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What would you put in your Roth IRA?
Old 06-11-2012, 03:03 PM   #1
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What would you put in your Roth IRA?

Just so you know, I don't know much about funds. (I did read some things like the Boglehead book, some rational investment approach, lazy portfolio, etc.)

I converted my non-deductible IRA to Roth IRA, but I don't know what funds to get. So far, I have some in Total Market, some in High dividend. . I just moved some from Total Market to Life Strategy (Moderate Growth). Some still in MM. I want to do really good here since it's all tax free gains.

What do you have in your Roth IRA?
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Old 06-11-2012, 03:19 PM   #2
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The Roth is theoretically a place for very long term investments. Most authors talk about the Roth being the last funds you would normally tap during retirement.

I have stock equities there and no cash or fixed income.
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Old 06-11-2012, 03:35 PM   #3
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I'd load up on equities and speculative things in a ROTH. If you are more conservative by nature and want something that will be simple you might consider Wellington
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Old 06-11-2012, 04:22 PM   #4
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If I live long enough I'll be tapping the Roth exclusively, so I have it set up with my normal AA, which is all equity anyway. Do you have a target asset allocation or is that part of the question?
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Old 06-11-2012, 06:01 PM   #5
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I have a semi-specific allocation scheme for my 401K and the after tax accounts, but because Roth IRA gains are tax free, I wanted to see what kind of funds people have in their Roth IRA's. From the other posts, I think I will go more agressive with my Roth than the other accounts I have.
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Old 06-11-2012, 06:01 PM   #6
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BTW, Thank you for all you guys' posts!
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Old 06-11-2012, 07:08 PM   #7
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Perhaps I have a different perspective. As someone that would like to RE prior to 59.5, I see the Roth as a fund that could be tapped (the annual after tax contributions only) prior to 59.5 without penalty. I see my Roth as a combo emergency fund/tap for ER <59.5/retirement fund. Is this theory flawed? I do see the benefit of holding off withdrawing for as long as possible, however, otherwise for RE you will need $ outside of retirement accounts or do a 72t from a traditional IRA.

So for me the question from the OP depends on whether he/she is going to RE (<59.5) or not and what other funds are available for RE. In my case, 59.5 is 9 years off, so I might tend to be more conservative with my Roth. Note that since the OP converted a traditional to Roth IRA, the rules are a little more complicated for RE (<59.5) withdrawal.

I welcome your comments.
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Old 06-11-2012, 07:20 PM   #8
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Old 06-11-2012, 07:27 PM   #9
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Into the Roth goes the portion of my AA that receives the least-favored tax treatment, such as corporate bonds.
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Old 06-11-2012, 08:35 PM   #10
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Quote:
Originally Posted by GrayHare View Post
Into the Roth goes the portion of my AA that receives the least-favored tax treatment, such as corporate bonds.
Same here. Being aggressive is great if it works. If it fails, you don't even get the tax break on a loss. I can see both ways, but for now I'm going with the bonds there. If the CG tax treatment changes, I'll most likely change my strategy.
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Old 06-11-2012, 09:15 PM   #11
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Same here. Being aggressive is great if it works. If it fails, you don't even get the tax break on a loss. I can see both ways, but for now I'm going with the bonds there. If the CG tax treatment changes, I'll most likely change my strategy.
I maintain a moderate allocation in my Roth to get the best of both worlds- some growth but also the benefits of a tax shelter for corp bonds. Or maybe I just can't make up my mind.
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Old 06-11-2012, 09:20 PM   #12
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See article below on most and least tax efficient options...for all types of accounts:
Principles of Tax-Efficient Fund Placement - Bogleheads

It says for tax exempt accounts, the following are best: bonds, tips, reit, managed stock funds.
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Old 06-11-2012, 09:23 PM   #13
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What you have in your Roth would be a function of a combination of your overall AA and the tax status of your nestegg. Typically, your bonds and other investments that generate significant interest income would go into your tax deferred accounts (401k, tIRA, etc), but if your bond allocation exceeds your tax deferred accounts, then the bond allocation would spillover into the Roth.

So you need to decide your AA first, and then assign the assets to the right accounts to optimize tax efficiency. Another important factor is your tax bracket.
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Old 06-11-2012, 10:10 PM   #14
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Thank you all for posting. I can see the point with going all out with equities and cannot do tax loss harvesting if you have to withdraw on the downturn. (I didn't think about that.)

I actually only have a little over 20K in Roth IRA (I have no other IRA's of any kind.), so it isn't much money to start with, so I was hoping it will grow astronomically (Ha! Who wouldn't.) There is really no need for this money that I can foresee either, but I decided to do Roth IRA just so I have some money I could withdraw from without any tax consequences if I should ever need it.

This Roth IRA was brought about by converting the non-deductible kind. (I didn't qualify for the tax-deferred IRA, so I started the non-deductible kind a couple of years before 2011 and when it hit 2011, I converted. I will be opening another non-deductible IRA and convert it into this Roth IRA soon, which will bring the total up to about $27K.

I am 53 and hoping to retire between 56 and 58.

Quote:
Originally Posted by Rowdy View Post
Note that since the OP converted a traditional to Roth IRA, the rules are a little more complicated for RE (<59.5) withdrawal..
I am not sure if I follow. Why does it matter if I converted a traditional IRA to a Roth IRA? I thought converting a non-deductible traditional IRA to a Roth IRA was the same thing as me opening a Roth IRA to start with? (since I already paid taxes on the money either way?) (BTW, my conversion is done (100% MM) a day after the non-deductible is established.)

Does the government tax the converted Roth IRA differently from a "pure" Roth IRA if you withdraw before 59.5? What am I missing here?
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Old 06-12-2012, 10:21 AM   #15
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Quote:
Originally Posted by tmm99 View Post
I am not sure if I follow. Why does it matter if I converted a traditional IRA to a Roth IRA? I thought converting a non-deductible traditional IRA to a Roth IRA was the same thing as me opening a Roth IRA to start with? (since I already paid taxes on the money either way?) (BTW, my conversion is done (100% MM) a day after the non-deductible is established.)

Does the government tax the converted Roth IRA differently from a "pure" Roth IRA if you withdraw before 59.5? What am I missing here?
There seems to be more complexity with converted money. The following link provides a nice summary of withdrawals prior to 59.5. See section "Distibutions After a Roth Conversion":

Roth IRA Withdrawal Rules
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Old 06-12-2012, 11:21 PM   #16
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Rowdy,

It looks like the link you pasted is about a poster talking about Roth IRA conversion when he still has tax deferred IRA, which isn't my case, so I think mine will be OK.
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Old 06-13-2012, 04:57 PM   #17
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Like pb4uski says, first figure out your asset allocation, then work on asset location (search for the term here or on the net & you'll find some good information).

I put my REIT allocation in my ROTH, and will follow with asset classes that throw off a lot of dividends. My bond holdings are in my tax-deferred IRA.
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Old 06-16-2012, 01:27 PM   #18
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Quote:
Originally Posted by RunningBum View Post
Same here. Being aggressive is great if it works. If it fails, you don't even get the tax break on a loss. I can see both ways, but for now I'm going with the bonds there. If the CG tax treatment changes, I'll most likely change my strategy.
I imagine some portion of your AA is more aggressive than others. So it's really not about taking more risk, but rather whether you allocate the riskier assets you already own to the Roth.

I see the problem this way: Is it better to place an asset with an expected taxable return of 3-5% in a tax-free-forever account or one with expected returns of 7-9%? All else being equal, you'd rather have a 7% tax-free return and a 3% taxable return than the other way around.

All else is never equal, though. We have different tax schemes for different asset classes that complicates things, but as a first approximation, the Roth seems better suited for your riskier assets.
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Old 06-16-2012, 01:56 PM   #19
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Old 06-16-2012, 02:22 PM   #20
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Since I have at least 15 years before I will be tapping my Roth - I fill it up with aggressive growth and I do some volatility trading in it... As I get closer I will curb the aggressiveness, but as long as I still have such a huge recovery time I go for it...
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