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Allocating tax deferred funds - a quick question
Old 03-28-2012, 12:19 PM   #1
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Allocating tax deferred funds - a quick question

I suppose the basic question is if I can use funds in a TD account to set up a portfolio of index funds? (457, 403b, 401k).

I realize anything in a TD fund wil be taxed as income upon withdrawal, and there's a tax advantage to to using taxable funds to generate capital gains. Most of my personal fundsare in TD accounts. If I sign on with vanguard to set up a portfolio, do I have to withdraw TD funds and pay taxes before putting it into a mutual fund, or can the money be rolled over into a TD vanguard account and an index fund portfolio established?

Most of my readings don't address this issue, seeming to assume one already knows the answer lol.
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Old 03-28-2012, 12:42 PM   #2
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So, you have made contributions to tax deferred accounts, you want to use that money to invest in index funds? No problem at Vanguard or anywhere. Rollover into an IRA. At vanguard you need one IRA account to invest in vanguard funds and an IRA brokerage account to invest in etfs.

Many people use their tax deferred accounts for fixed income, which is taxed at higher rates, and their taxable accounts for equities, because they can tax harvest losses and are taxed at lower capital gains rates.
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Old 03-28-2012, 12:50 PM   #3
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Thanks Michael. I assumed there was a way, but assumptions have a way of biting one in the rear.

Our savings plan was just to suff funds into available TD accounts automatically and then forget about them. The principal was guaranteed and they were beating inflation by a couple of points so I was content.

I realize there would be a tax advantage for capital gains; I'll only have about $110k in taxable funds which WILL go to equities. For the rest, I'm stuck with TD funds.

If I knew then what I've learned in the past few week here...
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Old 03-28-2012, 01:03 PM   #4
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Quote:
Originally Posted by seraphim View Post
I suppose the basic question is if I can use funds in a TD account to set up a portfolio of index funds? (457, 403b, 401k).
All the accounts you mentioned can be rolled over to an IRA and invested however you want. It's generally better for tax purposes to keep your bond allocation in IRA/TD accounts to avoid tax on the income they generate until you take distributions.

However, be careful about mixing funds that might have different tax treatments in the same IRA. For example some state retirement accounts are free of state tax and it's a pain to keep track of the state tax basis if you co-mingle them with funds that are state taxable. Also you mention a 457. This fund has the advantage of being accessible without penalty at any time after you leave service. If you roll it into an IRA you will have to wait until 59.5 for penalty free access, unless you do a 72t.
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Old 03-28-2012, 01:39 PM   #5
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Interesting. Another TD account is a deferred retirement account in my pension. It's accessible as soon as I retire. I can leave the money in that account ( was earning 5% until next month then will earn the same as a 10 year treasury ) or I can roll it over into a different account such as a 401k

I'm 56 now.
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Old 03-28-2012, 06:30 PM   #6
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Interesting. Another TD account is a deferred retirement account in my pension. It's accessible as soon as I retire. I can leave the money in that account ( was earning 5% until next month then will earn the same as a 10 year treasury ) or I can roll it over into a different account such as a 401k

I'm 56 now.
This is a bit confusing, what accounts do you have.

Do you have a defined benefit pension? Something that pays you a %age of salary? In this type of plan you don't manage the money yourself.

What deferred compensation plans do you have? These are plans like 401k, 403b, 401a, 457 etc where some of your salary is contributed to them tax deferred and you manage the money yourself by investing in mutual funds or maybe a stable value fund.
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Old 03-28-2012, 06:58 PM   #7
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The DROP plan doesn't have a numerical designator I've ever been able to find. It's a tax-deferred account in which they have put my retirement check, my 10% employee contribution and paid 5% interest, all the while I continued to work and collect my normal paycheck. The program was designed to keep the older workers; the baby boomers are hitting and the pension board feared they would all retire and start withdrawing large amounts of money. This way, they keep funds in the pension for a much longer period of time. They recently had to reduce the interest paid on the plan to maintain their required funds on hand. There will be about $450k in that account come January. I can keep the funds there, but not at the reduced 2%, plus I have my concerns about the pension stability. They can be rolled over into any TD retirement plan, and I'll do what Michael suggested stated was possible.

I have a 457 with about $120k. DW has a 403b with about $62k, and is setting up another to receive buyout funds: $69k over the next 5 years. We have about $320k in an inheritance coming in the next few months. The reason I'm trying to learn so much so fast.

We both also have pensions totaling about $64k (less than we would have due to spousal survival options) a year, and I'll get a small SS stipend of about $548 a month starting in 6 years.
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Old 03-28-2012, 07:23 PM   #8
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OK so you have the defined benefit plan and the DROP plan. Is your employer offering the DROP as a lump sum or can you annuitize it? Sometime the lifetime payout option on DROPs can be attractive, but as you already have a pension you might want the capital.

I see no problem in rolling over the 403b to an IRA if you can get lower fees and better fund choices. The 457 isn't so obvious as by rolling into into an IRSA you will loose access to the money for a few years, but you have the pensions and a good amount in after tax accounts so that doesn't seem like a major negative.
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Old 03-29-2012, 07:28 AM   #9
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Quote:
Is your employer offering the DROP as a lump sum or can you annuitize it?
I can leave it, take it out over time, or lump sum. Im not sure of the exact age for mandatory withdrawels, but not for some years (65 or 70). Starting next year around June I would like to start withdrawing about 20K a year from the overall portfolio to supplement our pensions. There is no lifetime payout option which guarantees a specific income. Money available immediately after retirement.

In the next few months I plan on setting up Vanguard/Fidelity accounts to move the $320k into - the funds are currently going into PNC accounts with a fee-based adviser and high ERs. (I'm considering a 60/40 or 70/30 mix, there abouts). Researching the index funds now. May leave a quantity of taxable assets in a liquid reseve (20 to 80 k?). Don't have enough knowledge to know what type of account yet - MM or savings accoutn

When the DROP funds become available after retirement, I plan on rolling that money over into the index funds as well. Possibly rolling over the 457 as well.
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