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Cash + bonds and taxes
Old 05-28-2007, 05:15 AM   #1
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Cash + bonds and taxes


I've accumulated some cash and sold of some of my exFI's Loaded Bond funds

I've read some discussions on how much cash to have and Rich's buckets discussions but not a lot of the tax consequences.

I am FIRE'd and "sold" my company so have probably $70k per year income for 2-3 years then $25k for another 2 years.

2 questions

I now have 15% cash in MM in a taxable account that I shouldn't need to tap for living expenses for 3-4 years. In a MM I am assuming I pay the interest as Ordinary Income. Any recommendations on "safe" more tax efficient use for this cash?

I think I want a 50% Bond/cash allocation and use Fidelity so VG is out..
What is a good percentage breakdown for the bonds (ie foreign, GNMA,treasuries,tips,high yield,junk etc)?

OOPS one more.

All the good bond funds I've found so far like FAHCX and LSBRX are not very tax efficient. Anyone know of a good Bond fund that is?



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Old 05-28-2007, 05:41 AM   #2
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Well, you can always put that short term money in a tax-free MM fund.

There are also tax-free (municipal) bond funds.

If you are sometimes subject to AMT, be careful about the tax-free funds you buy. Some are designed to minimize AMT as well.


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Old 05-28-2007, 08:19 AM   #3
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I thinkyou are a bit stuck. Bonds by their nature are tax-inefficient. You can chop taxes by buying munis, but unless you are in a pretty high marginal tax bracket you would be better off with taxable bonds. You can buy more tax-efficient assets, but you would have to accept more volatility than bonds/cash.
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