Where to put Wellesley?

[hadavi]

Hi. I am never placed any posts here in this forum but I have been reading it for about 6 months now. Everyone here has a tremendous amount of knowledge that they are offering...thanks.

My wife and I are contemplating retirement in about three years. We have about 800k right now in muni's, CD's, and cash (emergency fund). We also have equities in IRA's and brokerage accounts worth 1.5M. She will be about 50 years old in three years.

My question: Should the 800k (in 35% tax bracket) in fixed income be left alone, or should we start moving more money into muni's to look for the monthly income tax free? We will need about 75k per year in after tax dollars.

All responses are appreciated. Thanks.

[travelover]

For tax efficiency, you want bonds and CDs in tax deferred accounts (IRA, 401(k), etc.) and equities and munis in taxable accounts. Wellesley is a combination of equities and bonds, so it would best be in a tax deferred account, as well.

[Gpond]

What State do you live in and what is your State income tax rate?

Wellesley should be in your tax deferred account due to it does not get the 15% rate treatment.

$75K off the $800K? That is not doable with any measure of safety.

[brewer12345]

Before you make any decisions, you should try to project what your taxable income and marginal taxrate will be once you retire. If you are in the 15 or even the 25% marginal tax bracket (as I suspect), munis may be a waste of time in your taxable account.

[Gpond]

Quote:

Originally Posted by brewer12345 Before you make any decisions, you should try to project what your taxable income and marginal taxrate will be once you retire. If you are in the 15 or even the 25% marginal tax bracket (as I suspect), munis may be a waste of time in your taxable account.

Great point. Muni funds are in a bubble and buying individual munis are not even on my radar due to.......



Heck I don't even have a warm fuzzy about my FDIC "insured" CDs.

[FIREdreamer]

Quote:

Originally Posted by Gpond Great point. Muni funds are in a bubble and buying individual munis are not even on my radar due to.......

Muni funds are in a bubble

[Gpond]

Quote:

Originally Posted by FIREdreamer Muni funds are in a bubble

Flight to safety trade we have seen the past 12 months. They all ways reverse.

[FIREdreamer]

Quote:

Originally Posted by Gpond Flight to safety trade we have seen the past 12 months. They all ways reverse.

Hum, we must not be looking at the same funds, because the muni bond funds at Vanguard (except for the short term fund) did not benefit at all from the flight to safety. Actually, they were hurt pretty badly during the initial flight to safety (-5 or -6% for VWITX). We have seen a reversal (to the upside) in the past month, month and a half, as the credit markets have started to thaw.

So, while I agree that munis are not the bargains they were just 2-3 months ago, I don't think we can say they are in a bubble.

VWITX 12 month return: 1.93% (intermediate term munis)
VWLTX 12 month return: -2.25% (long term munis)

Doesn't look like "on fire" to me.

[dex]

Quote:

Originally Posted by brewer12345 Before you make any decisions, you should try to project what your taxable income and marginal taxrate will be once you retire. If you are in the 15 or even the 25% marginal tax bracket (as I suspect), munis may be a waste of time in your taxable account.

Also, project out cash flow - you might need less income from your investments after taking pension and social security into account.

[Stevewc]

Quote:

Originally Posted by brewer12345 Before you make any decisions, you should try to project what your taxable income and marginal taxrate will be once you retire. If you are in the 15 or even the 25% marginal tax bracket (as I suspect), munis may be a waste of time in your taxable account.

Hello Brewer,
If at the 25% bracket do what instead of tax exempt? Would like to hear where you were going with this?
Steve

[brewer12345]

Quote:

Originally Posted by Stevewc Hello Brewer, If at the 25% bracket do what instead of tax exempt? Would like to hear where you were going with this? Steve

For 5 year paper, munis at 2.7%, CDs at 4.39%, high grade corporates at 5%, Agency MBS at 4.5%. If you are at a 25% marginal rate, the after tax return of everything beats the munis. I personally don't much care how much I pay in taxes. I am looking at what offers the highest risk adjusted after tax return. The comparison was easier 3 months ago when the muni marke was still a mess. Now it makes more sense to buy taxable bonds.

[brewer12345]

Eh, state GO munis are almost certainly hunky-dory. Many county GOs would be fine too, although you would have to have some clue before buying them (my county is AAA rated, for example, and I would not hesitate to buy their bonds). This is more about the OP's likely tax status rather than a credit issue.

[Gpond]

I hear what you are saying Brew. I just wonder if OP is in Cali?

I would not buy their GOs.

[brewer12345]

Quote:

Originally Posted by Gpond I hear what you are saying Brew. I just wonder if OP is in Cali? I would not buy their GOs.

Not sure I would put all my eggs in that particular basket, but even there you are supported by an economy with a GDP larger than that of France. The power to tax is very great indeed.

[REWahoo]

Quote:

Originally Posted by Gpond I just wonder if OP is in Cali?

If you click on hadavi's name, then on "View public profile", you will see the following information under "About Me": State - Texas

[Gpond]

Quote:

Originally Posted by REWahoo If you click on hadavi's name, then on "View public profile", you will see the following information under "About Me": State - Texas

Thank you. TX does not have a state income tax. That really makes munis unattractive with the fed tax rate so low.

[hadavi]

We are currently putting most of the muni monies into the Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares. They have shown a relatively consistent yield. Right now we have about 35 percent of our retirement savings in stock mutual funds. Max out on our IRA's yearly and still left with about 200k/year to put into a non-qualified account.

I guess the bigger dilemna we have is: do we keep putting our new money into CD's or keep adding it to the Vanguard Tax-Exempt fund mentioned above? We love the dividend and diversity of this fund....but feel hesistant about putting more and more into it because of the whole idea of "don't put all your eggs into one basket." Thanks.

[Tadpole]

I guess I am missing something here. Educate me. Why not Roth even if it means waiting until 2010?

[rec7]

Quote:

Originally Posted by hadavi Hi. I am never placed any posts here in this forum but I have been reading it for about 6 months now. Everyone here has a tremendous amount of knowledge that they are offering...thanks. My wife and I are contemplating retirement in about three years. We have about 800k right now in muni's, CD's, and cash (emergency fund). We also have equities in IRA's and brokerage accounts worth 1.5M. She will be about 50 years old in three years. My question: Should the 800k (in 35% tax bracket) in fixed income be left alone, or should we start moving more money into muni's to look for the monthly income tax free? We will need about 75k per year in after tax dollars. All responses are appreciated. Thanks.

Will you be getting any pensions or SS?

[hadavi]

Hi. Yes we would both qualify later on.

Within 24 hours, I have received several responses to my posting. I am very excited to start using this forum more often. We have used a few planners over the past decade, but as we learn more about investments, we have realized that most are after commission. We put way too much in annuities early on. I look forward to the continuing education.