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Exchanging Funds within a Roth IRA
Old 09-29-2009, 10:54 AM   #1
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Exchanging Funds within a Roth IRA

I am considering exchanging funds within my Roth IRA from a balanced index fund to a bond fund in order to get my AA where I'd like it to be and to be more tax efficient.

Is this a good or bad idea in your opinion? Is it better to do it now or wait until after the end of the year? Any input/suggestions would be welcomed. Thanks.
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Old 09-29-2009, 11:12 AM   #2
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If the purpose is to get the AA back in line then switching to bonds in the tax advantaged account makes sense. My rule is bonds and other income producing investments in the tax advantaged accounts...appreciation assets in the taxable accounts.

Don't know that it really makes a difference if you do it now or the end of the year. Bond funds have had a pretty good run this year which has offset the lower yields. If predicted interest rate increases come to fruition the NAV of the bond fund could take a bit of a hit which would be partially offset by higher yields.

Personally I don't believe that rates will rise significantly until mid year 2010 if even then.
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Old 09-29-2009, 11:58 AM   #3
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You could be better off keeping equities in your Roth IRA and bonds in a traditional IRA. The equities will appreciate faster than bonds (well, one would hope), so you will have more money in the Roth when you retire and won't owe any taxes on that large pot of money. If you put bonds in the Roth, you will have less tax-free money when you retire...
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Old 09-29-2009, 12:20 PM   #4
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You could be better off keeping equities in your Roth IRA and bonds in a traditional IRA. The equities will appreciate faster than bonds (well, one would hope), so you will have more money in the Roth when you retire and won't owe any taxes on that large pot of money. If you put bonds in the Roth, you will have less tax-free money when you retire...
Given that it is a Roth vs a traditional IRA this may be true. However, in the interim, assuming he gets his AA back in line by putting bonds in a taxable account he has to pay ordinary income taxes now on the bond income.

Whereas with equities in the taxable fund he can likely pay taxes on long term cap gains at a lower rate when and if he opts to sell and then can offset those gains with some tax loss selling.
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Old 09-29-2009, 12:31 PM   #5
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We don't know what Chaos has in his/her portfolio. Maybe a Roth, an IRA/401K and some taxable investments. We just don't have enough information to say for sure how his/her portfolio should be re-allocated to be the most tax-efficient. So I am just saying that, in some instances, it can make sense to overweight equities in the Roth. Whether that's the best course of action in this case, nobody but Chaos knows for sure.
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Old 09-29-2009, 01:27 PM   #6
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We don't know what Chaos has in his/her portfolio.
See her thread on her portfolio: Bogleheads :: View topic - Retiring Soon - Portfolio advice
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Old 09-29-2009, 01:36 PM   #7
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It looks like she is in good hands already...
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Old 09-29-2009, 01:43 PM   #8
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To be fair to her, I think it is legitimate to check advice given on one forum with the advice given on another forum. But you never know if the same folks are giving the same advice on multiple forums.
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Old 09-29-2009, 03:24 PM   #9
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To be fair to her, I think it is legitimate to check advice given on one forum with the advice given on another forum. But you never know if the same folks are giving the same advice on multiple forums.
You are absolutely correct! Being somewhat inexperienced in investing doesn't mean I was born yesterday. I think it's best to run ideas by more than one or two knowledgeable people. So if you, or anyone, would like to give some input I'd be more than happy to listen. Thanks.
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Old 09-29-2009, 04:03 PM   #10
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There is no way to advise you on the timing of this. If stocks go up between now and the end of the year, it will be better to do it later. If stocks go down between now and the end of the year, it will be better to do it now. If stocks stay the same, then it doesn't matter.

You are asking us to predict the future for you. We can't do that.
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Old 09-29-2009, 04:40 PM   #11
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There is no way to advise you on the timing of this. If stocks go up between now and the end of the year, it will be better to do it later. If stocks go down between now and the end of the year, it will be better to do it now. If stocks stay the same, then it doesn't matter.

You are asking us to predict the future for you. We can't do that.
I wasn't asking anyone to try to predict the future...I can do that myself. I was just uncertain if there was any other reason, like dividends or some tax reason not too...although being that it's in my Roth I'm doubtful there is any tax reason...but if I knew that for certain I wouldn't have to ask you folks.
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Old 09-29-2009, 06:52 PM   #12
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You don't need to worry about any tax considerations/timing in any IRA.
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