Join Early Retirement Today
View Poll Results: How are your retirement savings split between taxable and tax-advantaged?
All in a taxable account 1 1.23%
All in tax-advantaged accounts (tax-deferrred and/or Roth IRA) 8 9.88%
Mostly in taxable account 21 25.93%
Mostly in tax-deferred account 26 32.10%
Mostly in Roth IRA 1 1.23%
About evenly split between taxable, tax-deferred and Roth 19 23.46%
Other (please describe) 5 6.17%
Voters: 81. You may not vote on this poll

Thread Tools Search this Thread Display Modes
Old 08-01-2010, 04:38 PM   #21
gone traveling
Join Date: Apr 2009
Location: Eastern PA
Posts: 3,851
IMHO your taxable/tax deferred account breakdown is just a reflection of your age along with the "products" available along the way.

My DW/me did not start investing for retirement till our mid-30's, in the early 80's, when our respective company pensions (defined benefit) were replaced with the 401(k). For me, it was a 100% match, up to 8%. Of course that was reduced years later, but it was a good incentive to hop on the 401(k) train.

We both contributed the annual max (according to IRS rules) from 1982 into our respective IRA's which consisted in deductable, non-deductable, and Roth - as they changed through the years. Our final IRA contribution was made in 2008. I retired in 2007 (my DW still w*rks) but it didn't make much difference in our retirement income plan, so we stopped. DW still contributes to her 401(k).

The majority of our retirement investments are in tax deferred accounts. However it is expected that we will not be close to exhausting those accounts in retirement. From a tax view, we don't have to pay state/local tax on our tax-deferred accounts. Taxes were paid at time of contribution, and earnings are tax-free. Additionally, since we plan to have most of our remainder estate going to charity and assuming the tax laws are not radically changed, it will mean that most of the tax deferred funds will be passed on with little/no tax due. It makes little sense to actively convert them to Roth accounts (of which we also have). As we age, we may change the "normal withdrawal sequence" by drawing down from the Roth in those years that we fell our excess RMD's (excess contributions, required by tax law, but not needed for annual income). Again, that will push tax deferred funds to our charities. If the tax laws change? We won't be around to worry about it...

rescueme is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 08-01-2010, 08:11 PM   #22
Full time employment: Posting here.
ESRwannabe's Avatar
Join Date: Mar 2010
Posts: 672
I have about half in taxable and half in my 401k and roth ira.

I am maxing my roth ira every year and maxing out my 401k match (which is tiny). I could put a lot more into my 401k, but I don't want to until my taxable stock dividends hit $10k per year. At that point I will start maxing my 401k.

The primary benefit I see with a taxable account is that the money is always available. If I had $10k in supplemental income I would feel a lot more financially secure. So, that is my current goal.

An overlooked benefit to the 401k is that it has protection from bankruptcy and lawsuits. The roth ira has protection from bankruptcy and for lawsuits it depends on state law.

I am all individual stocks and cash in taxable, and bond funds in my 401k (total bond index) and roth ("high quality" junk bonds, i.e. BB credit rating).

ESRwannabe is offline   Reply With Quote
Old 08-01-2010, 10:51 PM   #23
Thinks s/he gets paid by the post
DblDoc's Avatar
Join Date: Aug 2007
Posts: 1,224
Originally Posted by MichaelB View Post
Why not have fixed income in munis and use the tax deferred accounts for equity investments? Seems to me some folks wanting to sell in the '98 - '00 and '07 timeframe chose not to do so because of the capital gains. In a buy and hold for the long term it makes sense to hold the equities in a taxable account, but at the same time reducing equities when prices are high is painful and often postponed.
Because the returns on munis is lower and you get to compound that extra return tax free if it is in tax deferred. Over the long term that adds up.

With tax loss harvesting I have plenty of losses to cover any selling I would be forced to do short term for an emergency. Otherwise rebalancing is done with new money. I haven't figured out the distribution phase yet. That looks much harder than the accumulation part .

At 54% of FIRE target
DblDoc is offline   Reply With Quote
Old 08-02-2010, 07:54 AM   #24
MichaelB's Avatar
Join Date: Jan 2008
Location: Gone fishing
Posts: 25,785
Because the returns on munis is lower and you get to compound that extra return tax free if it is in tax deferred. Over the long term that adds up.
But that would only make a difference if the tax rate implicit in the muni were higher than the tax rate you are paying. If your marginal rate is close to the top, there should be no difference.

With tax loss harvesting I have plenty of losses to cover any selling I would be forced to do short term for an emergency. Otherwise rebalancing is done with new money.
Right. You canít harvest a loss in a tax deferred account. In addition, in the early years, new money has a strong rebalancing effect.

In the later years Ė say the third and fourth decades of tax deferred investing, the accrued gains are a substantial portion of the total. Here I would think it would be quite more beneficial to have allocated to the tax deferred accounts the assets with greatest gain potential. If the asset value does decline, so does the tax liability. Also, rebalancing and changes in allocation can be done without tax liability.

I haven't figured out the distribution phase yet. That looks much harder than the accumulation part
I think the hardest part is the one each of us are currently working on ...
MichaelB is offline   Reply With Quote
Old 08-02-2010, 08:17 AM   #25
Thinks s/he gets paid by the post
jIMOh's Avatar
Join Date: Apr 2007
Location: Milford, OH
Posts: 2,085
Originally Posted by kyounge1956 View Post
Do the advantages of a taxable account (tax loss harvesting, lower tax rate on capital gains) ever outweigh the advantages of tax-advantaged accounts? All of my retirement savings are currently in either a tax-deferred account at w@rk, or my Roth IRA, and I wonder if some of my savings shouldn't be going into a taxable account instead.

I asked this question at Bogleheads too, but just for the fun of it I think I'll add a poll here. What proportion of your savings are in taxable accounts, Roth, and tax-deferred? Do you like your split, or would you like to change it?
My approach (while w*rking) is this:

1) Invest in 401k to get tax return to 15% bracket
1a) there is an HSA involved too
so its really HSA+401k enough to get 15% tax bracket
HSA is maxed, 401k is not

2) Invest in Roth accounts once in 15% bracket. Right now these are maxed, as income goes up, 401k will increase and Roth's will decrease. Wife has a Roth 401k and 2011 will be first year we use only Roth 401k for wife (in July I switched it from traditional to Roth for 8% of her pay... in years past it was 6% traditional and 2% Roth).

We are usually within $1000-$3000 of the 15% bracket cap for taxable income.

3) Invest in taxable accounts once in 15% bracket
We have never had this much money available to invest (yet).

Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
jIMOh is offline   Reply With Quote

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
FIRE and tax-advantaged accounts IndependentlyPoor FIRE and Money 15 07-21-2009 05:56 PM
How to allocate taxable and non-taxable money? Olav23 FIRE and Money 6 01-10-2007 12:28 PM
Tax advantaged accounts / variable annuities aw78 FIRE and Money 20 08-04-2006 11:56 AM
Nuveen Tax Advantaged Total Return JTA Tony Tampa FIRE and Money 0 04-11-2006 03:42 PM
Dilemma tapping tax-advantaged accounts rrspike Hi, I am... 8 02-28-2006 03:02 PM


All times are GMT -6. The time now is 06:57 PM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2018, vBulletin Solutions, Inc.