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What to keep in after-tax and what to keep in tax advantaged?
Old 10-22-2013, 08:02 PM   #1
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What to keep in after-tax and what to keep in tax advantaged?

The good news? I've hit/exceeded my number. Yay!

The bad news? I'm not sure what to do next.

I've spent the last few hours searching the forums but am still not very clear on what might be the smarter strategy.

My strategy is to maintain an overall AA of 60/40 using Vanguard Wellington (80% of total combined portfolio) and Vanguard Wellesley (20% of total combined portfolio).

Once I RE, I will be drawing from my after-tax account while my tax advantaged account (hopefully) continues to grow. Should I deplete my after-tax account or reach RMD age, I'll begin to draw from my tax advantaged account.

Should my after tax account be all or mostly Wellesley with all or mostly Wellington in my tax advantaged account? Or vice-versa?
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Old 10-22-2013, 09:54 PM   #2
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In general put whatever throws of the larger percentage of non-qualified dividends in the tax advantaged account. Probably Wellesley in tax advantaged.

If your income is very low, be sure to Roth convert to fill up your tax bracket and reduce your RMD's. Or withdraw from tax advantaged to fill up the bracket. You're trying to get as much of the account out (or into the Roth) at the lowest tax rate. Particularly if RMD's will boost you into a higher tax bracket.
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Old 10-22-2013, 10:01 PM   #3
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Originally Posted by LakeTravis View Post
Once I RE, I will be drawing from my after-tax account while my tax advantaged account (hopefully) continues to grow. Should I deplete my after-tax account or reach RMD age, I'll begin to draw from my tax advantaged account.
Take a look at what how those RMDs will affect your tax rates. If they will push you into a high bracket it can make a lot of sense to start drawing down tIRAs well before reaching RMD age so that you don't have to pay these higher rates. This is especially true if you are married and one of you dies, leaving the other filing as a single taxpayer.

Here's the best guide I've seen regarding which assets should go where.
Principles of tax-efficient fund placement - Bogleheads
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Old 10-23-2013, 06:36 AM   #4
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Thanks - the tax situation is one I've been starting to think about as well.

My assets are currently 1/3rd in an IRA and 2/3rds in after-tax. I'm 54 and have been researching how to convert a portion of the IRA to a Roth each year, but since DW (49) will continue to work for another eight years or so with a pretty substantial level of income it's tricky.

For my drawdown years, I'm leaning towards an IRA of 100% Wellington and the after-tax account being the balance of Wellington/Wellesley to achieve an overall 60/40 AA. A couple of years of cash will be kept outside of the two funds.
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Old 10-23-2013, 06:54 AM   #5
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If your marginal tax rate is high due to your DW working, you may find Wellesley in the taxable account unpleasant. An option to consider is allocate those funds into a Vanguard muni fund and a Vanguard active stock fund, such as Dividend Growth (VDIGX) or Dividend Appreciation (VDAIX).
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Old 10-23-2013, 07:04 AM   #6
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If your marginal tax rate is high due to your DW working, you may find Wellesley in the taxable account unpleasant. An option to consider is allocate those funds into a Vanguard muni fund and a Vanguard active stock fund, such as Dividend Growth (VDIGX) or Dividend Appreciation (VDAIX).
Essentially build my own Wellesley but using tax-exempt muni's for the bond component?
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