Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
AA Thoughts
Old 11-07-2019, 01:57 PM   #1
Full time employment: Posting here.
 
Join Date: Jul 2011
Posts: 778
AA Thoughts

Hi,

I am a few years from my RMD. My IRA represents about 30% of assets. With pension, SS, and investment earnings, I will reach or go slightly above the top of a tax bracket. So, most of an IRA withdrawal places me in the next tax bracket.

To date, I have not looked at my entire portfolio as one investment. So, there is a split of stocks and bonds in each account (IRA and non-IRA). It does turn out (by coincidence or luck) that my AA is in-line with my objectives.

Now that I am developing a 'single' portfolio and recognizing the tax implication of my RMD, I am considering an investment approach that I am requesting input which will not change my AA but is designed to be a better tax solution without disrupting growth. Here is what I am considering:

- Execute all bond funds in IRAs that will require RMDs. This is to slow the growth of what I expect will be income that will be taxed at the next level
- Place all equities in taxable accounts and do my best to manage them for long term gain so they are taxed at 15% (under todays tax code).
- Money left at the end of the plan will mostly be left for inheritance but some will be donated. The allocation of inheritance and donation will likely be informed by the amount.
- I am aware of the RMD charity opportunity and am prepared to donate a portion of the RMD. The remaining RMD after taxes are paid will be reinvested in one of the taxable accounts.

Does this strategy make sense from an investment and tax basis? Or should I be considering something else? Clarifying questions are welcomed
__________________

davef is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 11-07-2019, 02:28 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 23,395
Yes, what you outlined makes sense. Also, read https://www.bogleheads.org/wiki/Tax-...fund_placement if you haven't already done so.
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is online now   Reply With Quote
Old 11-07-2019, 03:45 PM   #3
Thinks s/he gets paid by the post
Golden sunsets's Avatar
 
Join Date: Jun 2013
Posts: 1,392
You have described the same approach that we use. The only caveat that I would insert is, don't create unnecessary unwanted tax consequences in your taxable accounts in order to achieve your goal. EG, don't sell appreciated bond funds in your taxable account, unless you can offset with long term losses. We also reallocate annually for the entire portfolio AA, within our IRA's, avoiding taxable events.

As you stated, we reinvest the net RMD after taxes in our Taxable accounts. We also focus on purchasing international equities with the new Taxable account money. That way you'll get the Foreign Tax credit.
__________________
"Luck favors the prepared mind"
Pasteur
Golden sunsets is offline   Reply With Quote
Old 11-07-2019, 04:11 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 23,395
Quote:
Originally Posted by Golden sunsets View Post
....The only caveat that I would insert is, don't create unnecessary unwanted tax consequences in your taxable accounts in order to achieve your goal. EG, don't sell appreciated bond funds in your taxable account, unless you can offset with long term losses. ...
Keep in mind that in your early years of retirement with no earning but before SS or pensions start, your income may be such that your capital gains are 0% rather than 15%.... an ideal time to reposition taxable account assets with gains the way you want... even if bond fund sales result in a gain it would be 0%.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is online now   Reply With Quote
Old 11-07-2019, 05:16 PM   #5
Thinks s/he gets paid by the post
Golden sunsets's Avatar
 
Join Date: Jun 2013
Posts: 1,392
Good point. Having never been in that position unfortunately, the thought did not occur to me, so I would revise my advice to sell bonds only to the threshold that there are 0% cap gains in any given year. Hopefully over time the OP can reorganize his AA distribution without affecting his taxes.
__________________
"Luck favors the prepared mind"
Pasteur
Golden sunsets is offline   Reply With Quote
Old 11-07-2019, 06:04 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 7,442
OP can consider to buy a (I forget the actual name, but someone will tell us) delayed annuity from OP's IRA money up the cost of $125,000 to be paid when OP is much older.

This takes that $125K out of the RMD calculation for many years, and gives OP a big boost to income when much older and possibly needing it, plus gives some protection in case of 1929 Depression type stock market returns.
__________________
Fortune favors the prepared mind. ... Louis Pasteur
Sunset is offline   Reply With Quote
Old 11-07-2019, 06:06 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 7,442
OP could consider within the taxable account, to move $$ into really tax efficient ETF's and broad conservative non-dividend paying investments like BRK.
__________________
Fortune favors the prepared mind. ... Louis Pasteur
Sunset is offline   Reply With Quote
Old 11-07-2019, 11:09 PM   #8
Full time employment: Posting here.
 
Join Date: Jul 2011
Posts: 778
Thanks all for your input. It was helpful and raised my confidence.
davef is offline   Reply With Quote
Old 11-08-2019, 12:44 AM   #9
Recycles dryer sheets
 
Join Date: Aug 2017
Posts: 179
Quote:
Originally Posted by pb4uski View Post
Keep in mind that in your early years of retirement with no earning but before SS or pensions start, your income may be such that your capital gains are 0% rather than 15%.... an ideal time to reposition taxable account assets with gains the way you want... even if bond fund sales result in a gain it would be 0%.
Also, if this is the case, OP may want to consider Roth conversions.
Scratchy is offline   Reply With Quote
Old 11-08-2019, 08:53 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 23,395
Quote:
Originally Posted by Scratchy View Post
Also, if this is the case, OP may want to consider Roth conversions.
Agreed, in fact I decided to prioritie Roth conversions over capital gains trading... in part because of the stepped up basis.
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Retire on 3k per month thoughts... RJK FIRE and Money 326 09-07-2009 09:49 PM
PRWCX thoughts? (TRowe Price capital appreciation) soupcxan FIRE and Money 7 02-27-2005 08:10 AM
ER Worries My personal Dilemma. Any Thoughts? ShokWaveRider FIRE and Money 22 10-24-2004 08:55 PM
Your Thoughts Bozo Hi, I am... 11 09-19-2004 04:57 PM

» Quick Links

 
All times are GMT -6. The time now is 08:25 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.
×