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Withdrawal phase asset allocation confusion
Old 01-26-2013, 12:22 PM   #1
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Withdrawal phase asset allocation confusion

Comrades,

So on advice of all the wise ones in these forums we've got our stash arranged to minimize deep rectal penetration by tax collection entities. For simplification lets say exactly a million, divided as:

250k taxable - international stock index fund
750k retirement - total bond index fund, total stock market index fund, small cap index fund

In other words we've got the asset allocation we want and the all the international is in on the taxable side while everything else is in 401k, Roths, rollover IRAs, and a 457.

So when it comes time to stop working and pull money out to afford things like beer, how can this work? It seems basic rule #1 is you sell what has gained the most to accomplishing rebalancing but if there is also the basic rule #2 that you sell from your taxable accounts first so the tax advantaged side can continue to accumulate in a more joyful manner. Obviously the only way I can follow rule #2 is to sell from intl, but if that is the lagging asset class then I'd be violating rule #1 of selling by performance.

We're not quite there yet (withdrawing that is) but its-a-coming and I'm wondering if I should start thinking about moves to make in anticipation of solving this dilema.

Thanks in advance for kind advice!
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Old 01-26-2013, 12:27 PM   #2
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This is so easy that you will laugh when I tell you how to do it.

1. Sell int'l shares in taxable with highest basis, so that you realize lowest capital gains or even losses.

2. In tax-advantaged, sell whatever you want (bonds, CDs, small-cap, etc) and buy the same number of int'l shares you just sold in taxable.

See how it just doesn't matter what price you sell those int'l shares for? If they are low when you sell, you will buy them low in your tax-advantaged account. If they are high when you sell, you will buy them high in your tax-advantaged account.

Just watch out for wash sales which are easily avoided if you sell at a loss in taxable because you can buy a different int'l fund in tax-advantaged.
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Old 01-26-2013, 12:28 PM   #3
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Don't know the answer but it seems plugging your info into I-Orp would give you an idea.
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Old 01-26-2013, 04:35 PM   #4
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Quote:
Originally Posted by LOL! View Post
This is so easy that you will laugh when I tell you how to do it.

1. Sell int'l shares in taxable with highest basis, so that you realize lowest capital gains or even losses.

2. In tax-advantaged, sell whatever you want (bonds, CDs, small-cap, etc) and buy the same number of int'l shares you just sold in taxable.

See how it just doesn't matter what price you sell those int'l shares for? If they are low when you sell, you will buy them low in your tax-advantaged account. If they are high when you sell, you will buy them high in your tax-advantaged account.

Just watch out for wash sales which are easily avoided if you sell at a loss in taxable because you can buy a different int'l fund in tax-advantaged.
+1.

It's easy enough, but again, watch out for wash sale rules.
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Old 01-27-2013, 12:29 PM   #5
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Awesome, thanks my friends.
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