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how do you rebalance overall profolio with taxable and tax deferred accounts ?
Old 05-06-2019, 09:55 AM   #1
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how do you rebalance overall profolio with taxable and tax deferred accounts ?

I need advice on how to rebalance over all portfolio if I have taxable and tax deferred accounts without paying taxes on gains. Goal is to be 60% in equities and 40% in CD & Bond. I am 50yo and don't have to touch any to these accounts for another 15 years.

example for 60/40 AA in combined multiple accounts:

Taxable brokerage account:
1. CD & Bond accounts: $400,000
2. Index funds(20% international, 80% total market): $300,000


Tax deferred account:
1. IRA Index funds(20% international, 80% total market): $150,000
2. Wife's IRA Index funds(20% international, 80% total market): $150,000
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Old 05-06-2019, 10:08 AM   #2
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https://www.bogleheads.org/wiki/Tax-...fund_placement

Index funds are more tax efficient than bonds so I'd swap these.

I'd also put all international in taxable, so you get the foreign tax credit on your taxes.

See my link above for more in-depth explanation.
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Old 05-06-2019, 11:10 AM   #3
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https://www.bogleheads.org/wiki/Tax-...fund_placement

Index funds are more tax efficient than bonds so I'd swap these.

I'd also put all international in taxable, so you get the foreign tax credit on your taxes.

See my link above for more in-depth explanation.

so I should max out the 20% of my international fund in the taxable account first ?
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Old 05-06-2019, 11:27 AM   #4
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I would, but I encourage you to read the wiki to get a full understanding of the principles.
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Old 05-06-2019, 03:35 PM   #5
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.....Taxable brokerage account:
1. CD & Bond accounts: $400,000
2. IRA Index funds(20% international, 80% total market): $300,000...
I presume that IRA shouldn't be there in #2 above... that you have $60k of international and $240k of total market in a taxable account. You say you want to end up 60/40, but how much of they 60 do you want to have in international?

Putting tax considerations aside and assuming a 70/30 domestic/international equities target, I would try to end up with:

Taxable account: $180k international equities (18% of total), $420k domestic equities (42% of total), $100k fixed income

Tax-deferred accounts: All $300k fixed income... if your plan includes a stable value fund that pays a good rate that would be worth considering... otherwise a short or intermediate term bond fund.

From that point forward, if equities outperform you would end up selling equities to rebalance... but selling lots with lowest gains and getting preferential rates... also, most of your international and domestic dividends will be either tax-free or at preferential rates depending on your total income. If equities underperform, then when you rebalance you'll sell fixed income in the taxable account and buy equities. I would suggest rebalancing at least annually.
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Old 05-06-2019, 04:52 PM   #6
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Personally, I try to do this without incurring any taxes. For taxable accounts, I generally wait until I don't incur LTCGs or STCGs, so I don't incur any taxes. Last year, I traded taxable ETFs to create carry over losses for some of my newer investments at the end of the year when the markets tanked a little.

Otherwide, you can always rebalance within your tax-deferred accounts (including ROTH IRA) without incurring taxes. This is what I most commonly am able to do.
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Old 05-07-2019, 07:58 PM   #7
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You can always do what's best tax-wise and keep your allocation because you can "sell to yourself" across the tax boundary.


Say you needed to raise cash and all you had in after tax were depressed equities. You "sell low", but concurrently liquidate some stable value assets to buy those same equities, buying low. The result is that you raised your cash with stable value assets.
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Old 05-07-2019, 09:04 PM   #8
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You can always do what's best tax-wise and keep your allocation because you can "sell to yourself" across the tax boundary.


Say you needed to raise cash and all you had in after tax were depressed equities. You "sell low", but concurrently liquidate some stable value assets to buy those same equities, buying low. The result is that you raised your cash with stable value assets.
Well, yeah but you then cannot deduct the loss as it is a wash sale if the securities bought in the IRA are substantially identical.

It does work of you sell Ford at a loss and bought GM. Or sold a bond fund and bought a similar bond fund.

I do all my rebalancing in my tax deferred accounts.
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Old 05-08-2019, 07:46 PM   #9
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I think that if you're really going to sweat the wash sale rule, you could find something who's price correlation with the sold fund is nearly 1, but not identical. Do people actually get called out on the wash sale rule in real life, or is it just something that gets worried about?
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Old 05-08-2019, 08:30 PM   #10
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Well, yeah but you then cannot deduct the loss as it is a wash sale if the securities bought in the IRA are substantially identical.

It does work of you sell Ford at a loss and bought GM. Or sold a bond fund and bought a similar bond fund.

I do all my rebalancing in my tax deferred accounts.
Same here. My taxable accounts are all stock. My deferred accounts are a mix of stocks and bonds (mostly bonds). But there's enough stock in there that I can rebalance out of stocks into bonds if I need to.
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Old 05-08-2019, 08:34 PM   #11
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Do people actually get called out on the wash sale rule in real life, or is it just something that gets worried about?
I've hit it a couple times in small amounts back when I reinvested dividends, and sold at a loss near that time. VG keeps track of them, so it was easy enough to account for the few dollars of increased basis that stayed with the fund.

IMO a wash sale isn't that big of a deal unless it involves an IRA, where you would lose the lose permanently, as opposed to kicking it down the line to a later sale.
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Old 05-08-2019, 09:41 PM   #12
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+1 I had a small one last year... an out of sight out of mind thing... but Vanguard caught it and adjusted for it.
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Old 05-08-2019, 09:47 PM   #13
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IMO a wash sale isn't that big of a deal unless it involves an IRA, where you would lose the lose permanently, as opposed to kicking it down the line to a later sale.
Correct. That's why rebuying in IRA is not something I would advise.

Sengsational, yes wash sales are a real thing, but the technique you described is tough for IRS to catch. The guidance on it came out in 2008.

But as you suggest you can always re-invest in similar with confidence.
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Old 05-09-2019, 06:00 AM   #14
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I think that if you're really going to sweat the wash sale rule, you could find something who's price correlation with the sold fund is nearly 1, but not identical. Do people actually get called out on the wash sale rule in real life, or is it just something that gets worried about?
A wash sale shows up declared on the 1099 if at the same broker, so yes, routinely.
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Old 05-09-2019, 12:34 PM   #15
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Thank you every one, a lot of good info but I decided to re-balance once per year in the 2-Roth IRA and T-IRA accounts and not buy or sell anything in the brokerage taxable account.
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