automatic dividends/distributions reinvestments are turned OFF. If BND and BNDX have a loss or small gain consider selling them.
His 401k
The best options are:
  • FID 500 INDEX (FXAIX) 0.015% -- Large caps, 80% of US stocks
  • FID EXTD MKT IDX (FSMAX) 0.035% -- Mid/small caps, 20% of US stocks
  • FID TOTAL INTL IDX (FTIHX) 0.06% -- Complete international stocks
  • FID US BOND IDX (FXNAX) 0.025% -- US bonds
Is this 401k held at Fidelity?
40% of total amount is roth deferred (was doing Roth 401k for some time)
Are you allowed to hold different funds in the pre-tax side than the Roth side of the 401k or do they have to be the same?
His Roth IRA at Vanguard
Put just stocks in a Roth IRA.
Her 403b
The best options are:
  • FID 500 INDEX (FXAIX) 0.015% -- Large caps, 80% of US stocks
  • FID EXTD MKT IDX (FSMAX) 0.035% -- Mid/small caps, 20% of US stocks
  • FID GLB EX US IDX (FSGGX) 0.055% -- Almost complete international stocks
  • FID US BOND IDX (FXNAX) 0.025% -- US bonds
Is this 403b held at Fidelity?
Her Roth IRA- vanguard
Put just stocks in a Roth IRA.
________________________________

The following portfolio example has an AA of 60% stocks, 40% bonds, with 25% of stocks in international. That breaks down to 45% US stocks, 15% international stocks, and 40% bonds. Ignoring the tax consequences of selling in taxable you could shortly have something like this:

Taxable at Chase -- $900K -- 48%
30% (VTI) Vanguard Total Stock Market ETF (0.03%)
15% (VXUS) Vanguard Total International Stock ETF (0.07%)
3% (VTEB) Vanguard Tax-Exempt Bond ETF (0.05%)

His 401k -- $472K -- 25%
25% (FXNAX) Fidelity U.S. Bond Index Fund (0.025%)

Her 403b -- $230K -- 12%
12% (FXNAX) Fidelity U.S. Bond Index Fund (0.025%)

His Roth IRA at Vanguard -- $36K -- 2%
2% (VFIAX) Vanguard 500 Index Fund Admiral Shares (0.04%)

Her Roth IRA at Vanguard -- $250K -- 13%
13% (VFIAX) Vanguard 500 Index Fund Admiral Shares (0.04%)

Just some possibilities.

I came across this article that speaks against bonds in retirement accounts and advocates them in brokerage account. Thoughts?

https://www.whitecoatinvestor.com/asset ... n-taxable/
Topic Author
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

retired@50 wrote: Sat Sep 10, 2022 6:32 pm Just in case anyone is interested in reading the Vanguard paper that discusses the rationale for using international bonds...

Here's a link: https://web.archive.org/web/20190121035 ... ICRIFI.pdf

You can also see the (small positive) impact of holding 25% of your bonds in the total international fund mixed with 75% of US bonds in this PV link since 2013 when the fund was started.

Link: https://www.portfoliovisualizer.com/bac ... tion2_1=25

Regards,
Found this article advocating bonds in taxable account. Thoughts?

https://www.whitecoatinvestor.com/asset ... n-taxable/
dbr
Posts: 46137
Joined: Sun Mar 04, 2007 8:50 am

Re: Portfolio Question

Post by dbr »

roccodean wrote: Thu Sep 15, 2022 7:52 am
retired@50 wrote: Sat Sep 10, 2022 6:32 pm Just in case anyone is interested in reading the Vanguard paper that discusses the rationale for using international bonds...

Here's a link: https://web.archive.org/web/20190121035 ... ICRIFI.pdf

You can also see the (small positive) impact of holding 25% of your bonds in the total international fund mixed with 75% of US bonds in this PV link since 2013 when the fund was started.

Link: https://www.portfoliovisualizer.com/bac ... tion2_1=25

Regards,
Found this article advocating bonds in taxable account. Thoughts?

https://www.whitecoatinvestor.com/asset ... n-taxable/
The lesson is that tax efficiency is an exercise in detail and depends on the details. Each investor has to think through an analysis for their own situation and that is not necessarily straightforward. A lot of the analysis in that article is about Roth account where the asset placement might be very different from tax deferred accounts. A major problem for the analysis is that costs and benefits are spread out over long times with many unknown factors. Big differences occur depending on tax rates at different times and how events play out such as basis step up at death. Differences also occur depending on interest rates at different times.

I am not aware of a life cycle planning tool for tax strategy though iORP had some planning involved. A major problem is how to make estimates of future tax details.

I would agree that there are many possible scenarios where stocks in taxable, bonds in tax deferred is too simplistic and might not be best, but those alternative scenarios may also be too artificial and simplistic. As a generalization I would rather recommend stocks in taxable and bonds in tax deferred over placing a target date fund in taxable and getting some bad tax outcomes.
User avatar
retired@50
Posts: 12709
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Portfolio Question

Post by retired@50 »

roccodean wrote: Thu Sep 15, 2022 7:52 am
retired@50 wrote: Sat Sep 10, 2022 6:32 pm Just in case anyone is interested in reading the Vanguard paper that discusses the rationale for using international bonds...

Here's a link: https://web.archive.org/web/20190121035 ... ICRIFI.pdf

You can also see the (small positive) impact of holding 25% of your bonds in the total international fund mixed with 75% of US bonds in this PV link since 2013 when the fund was started.

Link: https://www.portfoliovisualizer.com/bac ... tion2_1=25

Regards,
Found this article advocating bonds in taxable account. Thoughts?

https://www.whitecoatinvestor.com/asset ... n-taxable/
This is the sentence that stuck with me... Note that this physician will use muni bonds when bonds are in taxable, and taxable bonds when bonds are in the Roth.

If I were in your shoes (tax bracket), I would keep the VTEB fund in taxable (if desired) and try to re-locate the BND / BNDX assets into a tax-deferred account. Maybe use the FXNAX fund suggested earlier for your tax-deferred bond holdings.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
dbr
Posts: 46137
Joined: Sun Mar 04, 2007 8:50 am

Re: Portfolio Question

Post by dbr »

retired@50 wrote: Thu Sep 15, 2022 9:25 am


This is the sentence that stuck with me... Note that this physician will use muni bonds when bonds are in taxable, and taxable bonds when bonds are in the Roth.

If I were in your shoes (tax bracket), I would keep the VTEB fund in taxable (if desired) and try to re-locate the BND / BNDX assets into a tax-deferred account.

Regards,
This is why this stuff involves so much detail and is dominated by that universal answer "It depends."
Topic Author
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

retired@50 wrote: Thu Sep 15, 2022 9:25 am
roccodean wrote: Thu Sep 15, 2022 7:52 am
retired@50 wrote: Sat Sep 10, 2022 6:32 pm Just in case anyone is interested in reading the Vanguard paper that discusses the rationale for using international bonds...

Here's a link: https://web.archive.org/web/20190121035 ... ICRIFI.pdf

You can also see the (small positive) impact of holding 25% of your bonds in the total international fund mixed with 75% of US bonds in this PV link since 2013 when the fund was started.

Link: https://www.portfoliovisualizer.com/bac ... tion2_1=25

Regards,
Found this article advocating bonds in taxable account. Thoughts?

https://www.whitecoatinvestor.com/asset ... n-taxable/
This is the sentence that stuck with me... Note that this physician will use muni bonds when bonds are in taxable, and taxable bonds when bonds are in the Roth.

If I were in your shoes (tax bracket), I would keep the VTEB fund in taxable (if desired) and try to re-locate the BND / BNDX assets into a tax-deferred account. Maybe use the FXNAX fund suggested earlier for your tax-deferred bond holdings.

Regards,


When you say bonds tax deferred. I understand that means 401k. Does that also mean (backdoor) Roth IRA ?
dbr
Posts: 46137
Joined: Sun Mar 04, 2007 8:50 am

Re: Portfolio Question

Post by dbr »

roccodean wrote: Thu Sep 15, 2022 12:50 pm
When you say bonds tax deferred. I understand that means 401k. Does that also mean (backdoor) Roth IRA ?
Typically people put high returning assets in a Roth because the growth is not taxed.

Tax deferred, like 401k, is mainly important when one can avoid high taxes on the money deposited, which would be current earnings, and pay at a lesser tax rate when the money is taken out. It is also helpful to not have a lot of growth in the tax deferred account because you will eventually have to take required distributions and all distributions from a 401k or traditional IRA is taxed at ordinary tax rates. A peculiarity in tax deferred investing is I bonds where the interest is tax deferred but the money invested is after tax money.

Because a large part of the return from stocks is capital gain, paying tax on that is deferred until the gain is realized, may be avoided altogether by basis step up for heirs, and dividends are taxed a lesser rate than ordinary income and interest. Stock losses can be realized and written off against income, but that reduces one's basis and increases eventual unrealized gain that may be realized sometime but perhaps at a better tax rate.

Bonds held in taxable for high tax rate investors can pay tax exempt interest. That is different from just holding bonds in taxable.

There are so many different combinations of how much tax exposure you will have, what the tax rate is on that exposure, and when you have to realize the taxation that things can get really complicated.
User avatar
retired@50
Posts: 12709
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Portfolio Question

Post by retired@50 »

roccodean wrote: Thu Sep 15, 2022 12:50 pm
retired@50 wrote: Thu Sep 15, 2022 9:25 am
roccodean wrote: Thu Sep 15, 2022 7:52 am
retired@50 wrote: Sat Sep 10, 2022 6:32 pm Just in case anyone is interested in reading the Vanguard paper that discusses the rationale for using international bonds...

Here's a link: https://web.archive.org/web/20190121035 ... ICRIFI.pdf

You can also see the (small positive) impact of holding 25% of your bonds in the total international fund mixed with 75% of US bonds in this PV link since 2013 when the fund was started.

Link: https://www.portfoliovisualizer.com/bac ... tion2_1=25

Regards,
Found this article advocating bonds in taxable account. Thoughts?

https://www.whitecoatinvestor.com/asset ... n-taxable/
This is the sentence that stuck with me... Note that this physician will use muni bonds when bonds are in taxable, and taxable bonds when bonds are in the Roth.

If I were in your shoes (tax bracket), I would keep the VTEB fund in taxable (if desired) and try to re-locate the BND / BNDX assets into a tax-deferred account. Maybe use the FXNAX fund suggested earlier for your tax-deferred bond holdings.

Regards,
When you say bonds tax deferred. I understand that means 401k. Does that also mean (backdoor) Roth IRA ?
Putting bond funds in Roth would be my last resort.

In my book, tax-deferred means traditional 401k or traditional IRA, where the income taxes have not yet been paid. In other words, they will be paid later (deferred) when the money is eventually withdrawn (unless you give the money to charity).

For Roth accounts, since there won't be any tax due, assuming you follow the rules, they are more like "tax free" accounts since you've already paid income taxes on your contribution money. Typically, it's best to use stock index funds in Roth style accounts (either Roth IRA or Roth 401k).

Again, if I were in your tax situation, I'd be using tax-exempt municipal bond funds (like VTEB) in the taxable account and taxable bond funds (like FXNAX or BND/BNDX) in the tax-deferred accounts. If that's still not enough room to hold your desired allocation to bond funds, then I'd put them inside the Roth account(s) last.

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
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

https://thefinancebuff.com/tax-efficien ... rence.html

On the bottom of this page is a spreadsheet to enter info that compares taxes depending on stock/bond allocation. Appears at current allocation where taxable bonds are in brokerage I am paying about $1500 more per year in taxes.
Topic Author
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

I am trying to figure out the order of "buckets" to fill with the taxable bonds.
Inside my company 401k (Fidelity), I was contributing to the roth 401k for some time so 39% of my 456k is in roth. I am unsure if that matters and I dont think I can specify where to buy funds but I think it is looked as one big fund.
So is the correct order:
1st Our 401k / roth 401k
2nd Traditional IRA
3rd Roth IRA

?
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Thu Sep 29, 2022 8:07 am https://thefinancebuff.com/tax-efficien ... rence.html

On the bottom of this page is a spreadsheet to enter info that compares taxes depending on stock/bond allocation. Appears at current allocation where taxable bonds are in brokerage I am paying about $1500 more per year in taxes.
If you decide to put bonds in your taxable account (what you are calling "brokerage"), you should not use taxable bonds. You should use tax-exempt bonds. This is because you are in a high tax bracket.

With the asset allocation you want and the fact that your tax-deferred accounts cannot hold all of it...you will have to have bonds in your taxable account.
Last edited by retiredjg on Fri Sep 30, 2022 6:52 am, edited 1 time in total.
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Thu Sep 29, 2022 8:35 pm I am trying to figure out the order of "buckets" to fill with the taxable bonds.
Inside my company 401k (Fidelity), I was contributing to the roth 401k for some time so 39% of my 456k is in roth. I am unsure if that matters and I dont think I can specify where to buy funds but I think it is looked as one big fund.
So is the correct order:
1st Our 401k / roth 401k
2nd Traditional IRA
3rd Roth IRA

?
This question does not seem to apply to you because you do not have a traditional IRA. Also, the order does not matter much because you need to fill all of your 401k/403b and traditional IRA (if you had one) with bonds.


But for a taxable bond fund like Total Bond Market, the order would be:

Traditional IRA
401k because some of it is Roth
Roth IRA (which is Ok, but many people do not want bonds in Roth IRA)

If the entire 401k was tax-deferred (no Roth), it would not matter if you put bonds into traditional IRA or 401k first.

However, there is no reason you should be using only taxable bonds. You should continue using tax-exempt municipal bonds in taxable (along with treasury bonds if you want).


What problem are you trying to solve with these questions about taxable bonds?
Topic Author
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

Thank you.

2 more questions:
1) My company will be offering mega back door roth option next year. I am guessing I should consider this tax deferred and hence put in bonds.

2) I asked my chase private client advisor regarding tax efficiency placement and he said:
"We use this methodology for our clients and believe in it. However, for practical purposes it works best for people close to retirement or in retirement.
For example, putting more bonds in the 401k or Roth IRA’s will likely just lead to lower returns in those accounts over the many years they still have to grow. Those bonds are not accessible either if you needed to access them because they are in a qualified account with more restricted access.
So I still suggest having some bonds in your taxable account, just use municipal bonds as they are more tax efficient. "

In order to accomplish the 60/40 equity/bond I want to, I will be moving our tax deferred accounts (about 834k) and all incoming funds (about 100k after mega backdoor roth avail) into bonds. Since we are 40 years old and won't be touching these for a very long time, should I be concerned that I will get lower growth for such an extended period?
Topic Author
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Fri Sep 30, 2022 6:51 am
roccodean wrote: Thu Sep 29, 2022 8:35 pm I am trying to figure out the order of "buckets" to fill with the taxable bonds.
Inside my company 401k (Fidelity), I was contributing to the roth 401k for some time so 39% of my 456k is in roth. I am unsure if that matters and I dont think I can specify where to buy funds but I think it is looked as one big fund.
So is the correct order:
1st Our 401k / roth 401k
2nd Traditional IRA
3rd Roth IRA

?
This question does not seem to apply to you because you do not have a traditional IRA. Also, the order does not matter much because you need to fill all of your 401k/403b and traditional IRA (if you had one) with bonds.


But for a taxable bond fund like Total Bond Market, the order would be:

Traditional IRA
401k because some of it is Roth
Roth IRA (which is Ok, but many people do not want bonds in Roth IRA)

If the entire 401k was tax-deferred (no Roth), it would not matter if you put bonds into traditional IRA or 401k first.

However, there is no reason you should be using only taxable bonds. You should continue using tax-exempt municipal bonds in taxable (along with treasury bonds if you want).


What problem are you trying to solve with these questions about taxable bonds?

My wife does have about 88k in a traditional ira (rolled over from prev employer 401k) in vanguard.

The problem I am trying to solve...simply want my funds in the correct place.
Topic Author
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Fri Sep 30, 2022 6:51 am
roccodean wrote: Thu Sep 29, 2022 8:35 pm
But for a taxable bond fund like Total Bond Market, the order would be:

Traditional IRA
401k because some of it is Roth
Roth IRA (which is Ok, but many people do not want bonds in Roth IRA)


To get 40% of entire portfolio in bonds, I would need to also put Roth IRA in bonds.
HomeStretch
Posts: 11335
Joined: Thu Dec 27, 2018 2:06 pm

Re: Portfolio Question

Post by HomeStretch »

You have received good feedback regarding your portfolio’s tax efficiency.

Two comments:

(1) With a large portfolio and Taxable account balance, you may no longer need a dedicated emergency fund (EF). The $500k you hold at Ally earning 2% could also be safely held in state-tax exempt U.S. Treasuries likely earning a higher yield. In a brokerage account, your choices range from a liquid treasuries-only money market fund to T-Bills (with maturities as short as 4 weeks) to a short-term U.S. treasury fund.

I-Bonds in a TreasuryDirect account have a 6-month composite rate of 9.62% and are Federal tax deferred/state tax exempt. I-Bonds generally have to be held for a minimum of 1 year and have low purchase limits.

(2) Your annual HSA contribution is $3,650. Do you only have self coverage under a HSA-eligible HDHP?
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Fri Sep 30, 2022 6:54 am Thank you.

2 more questions:
1) My company will be offering mega back door roth option next year. I am guessing I should consider this tax deferred and hence put in bonds.
Roth has a tax-advantage, but it is not "tax-deferred". Tax-deferred means that you pay the taxes later. Money going into the after-tax account (first step of mega backdoor) is after-tax, not tax-deferred

2) I asked my chase private client advisor regarding tax efficiency placement and he said:
"We use this methodology for our clients and believe in it. However, for practical purposes it works best for people close to retirement or in retirement.
For example, putting more bonds in the 401k or Roth IRA’s will likely just lead to lower returns in those accounts over the many years they still have to grow. Those bonds are not accessible either if you needed to access them because they are in a qualified account with more restricted access.
So I still suggest having some bonds in your taxable account, just use municipal bonds as they are more tax efficient. "
You obviously have to hold bonds in taxable. Your entire bond allocation will not fit into your 401k/403b.

In order to accomplish the 60/40 equity/bond I want to, I will be moving our tax deferred accounts (about 834k) and all incoming funds (about 100k after mega backdoor roth avail) into bonds. Since we are 40 years old and won't be touching these for a very long time, should I be concerned that I will get lower growth for such an extended period?
YOur Chase advisor thinks so, but I don't. Between the two of you, you already have $700k in 401k/403b and more on the way and many years to go. Filling them with bonds will slow down the growth, yes. But you don't need unfettered growth there. Especially if there is a pension involved - which has not been mentioned yet. Any possibility of a pension?

I do see the advisor's point. But for you, a good portion of your retirement expenses can be paid from your taxable account. It does not all need to come from your 401k/403b.

On the other hand, if you want some stocks in the 403k/403b, you can put some there. It will push more bonds into taxable and/or Roth accounts.
HomeStretch
Posts: 11335
Joined: Thu Dec 27, 2018 2:06 pm

Re: Portfolio Question

Post by HomeStretch »

roccodean wrote: Fri Sep 30, 2022 6:56 am … My wife does have about 88k in a traditional ira (rolled over from prev employer 401k) in vanguard. …
You may want to edit your original post to add this account to your portfolio detail.

Your spouse’s annual backdoor Roth is subject to pro-rated taxes due to the pretax Traditional IRA balance at each December 31. If your spouse’s 403b accepts rollovers in, rollover this balance before 12/31/22 to avoid the pro-rated taxes.
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Fri Sep 30, 2022 6:56 am My wife does have about 88k in a traditional ira (rolled over from prev employer 401k) in vanguard.
Well, this could be a problem since you say she has been using the backdoor Roth process. Have you been pro-rating this IRA with the backdoor Roth?

The problem I am trying to solve...simply want my funds in the correct place.
If you want tax-efficiency, fill all 401k/403b with bonds and put the excess bonds in taxable (using tax-exempt bonds there).

If you want more 401k/403b growth, you will have to push some bonds into taxable and/or Roth IRA.

In your situation, I would vote for the tax-efficiency. Your portfolio is already large and will be quite large when you do retire. You will have plenty of money. Your expenses do not all have to come out of the 401k/403b.
HomeStretch
Posts: 11335
Joined: Thu Dec 27, 2018 2:06 pm

Re: Portfolio Question

Post by HomeStretch »

roccodean wrote: Tue Sep 06, 2022 6:47 am … I do not believe I can hold different funds on pretax v post tax. I think it has to be one contribution selection, butI will look into it.
Please update when you definitively find out whether or not your 401k plan allows different holdings in your Traditional and Roth 401k accounts. If not, does your 401k plan’s mega backdoor Roth step 2 only allow in-plan rollovers to a Roth 401k or does it also allow in-service distributions to a Roth IRA?
fourniks
Posts: 137
Joined: Wed Dec 22, 2010 4:38 pm

Re: Portfolio Question

Post by fourniks »

retiredjg wrote: Wed Sep 07, 2022 9:19 am Well...we all know that VXUS does not contain the STAR fund. That's why I wondered if you had an editing typo in your post and that you own both STAR and Total International.

This sounds like a webpage typing error at Chase. My guess is that you own only Total International Index and they have a typo goof.

It is not unusual that some of the dividends would be qualified and some non-qualified. That's normal.
I've run across this before as well tracking fund prices. I believe it's Yahoo Finance that returns the "STAR" reference within the VXUS title. You can do a google search of "VXUS STAR" and see the references.

Four
Topic Author
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Fri Sep 30, 2022 7:18 am
roccodean wrote: Fri Sep 30, 2022 6:56 am My wife does have about 88k in a traditional ira (rolled over from prev employer 401k) in vanguard.
Well, this could be a problem since you say she has been using the backdoor Roth process. Have you been pro-rating this IRA with the backdoor Roth?

The problem I am trying to solve...simply want my funds in the correct place.
If you want tax-efficiency, fill all 401k/403b with bonds and put the excess bonds in taxable (using tax-exempt bonds there).

If you want more 401k/403b growth, you will have to push some bonds into taxable and/or Roth IRA.

In your situation, I would vote for the tax-efficiency. Your portfolio is already large and will be quite large when you do retire. You will have plenty of money. Your expenses do not all have to come out of the 401k/403b.

I have not been doing anything with her traditional IRA. No conversions at all.

I have been putting 6k yearly in completely different traditional (non deductible bc of income) IRA and then converting to Roth IRA.

What do you mean by prorating ?
User avatar
retired@50
Posts: 12709
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Portfolio Question

Post by retired@50 »

roccodean wrote: Fri Sep 30, 2022 12:49 pm What do you mean by prorating ?
See the "Cautions" section of this wiki page: https://www.bogleheads.org/wiki/Backdoor_Roth

Using a separate t-IRA for your wife isn't sufficient.

As far as the IRS is concerned all her t-IRA accounts are combined into one single t-IRA for tax purposes.

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
roccodean
Posts: 236
Joined: Thu Mar 26, 2020 7:19 am

Re: Portfolio Question

Post by roccodean »

retired@50 wrote: Fri Sep 30, 2022 1:00 pm
roccodean wrote: Fri Sep 30, 2022 12:49 pm What do you mean by prorating ?
See the "Cautions" section of this wiki page: https://www.bogleheads.org/wiki/Backdoor_Roth

Using a separate t-IRA for your wife isn't sufficient.

As far as the IRS is concerned all her t-IRA accounts are combined into one single t-IRA for tax purposes.

Regards,
Seems like I should try to move her traditional IRa to her 403b.
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Fri Sep 30, 2022 12:49 pm I have not been doing anything with her traditional IRA. No conversions at all.

I have been putting 6k yearly in completely different traditional (non deductible bc of income) IRA and then converting to Roth IRA.

What do you mean by prorating ?
It sounds like you have been doing it wrong. That means you have not been paying your taxes properly for as many years as she has been using the backdoor Roth process.

How many years is that? Do you have your tax returns for those years? Who has been doing your taxes?
Post Reply