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Old 10-13-2010, 09:59 AM   #41
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Originally Posted by TromboneAl View Post
Those of us with the highest tax deferred percentages, are probably those with access to SEP-IRAs or other special retirement vehicles.
Or those that are "really young." I've only recently started my taxable investments. The one thing I have learned from this thread is, expect the % of taxable accounts to increase substantially over the next 2 to 3 decades.
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Old 10-13-2010, 10:20 AM   #42
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Originally Posted by TromboneAl View Post
Note that, unlike asset allocation (stocks/bonds/cash), this distribution is largely involuntary. That is, most of us put as much as possible into tax-deferred investments.
I had the same thought. My taxable vs tax-favored savings are completely driven by how much I can defer at a maximum, then saving whatever is left over in taxable accounts.
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Old 10-13-2010, 10:23 AM   #43
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60% in taxable
30% in tax-deferred (TIRA)
10% in tax-exempt (muni bond funds in taxable account)
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Old 10-13-2010, 11:20 AM   #44
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Originally Posted by scrabbler1 View Post
60% in taxable
30% in tax-deferred (TIRA)
10% in tax-exempt (muni bond funds in taxable account)
The reason I tried to specify this as by account, rather than as by investment is that things like munis are electively tax free-you can go from them to stocks, or taxable bonds or whatever. Also, under various circumstances capital gains on these may be taxable. I have various partnerships, which at times are essentially tax deferred, but they are in a taxable account so I count that entire account balance as taxable money.

Some members live essentially tax-free lives, since their investments tend to be loss-making. At least while this continues, all their accounts are tax free. Others achieve the same tax free status by living very cheaply, thus being income-poor. But that is not what I was trying to investigate in this thread.

Ha
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Old 10-13-2010, 11:42 AM   #45
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All of ours is tax-deferred.
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Old 10-13-2010, 12:20 PM   #46
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Good thread Ha. "Tax diversification" has been on my mind lately. We are:

75% tax deferred
25% taxable

Up until this year, our income was higher because DW was still working full-time. My 401k has always been traditional.

Now that she semi-ERed, our income is lower. It also looks like I will soon be able to make my retirement contributions to a Roth 401k at work. These two factors have us seriously considering the developement of a tax-free component in our portfolio due to future RMDs and the desire to leave leftover funds to our children.
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Old 10-13-2010, 12:49 PM   #47
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52 and 56 years old, both retired with a pension.

Accounts.....

82% tax deferred
18% taxable
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Old 10-13-2010, 01:14 PM   #48
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52 yrs and counting down 6 more months.......

7.5% Tax Free
25.5% Taxable
67% Tax deferred
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Old 10-13-2010, 02:36 PM   #49
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We are about

75% deferred
25% taxable

This is down from a much higher % taxable before buying a second home a couple of years ago. Plus we are now vested in a government pension with a high phantom worth.

I'd love to read the article referred in the original post. I did not see a link. Anyone have one?

My theory has always been that the huge pile of money accumulating in tax deferred accounts is going to be an increasingly attractive source of tax revenue in the future. When every worker has to pay enough SS to support half a retired person there will be enormous political pressure to get at tax deffered savings.

The easiest way to do that is through high tax rates since we all already know we have to pay taxes. No one has told us how much though! Seems like a pretty clever marketing technique. We've bought the car and are waiting for the salesman to tell us how much. When I look at historical tax rates in the US it is worrisome. Rates were well above 50% and went into the 90% range in the 50s and 60s. While I'm not a doom and gloom type and can't imagine them going that high in my lifetime, I do think we could see 50-60% again.

My view on the economy is that we are headed into something like post war era - low inflation, low interest rates, basically boredom and a "geezer boom" just like we had a baby boom. In that context I don't think escalating tax rates to the 50-60% area is a dire prediction. They were higher the last time we had similar debt and economic conditions.

I'd rather have most of my money in something I can (legally) pick up and move if taxes start to go up. I can do that with my taxable money. I have no desire to leave the US and become an ex-pat someplace but I also don't see how the upcoming situation can be funded without greatly higher tax rates. I want to be as immune as possible from that.
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Old 10-13-2010, 07:41 PM   #50
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3% Tax Free
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Old 10-13-2010, 09:43 PM   #51
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I am at 50% taxable and 50% tax deferred .
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Old 10-13-2010, 11:05 PM   #52
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Originally Posted by DoingHomework View Post
I'd rather have most of my money in something I can (legally) pick up and move if taxes start to go up. I can do that with my taxable money. I have no desire to leave the US and become an ex-pat someplace but I also don't see how the upcoming situation can be funded without greatly higher tax rates. I want to be as immune as possible from that.
This has been my "mantra" since ER 5 years ago. Wish I had not deferred so much taxable money, but I did, so now I'm working on converting as much as possible to Roths. Paying the taxes is incredibly painful, but I'm making a bet that it will get more painful down the road. Taxable/Roth money seems more flexible as you suggest and at least somewhat safer from the tax and spend crowd. It may turn out that there is no way to protect oneself from the tax bite to come, but right now, converting seems the best way. We'll see.

Right now, excluding personal residence and "inferred stash" such as pension and SS, I'm at:

Taxable - 21%

Tax deferred - 59%

Roth - 21%

I had to laugh when I realized that converting to Roths, percentage wise, is "aided" by the huge tax bite - because the denominator goes down!!! Gotta look on the bright side.

Another thought: One could make a case for moving to a low tax state during the conversion process. I'm paying as much as 8% state tax on conversion. I can't face giving up paradise to make that 0%, but from a strictly economic standpoint, it would make sense - especially if you could also cut other costs (which I could, in almost any other state!). Dang! Why did I have to fall in love with paradise
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Old 10-14-2010, 02:18 PM   #53
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Another thought: One could make a case for moving to a low tax state during the conversion process. I'm paying as much as 8% state tax on conversion. I can't face giving up paradise to make that 0%, but from a strictly economic standpoint, it would make sense - especially if you could also cut other costs (which I could, in almost any other state!). Dang! Why did I have to fall in love with paradise
Aloha nui! Our second home is on the Big Island. You can bet we will be doing all the taxable conversions before "moving" there and intend to spend enough time in our low tax state to maintain residency even after ER. As much as we love the state of Hawaii, the taxes are too high! I've heard it referred to as teh People's Republic of Hawaii!
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Old 10-14-2010, 03:36 PM   #54
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As much as we love the state of Hawaii, the taxes are too high! I've heard it referred to as teh People's Republic of Hawaii!
All too true, but at least SS and pension income are exempt from state tax (for now). Also, we pay lower property taxes here than we did in the midwest on property appraising 3 times as much. Oh, and your exemption goes up as you get more "senior".

The real killer is the "stealth" taxes - especially the GET. It's applied without exemption at different levels along the chain and I've heard it's estimated to average 16% by the time the final purchase is made. I can't confirm that, but it wouldn't surprise me.

Still, as in all situations, you learn how to adjust. The trick is to be adaptable.

Aloha!
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Old 10-14-2010, 11:58 PM   #55
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Fidelity recently had an article on their web site about the allocation of balances between taxable, tax deferred (401k, IRA., etc.,) and tax free (Roth IRA, Roth 401k). We also touched on this from time to time on the forum, but I don't remember a recent thread addressing this directly.

I can't think of an unambiguous way to do a poll, so I thought I would try a straight discussion.
Here's a related poll I did back in July. Numbers of people with "mostly taxable", "mostly tax deferred" and "about evenly split" were (very) roughly the same. People with no taxable account were very much in the minority—only 10% of those who responded.

Quote:
My accounts are 75% taxable, 18% tax deferred, and 7% tax free. The tax free accounts are due to recent conversions to Roths. I plan to go on converting my rollover IRA to Roth, but next year my RMDs and SS pmts will start, so any conversion will mostly be higher bracket. I wish I had more in Roths than I have at present, and that I had awakened to the conversion idea year or so earlier.

I am interested in seeing others %s, as well as any comments.

Ha
I have about four times as much in tax deferred as in tax free, mostly because the contribution limits let me put about four times as much into my tax deferred account as into the Roth. So that's approximately 80% deferred and 20% tax free. I have no taxable account unless you count my savings account at the bank and the pile of Savings Bonds in my safe deposit box.

If I could, I'd put more into my Roth IRA and less into tax-deferred. I will look into converting some of the t-d to Roth after retirement.
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Old 10-15-2010, 04:28 AM   #56
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Isn't our simple tax system and retirement mechanisms helpful!

Layer that on top of the complexity of trying to understand investing (and actually do a decent job of it to build retirement funds)...

It could be improved and simplified!

Today the only way to simplify it (not learn and DIY) is to give away the (some of the investment growth.. through fees and tax savings) differential to the insurance companies!
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Old 10-15-2010, 01:39 PM   #57
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As much as we love the state of Hawaii, the taxes are too high! I've heard it referred to as teh People's Republic of Hawaii!
The reason your taxes are too high is because Hawaii taxes wages a lot more than they tax cap gains & pensions. And, of course, states love to tax out-of-state property owners.

When "Wealth Management" magazine was run by Bloomberg, their annual "most tax-friendly states" used to break down the rankings by taxes on students, workers, and retirees. Hawaii was consistently in the top ten most tax-friendly states for retirees and near the bottom for workers. Unfortunately Bloomberg moved on from WM in 2005 or so.

I would not whine on this board about Hawaii property taxes. And since you're on the Big Island, you're only paying 4% GET instead of 4.5% GET. That won't get you much sympathy in most of the rest of the USA, either. In fact I'd advise against complaining about car registration fees, too.

If you want to minimize your taxes now, you could spend the money to install a solar water-heating system (if you don't already have one) and a solar photovoltaic net-metering system. You'll get up to 65% state/federal tax credits which can roll forward until consumed. If you do that now while you're more heavily taxed then you won't have to roll them forward for decades of retirement. The value of the photovoltaic installation can also be used to obtain a 25-year exemption on its property taxes.
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Old 10-15-2010, 05:25 PM   #58
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Currently 58% taxable 42% deferred. When I first retired 10 years ago the ratio was roughly 75%, 25%. Part of the drop is do to a modest amount of Roth conversion. The rest is because I've been living on my taxable account which has decreased and been converted into a house
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Old 10-16-2010, 04:02 AM   #59
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Same here. The vast majority of my investments are in CDs, municipal bonds or money market. I am not even sure how or when my municipal bonds are taxed...

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I'm ashamed to say that I have given tax diversity very little analysis or thought other than it is probably a good idea.
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Old 10-25-2010, 09:16 PM   #60
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3% tax free
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