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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

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Old 08-01-2010, 04:38 PM   #21
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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...

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Old 08-01-2010, 08:11 PM   #22
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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).

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Old 08-01-2010, 10:51 PM   #23
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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 .

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Old 08-02-2010, 07:54 AM   #24
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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 ...
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Old 08-02-2010, 08:17 AM   #25
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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.
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