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]

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.

 

[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]

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]

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

 

[FIREd]

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

 

[dex]

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.

 

[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.

 

[Stevewc]

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

 

[Tadpole]

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

 

[brewer12345]

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.

 

[FANOFJESUS]

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?

 

[Gpond]

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.

 

[Gpond]

Muni funds are in a bubble

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

 

[FIREd]

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.

 

[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.

 

[Dennis]

Well, being in the Limo Business in Chicago and serving Alot of Firms adn their VIPS?
The 3 Rules:

1. Sounds like "Your the Worse Enemy to Invest your own $"...LOL... But it's true and I was also...
2. Have you studied Several of the Popular Investment Guys, Like Paul Merriman's> Fund Advice, Scott Burns> Asset Retirement and Builder.. and a few others? Do so now..not to do what they say, but to Learn all the Buzz words and The Basic's of what they're Suggesting ...

3. Then You need to go see A couple of Different Professionals... ie: Go see a couple of ChFP's And 2 Investment Firms..they will do them either for a small Fee or Free...in hopes ot get your business.. I started with my CPA Guy and his Recommendations of whome to go see...for HNW people..

4. Then you will have a much better Idea of How much you will be needing, how to get the Best Tax Advantages on your Taxable $ and What Kind of Risk you need( or not) to be taking.. You may only need a Few Bonds funds and that's it..

In the Meantime? Don't Do Nottin Honey ! LOL

PS.. They expect as many as over 25% of Muni's to Go broke and need to be bailed out..or ? And If you don't need the $ or tax shelter? Don't bother taking the risk to save a Few bucks and risk loosing it and just pay the higher Tax on the other end instead.. ( I owned Treasuries last Yr and Just Paid the IRS man on the Nice gains after making over 17% - 35% = net 11% )

This yr it's GNMA, Some Corp. Bonds, VFSTX, FFHRX & Some TIPS..
But , I'm not one of those indexers , nor a person who is a Penny wise and a Dollar Short either..I don't mind paying taxes, just as long As I make alot more than they want from me.. I'd rather make 10% and pay 35% taxes , than Make 5% tax Free..but at a higher risk..

 

[lawman]

Some have mentioned that muni's face risks that may be greater than the yield suggests..I'm heavy into Vanguard's Long Term Tax Exempt (VWLUX). I'm comfortable with the interest rate risk as it's a very long term investment but not so much with the default risk..What's the concensus?