Keeping TIPS in my 401k?

[Breitling]

Now that I came up with an AA I am comfortable with, I need to figure out where to hold my TIPS and Bonds.

87% of my funds are in a taxable account, 13% are in a Solo 401k. I have decided I'm most comfortable with a 50/50 AA. I also decided I want to keep my investing as simple as possible so I can get away with an hour worth of re-balancing once a year, and ignore it the rest of the year.

With only 13% of my money in a tax sheltered account, does it make more sense to hold my TIPS there or my Bond Fund? Are there any downsides to holding my TIPS in my 401k?

This is what I am thinking:

Taxable Account:
05% - FDRXX (Fidelity Cash Reserves)
32% - FIBAX (Fidelity Spartan Intm Tresury Bond Index Fund Adv) - .10% expense ratio
25% - FSTVX (Fidelity Spartan Total Market Index Adv) - .07% expense ratio
25% - FSIVX (Fidelity Spartan International Index Adv) - .07% expense ratio

Solo 401k:
13% - TIP (ISHARES LEHMAN TIPS)

What do you think? What should I think about before committing to these holdings and this AA?

[twaddle]

Since all of your bonds are treasuries, it doesn't really matter. Both bond funds will be taxed at the same rate.

AFAIK, the TIP fund distributes all income, including the inflation adjustment, so there's no "phantom" income like there would be for holding TIPS directly.

[LOL!]

You should check if you get a higher effective return by holding tax-exempt bonds in your taxable accounts than if you held those treasury bonds there.

Same goes for the money market fund. Would a tax-exempt MMF be better? Be careful if you are on some kind of income margin like about to lose Roth IRA eligibility. And where is your Roth IRA by the way?

Furthermore, since you got a solo401k, I'll assume you are self-employed. Self-employed folks can sock away as much as $45,000 a year in a tax-deferred account, so you may want to investigate how to do that. It might be possible to have more fixed income in tax-deferred if you are not at that limit already.

[Breitling]

Thanks twaddle! This makes sense, I'll feel more comfortable splitting up my bond allocation 50/50 and holding tips in my taxable account with that knowledge.

LOL,

I am still self employed, but now don't make any money! I sold my business that was my cash cow, and have only been adding to my 401k for two years. I'll add another $20k (or so) to that plan for my 2007 contribution as soon as i find out my full tax liability.

I don't yet have a Roth. I didn't qualify for the last two years, and before that my only goal was debt reduction, not investing.

Is it possible to convert my Solo401k into a Roth? I don't see adding more then $5k a year to my 401k plan from here on out, and I would love to have the tax free money when it comes to pulling the cash out in the future...