Swapping between taxable and non...

[BreathFree]

Would it make sense to sell long term stocks in a tax deferred 401k that are at high valuation, and buy bonds in the same account with the proceeds, and at the same time sell an equal amount of bonds in a taxable account with no capital gains and buy the same stocks with high valuations in the taxable account? The idea being, I will still be invested in the same investments in case the market continues higher, but If there is an eventual correction, I can reverse this process and collect the loss on the stocks after the decline.

I know this is market timing but it seems minimum risk since I would still be fully invested in the exact same investments, just moving them around for tax efficiency. Has this been discussed? I could not find it in a quick search.

 

[LOL!]

No it wouldn't. It makes better sense to sell individual stocks in tax-deferred and buy bonds, then sell exchange bonds in taxable into broad-market index funds instead. Do not buy individual stocks anymore.

I don't hold any bonds in my taxable account. Are your bonds there tax-exempt bonds and if so, are you in a high tax bracket?

 

[BreathFree]

No it wouldn't. It makes better sense to sell individual stocks in tax-deferred and buy bonds, then sell exchange bonds in taxable into broad-market index funds instead. Do not buy individual stocks anymore.

I don't hold any bonds in my taxable account. Are your bonds there tax-exempt bonds and if so, are you in a high tax bracket?

Thanks for the response. I do not hold any individual stocks; I should have said stock index. The only stock investment option in my 401k that is low fee is an s&p 500 index fund; the bulk of my 401k funds are in this index.

I was in a high tax bracket in the past, but will now be in the 25% to 28% bracket for the foreseeable future.

I just started purchasing bonds in the last few years in a taxable account. I held 100% stocks for most of my investment history. Since bonds yield little at the present, I thought it would make since to purchase them in a taxable account.

 

[LOL!]

Since you will not be buying individual stocks in taxable, then your plan is a good one.

Here is a little article on the subject:
https://www.bogleheads.org/wiki/Placing_cash_needs_in_a_tax-advantaged_account

 

[BreathFree]

Since you will not be buying individual stocks in taxable, then your plan is a good one.

Here is a little article on the subject:
https://www.bogleheads.org/wiki/Placing_cash_needs_in_a_tax-advantaged_account

Awesome!!! This link is the confirmation I was looking for. Thank you.

 

[jebmke]

Your plan is what we did in 2006. Normally we wouldn't have held the equity in deferred but it was a unique situation with my spouses former firm. The second step of this plan is to monitor the unrealized losses you will inevitably incur when the market takes its next dive. Be sure to harvest the losses in your taxable account when that happens.

 

[pb4uski]

Yes, I think what you plan to do makes sense but for a different reason... it is more tax efficient since qualified dividends and LTCG in your taxable account would generally be taxed at 15% if you are in the 25/28% tax bracket whereas bond interest would baxed at 25/28%. Since the bond interest will be taxed at 25/28% anyway, better to have it in the tax-deferred fund since withdrawals are taxed at ordinary rates.

Holding stock in a tax deferred account essentially eliminates the tax benefits of holding stock (preferential tax rates on qualified dividends and LTCG).