Withdrawal Rates and Taxes

[walkinwood]

if you pay the taxes with non ira money and you get the same invest returns whether you kept the TIRA or convert to a roth and your future tax rate is >= your current tax rate you will come out ahead doing the conversion, period.

I mis-wrote when I said that your base in the ROTH-IRA would be lower. I agree that you should pay your T-IRA to ROTH taxes from taxable moneys.

However, your total portfolio will still be lower by the amount of taxes paid, and I stick to my statement that it is not CERTAIN that you will come out ahead.

 

[audreyh1]

If you have some large moving of things around in your investments for retirement and there are severe taxable consequences, then IMO it's best to recalculate your SWR after taxes are withheld for all that investment rejiggering. Or use the after-tax value of that major asset you expect to sell in your SWR calcs if you expect a once-off type sale.

For us with mostly taxable investments, on average (it varies year-to-year and sometimes widely) 0.5% of the portfolio goes to taxes. So I know off the bat that 3.5% is the most I can expect for after tax income from our portfolio.

But IMO I am on the high side. Many folks have reported much lower percents. About half our income is taxed at the LTG rate, and we are rarely above the 15% tax bracket for non-LTG income, yet we're often subject to AMT and sometimes our portfolio throws off a lot of income/distributions.

No, I don't have interest income generated at 16% of the portfolio, and I'm not sure I ever expect to see that. But if it happens, I'd just have to deal with a lower after-tax money available for living expenses. Under those circumstances (very high inflation), it could be disastrous to draw even more from the portfolio to cover the taxes, ignoring the fact that I'm really using a higher SWR due to taxes.

Audrey

 

[jdw_fire]

i am not the novice to taxes you imply.

jdw_fire, many folks here have more than a million dollars in liquid taxable assets. They don't pay taxes at the average rates that you suggest because they have some understanding of the tax laws.

because, as i said in a recent post, they (are maybe forced to) plan their investments that way. and it seems you are saying that they would rather pass on an investment that throws off a 16% taxable income (if their ira is full) for a stock that flucuates in value because you dont have to pay taxes on the stock till you sell it. my father once told me (he was a CPA) dont worry so much about paying taxes, it means you made some money and if you pay alot in taxes you made alot of money. (i hope i quoted him right, it was a long time ago). and dont get me wrong, i am not against tax planning or trying to reduce the taxes that you have to pay (i do it myself) but i dont think that it should be so important to you that you would pass on a very hi yield just because you would have to pay taxes on it.

I could pull all the money out of my taxable portfolio on Monday and owe no income taxes. You may be amazed by that, but you shouldn't be. It's all about how you set your portfolio up to be tax efficient. Put your tax-inefficient assets in your tax-sheltered accounts and use tax-efficient investments in your taxable account. Just because they are tax-efficient, does not mean you are not getting the portfolio return that you expect for such an asset allocation. You are, however, not paying the taxes that someone who doesn't understand asset location would be.

of course you can pull as much already taxed money out of your account to spend and not be taxed on it again. pulling money out of an account (unless it is a tax favored account like a TIRA, 401k, etc) is not a taxable event, but making some type of income is, even if you dont pull that money out of the account. this just proves that you are not reading what i wrote. i said your portfolio produces a 16% taxable gain, you know like interest. the only way you can get around paying the tax due on interest paid to you in any given year is to have that interest paid to you inside a tax deferred/free vehicle like an ira. but if you own the "note" (or what ever the instrument) outside such an account then you will be paying the appropriate taxes on it.

I'd rather have $160K in gains that I paid $0 in taxes on than $160K in gains that I paid $40K in taxes on. Once again, turbo-tax can help you understand all this.

and finally of course you would but that isnt the choice i gave you. you know it appears you really dont want to open up your mind to a thought that isnt yours. as i said before, i am no novice to taxes, but i fear that your prejudice of me will not allow you to see my point, and that is your choice and loss. but there are some people on this forum who dont like stocks and will be investing in interest producing vehicles and this will have the potential of producing large taxable income. and again i repeat, what is wrong with that as long as the after tax return is high? but it can present a problem if you take the taxes out of your "SWD".

 

[jdw_fire]

I mis-wrote when I said that your base in the ROTH-IRA would be lower. I agree that you should pay your T-IRA to ROTH taxes from taxable moneys.

However, your total portfolio will still be lower by the amount of taxes paid, and I stick to my statement that it is not CERTAIN that you will come out ahead.

do the math (without violating my assumptions) and you will see it is CERTAIN you will come out ahead. you know you only have to find 1 example where i am wrong to disprove what i said, do you have that example?

 

[jdw_fire]

If you have some large moving of things around in your investments for retirement and there are severe taxable consequences, then IMO it's best to recalculate your SWR after taxes are withheld for all that investment rejiggering. Or use the after-tax value of that major asset you expect to sell in your SWR calcs if you expect a once-off type sale.
Audrey

thank you, it looks like you understood my point.

For us with mostly taxable investments, on average (it varies year-to-year and sometimes widely) 0.5% of the portfolio goes to taxes. So I know off the bat that 3.5% is the most I can expect for after tax income from our portfolio.

But IMO I am on the high side. Many folks have reported much lower percents. About half our income is taxed at the LTG rate, and we are rarely above the 15% tax bracket for non-LTG income, yet we're often subject to AMT and sometimes our portfolio throws off a lot of income/distributions.

how do you know? it seems to me that there has been some bragging on this forum about how little people pay in taxes (some occured on this thread) so i wouldnt be surprised if the people in higher income tax bracket just havnt bothered to say so.

No, I don't have interest income generated at 16% of the portfolio, and I'm not sure I ever expect to see that. But if it happens, I'd just have to deal with a lower after-tax money available for living expenses. Under those circumstances (very high inflation), it could be disastrous to draw even more from the portfolio to cover the taxes, ignoring the fact that I'm really using a higher SWR due to taxes.

if you look back at the 1980s the high inflation was killed off by the raising of interest rates. when i looked it up it appears that the 30 yr treasury exceeded 15%. Safe Haven | 80 Year History: Dividend Yield vs Interest Rates soo if you bought alot of that treasury back when you could have you would have locked in a 15% taxable (unless you bought it in an ira like account) yield for 30 years which lasted way past when inflation had subsided. now the taxes on that would be a big hit on your "SWD" if that is where you got the money to pay said taxes. but i am saying i dont think that is the appropriate way to do it.

 

[Animorph]

Regardless of how you work the taxes and spending, the SWR includes everything that comes out of your portfolio, including anything withdrawn to pay for taxes. That's the simplest way to think of it.

 

[LOL!]

If I could find an investment that would pay me 16% in interest today, I would put it in my tax-sheltered space even if that space was full. I would bump out some of my fixed income funds that pay only 4%. I invest for total after-tax return.

I do realize that some folks have little in the way of tax-sheltered space. Maybe they didn't contribute to a retirement plan and received an inheritance, sold a business, or won the lottery. They would have to do some things differently than I would do.

And I would not mind paying a million dollars in taxes, since it would mean that I made much, much more than that in income.

 

[audreyh1]

how do you know? it seems to me that there has been some bragging on this forum about how little people pay in taxes (some occured on this thread) so i wouldnt be surprised if the people in higher income tax bracket just havnt bothered to say so.

I've been responded to with several counter examples that led me to conclude that most retirees on this forum (not people drawing a salary - they are easily in a higher tax bracket) were seeing lower taxes than I was.

Plus we've had several poll on the forum looking at the distribution of annual income and the distribution of net worth. Based on that as well I'm likely in the "higher taxes than most" camp.

Audrey

 

[walkinwood]

do the math (without violating my assumptions) and you will see it is CERTAIN you will come out ahead. you know you only have to find 1 example where i am wrong to disprove what i said, do you have that example?

JDW_Fire,
As long as the future tax rate is higher than the current one - even by 1%, you are right. It doesn't work if the rate is lower in the future - even by 1%.

Note: To figure out the after tax value of the T-IRA, I assumed you take the whole amount out at once. ie. I didn't pay any attention to IRS rates & slabs etc.

Thanks for pointing it out. Makes me feel even better about my decision to move some of my T-IRA money out to a ROTH.

 

[walkinwood]

if you look back at the 1980s the high inflation was killed off by the raising of interest rates. when i looked it up it appears that the 30 yr treasury exceeded 15%. Safe Haven | 80 Year History: Dividend Yield vs Interest Rates soo if you bought alot of that treasury back when you could have you would have locked in a 15% taxable (unless you bought it in an ira like account) yield for 30 years which lasted way past when inflation had subsided. now the taxes on that would be a big hit on your "SWD" if that is where you got the money to pay said taxes. but i am saying i dont think that is the appropriate way to do it.

Wouldn't the yield today be more or less the same as any treasury bond that has the same time left? The value of your bond will have gone up, and that should be included in your portfolio value.

Am I right?

In any case, it is irrelevant to the point you're trying to make. ie. how do you deal with a portfolio that generates 16% in interest that is taxable. I haven't read any SWR studies that take this scenario into account since most do not deal with taxes at all.

 

[jdw_fire]

Thanks for pointing it out. Makes me feel even better about my decision to move some of my T-IRA money out to a ROTH.

you are welcome

Note: To figure out the after tax value of the T-IRA, I assumed you take the whole amount out at once. ie. I didn't pay any attention to IRS rates & slabs etc.

well actually i just applied the tax rate at the time when the 100% return was obtained. granted you would only have to pay said tax if you withdrew it at that time.

As long as the future tax rate is higher than the current one - even by 1%, you are right. It doesn't work if the rate is lower in the future - even by 1%.

lets see, using the same assumptions as before except the current tax rate is 25% and the future tax rate is 24%

converting a $20k TIRA to a roth will cost the same $5k in taxes from somewhere else in the portfolio and after the 100% return you have $40k after tax.

not converting said TIRS means the TIRA grows to $40k pre tax and the $5k grows to $10k pretax. now at the 24% tax rate the TIRA becomes $30,400 and the $10k becomes $8,800 totaling $39,200 after tax.

thus your asertion is incorrect. there are even cases where when the future tax rate is 1% less than the current tax rate it still pays to convert

 

[jdw_fire]

Wouldn't the yield today be more or less the same as any treasury bond that has the same time left? The value of your bond will have gone up, and that should be included in your portfolio value.

Am I right?

well i guess that depends on how you keep track of things. when i loan money (eg. buy a bond or write a note) i tend to use the amount loaned as the value of said loan. you really only need a market value of the loan if you are trying to sell the loan. in the case of a 30 yr treasury with a coupon of >15% i would probably not be looking to sell it so i would likely value it at face. if i valued it at market then the closer it got to maturity (for any given market interest rate that is less than the coupon rate) it would lose value so i would have to be revaluing it on a periodic basis and what would be the point of that since when it matures i would get the face value. to me it is much easier to just value it at face

In any case, it is irrelevant to the point you're trying to make. ie. how do you deal with a portfolio that generates 16% in interest that is taxable. I haven't read any SWR studies that take this scenario into account since most do not deal with taxes at all.

true and i think it makes more sense to do the income taxes inside the "machine" and leave the "SWD" for the retiree's other expenses. if you dont then there is the potential for your "SWD" to have to vary wildly based on what you are investing in, when you are doing said investing and the maturity & yields of the investments

 

[haha]

You may be pleasantly surprised that your tax rate may be 0% because (a) return of capital in a taxable account is tax-free, (b) you have a capital loss carryover from previous years (tax-loss harvesting), (c) you have a net capital loss this year (tax-loss harvesting),

So you are saying that if you have no income or negative income, you will pay no tax. No doubt.

The trouble is that this is clearly losing strategy over time.

Ha

 

[smjsl]

I'm amused by all the examples of 20% to 25% of income paid in taxes. I never paid that much when AGI was around $200K or so. Now in semi-retirement, tax rate will be about 5 to 7% of income.

So to address the topic: Yes, you include taxes you pay in your expenses and it comes out of your sustained withdrawal rate of 3% to 4%. To figure out your tax rate, use a copy of TurboTax and plug in your numbers. You may be pleasantly surprised that your tax rate may be 0% because (a) return of capital in a taxable account is tax-free, (b) you have a capital loss carryover from previous years (tax-loss harvesting), (c) you have a net capital loss this year (tax-loss harvesting), (d) qualified dividends are taxed at preferable rate as low as 0%, and (e) etc.

So run your numbers. if your tax rate is low enough, consider converting some traditional or rollover IRA money to a Roth IRA.

LOL! Can you provide more details? What is a single person to do with say a 100k income (half of your 200k example!) and a sizable portfolio that is in taxable accounts? Perhaps I am not understanding yout tax-reduction strategies but would love to learn:
(a) return of capital - where do you get this? I understand investing in PTP/MLPs BUT you do get taxes once your basis goes to 0 AND when you sell these.
(b) tax-loss harvesting - I understand this one IF you have enough losses but it's limited to 3k against your other income in best case. Also, what if you just don't have enough losses?
(c) itemized deductions - not much you can do without morgage, huge business expenses over 2% of your 100k salary, large medical expenses, or just giving it all to charity. Maybe there are some other well known ones I am not taking advantage of?
(d) qualifying dividends - 20% rate, not 0% with 100k income.

Irrespective of your investments, after 16k 401(k) contributions, you are still stuck with 84k of income. Say, you reduced it in best case by 3k in tax-loss harvesting. Now you are down to 81k income... That's still way more than 5-7% in taxes with standard deduction!! Then add on state and local taxes!

Thanks for any suggestions!

 

[LOL!]

You are not retired if you have $16K in 401(k) contributions, so you pay taxes.

If you do not have W2 or earned income, that would be helpful. Taxes on qualified dividends are 0% to 15%. Taxes on net realized long-term cap gains are 0% to 15%. SS benefits are not taxed unless you exceed an income threshold. Unrealized cap gains are not taxed at all. Tax-exempt bond income is not taxed. Withdrawals from your Roth IRA are not taxed.

Anyways, you cannot avoid the taxes on your W2 earned income after maxing out deductible contributions to retirement plans, getting the standard deduction and exemptions. So to increase your exemptions just get married and have lots of kids. You can also purchase a huge house with a huge mortgage and property tax bill. If you donate most of your salary to charity, that will also help.

You can avoid taxes on your sizable taxable portfolio by tax-loss harvesting and by using tax-efficient index funds of equities that pay only qualified dividends. Put all your bond funds in tax-sheltered accounts if possible. Etc.

 

[audreyh1]

(c) itemized deductions - not much you can do without morgage, huge business expenses over 2% of your 100k salary, large medical expenses, or just giving it all to charity. Maybe there are some other well known ones I am not taking advantage of?

Thanks for any suggestions!

If you are drawing a salary, it's hard to pay low taxes. And as LOL points out, you are not, in fact, retired.

We are talking about taxes on income from investments for retirees, not people drawing salaries. That makes the huge difference.

Audrey

 

[smjsl]

You are not retired if you have $16K in 401(k) contributions, so you pay taxes.

If you do not have W2 or earned income, that would be helpful. Taxes on qualified dividends are 0% to 15%. Taxes on net realized long-term cap gains are 0% to 15%. SS benefits are not taxed unless you exceed an income threshold. Unrealized cap gains are not taxed at all. Tax-exempt bond income is not taxed. Withdrawals from your Roth IRA are not taxed.

Anyways, you cannot avoid the taxes on your W2 earned income after maxing out deductible contributions to retirement plans, getting the standard deduction and exemptions. So to increase your exemptions just get married and have lots of kids. You can also purchase a huge house with a huge mortgage and property tax bill. If you donate most of your salary to charity, that will also help.

You can avoid taxes on your sizable taxable portfolio by tax-loss harvesting and by using tax-efficient index funds of equities that pay only qualified dividends. Put all your bond funds in tax-sheltered accounts if possible. Etc.

LOL!, in another message you said you try to invest for best overall after-tax income, but I don't think your suggestions above reflect that.

Since I was talking about your 200K AGI example (and in fact 100k example), I will assume this is referring to W2 situation. So, in your response, I will eliminate 0% on long-term cap gains and qualified dividends. The rest of your suggestions do not seem to improve overall after-tax situation, even though yes, they may be reducing taxes.

(BTW, I assume you did not mean AGI but all income before deductions but either way...)

(all kidding aside...) "Strategy" of getting married with lots of kids will not increase your after-tax income generally speaking. Yes, it may reduce you taxes by spending a lot in "qualifying" ways to reduce your taxes, but you are spending what you could have been saving. So on after-tax basis you'd come out behind with this strategy.

In many cases large mortgage strategy has the same flaw. Say you get 5% interest mortgage for $X to write off ~1/3 of that interest in taxable income over the course of that mortgage (for 33% bracket). Effectively you are taking a loan for $X amount at 5%*0.67=3.35%. While it may appear on the surface that you are reducing your taxes, to break even on this strategy you need to invest $X at 1.33*3.35%~4.5% return (for same 33% bracket). If you include extra property bill, extra repair costs, extra utility costs, extra time/energy costs to maintain the property, you'll now have to generate much more just to break even on this strategy.

Yes, donating most of your money will give you lower bracket but again, you come out behind on overall after-tax stream.

Your other strategies of tax-efficient investing are very true. However, they do not help with W2 deduction and even they produce extra 15% income unless you have too many losses to harvest, which again, are still limited to only 3k max per year against your other income as I understand it.

 

[smjsl]

We are talking about taxes on income from investments for retirees, not people drawing salaries. That makes the huge difference.

Audrey, I was responding to 200K AGI example from LOL! where he said he never paid anything 20-25% rates. He was not talking about retirees I assume...

 

[LOL!]

[edited] You made me look at my tax return.

Yes, I was writing about a $200K+ AGI. Not all of AGI was wages; we had dividends and cap gains back then. Actual income was higher since my spouse works, we are over 50, and we can put $40+K into deductible 401(k)s. If one were self-employed, one could put even more in a retirement plan. We have kids and itemized deductions.

The 20-25% rates are not marginal rates, but the effective tax rate. TurboTax says we paid under a 16% effective tax rate when we were in the 33% marginal income tax bracket (even after 401(k) deductions). Our kids and itemized deductions reduced taxable income. We reduced AGI income by moving all bond funds into tax-sheltered accounts, ditching balanced funds, doing tax-loss harvesting (selling ALL losing positions in taxable accounts), and using only tax-efficient index funds in taxable accounts and by not having any CDs, money market funds in a taxable account.

We are still working. My wife earns more, while I am semi-retired and earn less. TurboTax projections show we will pay taxes at about the 7% effective rate in 2009. We have become eligible for some tax credits that we couldn't get when our income is higher. Our taxes will about one-third of what they were a couple years ago while our income is about two-thirds of what it was.

 

[walkinwood]

you are welcome



well actually i just applied the tax rate at the time when the 100% return was obtained. granted you would only have to pay said tax if you withdrew it at that time.



lets see, using the same assumptions as before except the current tax rate is 25% and the future tax rate is 24%

converting a $20k TIRA to a roth will cost the same $5k in taxes from somewhere else in the portfolio and after the 100% return you have $40k after tax.

not converting said TIRS means the TIRA grows to $40k pre tax and the $5k grows to $10k pretax. now at the 24% tax rate the TIRA becomes $30,400 and the $10k becomes $8,800 totaling $39,200 after tax.

thus your asertion is incorrect. there are even cases where when the future tax rate is 1% less than the current tax rate it still pays to convert

Here's the spreadsheet I created to come to my conclusion.

 

[jdw_fire]

Here's the spreadsheet I created to come to my conclusion.

i opened your spreadsheet and what i noticed right off the bat was that you werent paying any taxes on your taxable account and that aint right. you still have to pay taxes on the gain in the taxable account.

 

[smjsl]

[edited] You made me look at my tax return.

Yes, I was writing about a $200K+ AGI.
[...]
TurboTax says we paid under a 16% effective tax rate when we were in the 33% marginal income tax bracket (even after 401(k) deductions). Our kids and itemized deductions reduced taxable income.

I am looking at 2008 tax tables/forms. For "married filing jointly", with 33% bracket, you at least have 200300 AGI * 0.33 - 21271 = $44828 on line 44 of your 1040. That's already 44828/200300=22.3% effective tax rate for federal taxes. Based on your earlier posts, only child credit can follow this line to bring it down (i.e. you did not mention elderly care / education expenses). So, to get you down to 16%, I assume you (a) do NOT fall into AMT, and (b) have at least 12800 in child credits? Did I get this right? I did not realize you can get so much in child credits but I guess I never bothered to check.
Now, are you paying 0% in state / local taxes?
Also, are your largest itemized deductions mortgage and prop taxes?
I am surprised you did not get hit with AMT by the way, especially with large itemized deductions.

In any case, thanks for clarifications...

 

[LOL!]

We did pay some AMT in 2006 and 2007. I think the financial media overstates the pain of AMT. If you paid $20 in AMT, would that bother you?

When your AGI is above a threshold, you are not eligible for child tax credit, so we got none. We had no dependent care tax credits either.

Our itemized deductions are not particularly large. TurboTax says they are about or below average for our income level. Prop taxes, then charity, then mortgage interest. We do not pay state income tax, but the IRS lets us deduct sales tax.

Remember the 0% tax bracket. You get something called "exemptions" -- one for every person in your family which drops your taxable income.

You get credit for foreign taxes paid by your mutual funds that you hold in your taxable accounts. Your international funds pay those taxes even if you hold them in an IRA, but you only can take the credit if you hold the int'l funds in a taxable account.

Also do not forget that if some of your AGI is qualified dividends and LT cap gains, then you do not use the tax tables to figure the tax. You use a special worksheet.

Suppose you and your spouse made $50,000 in wages and put $44,000 of that into 401(k)s for $6K net of wages. And from your taxable investments you had $50,000 in qualified dividends and $150K in LT cap gains. I'm not sure what the taxes would be because of the effect of AMT, but I hope you get the idea.

Contrast that with a similar scenario: $50,000 in bond dividend (not qualified) and $150K in short-term cap gains. Can you imagine the big difference in taxes? Be tax efficient with your taxable investments.

 

[smjsl]

Thanks LOL!, I think I saw a post from firedreamer yesterday (it's gone now for some reason) saying the difference is you count 16% probably based on your gross income, not based on your AGI. Unless your foreign tax deductions were ~12800, I don't see any other explanation. Since I figure my deductions like 401(k) will be taxed later, I usually look at my effective tax rate relative to AGI, not gross income... (and then if I really want to get depressed, I add in other taxes I pay like SS and medicare.. lol)

I understand those tax efficiencies you mention related to positioning of your funds. And yes, I know about the 15% (I think soon to be 20%) tax on LT gains / qualified dividends vs marginal tax on ST gains. Thank you for listing them anyway.

One practical issue I personally run into is I can't hold CDs in my 401k (well, actually I might but they would be at lower interest - maybe still something to look at). And I would rather have CDs than bond fund which will go down as soon as rates start creeping up. As a result I do have CD interest on which I have to pay taxes every year. From time to time I look for non-callable general obligations municipal bonds maturing within 5 years or so (I don't lock up CDs longer than that normally in this environment), but they always seem to pay less than CDs, even after taxes (and I am in high tax bracket because of AMT even though my pre-AMT bracket is only 28%).

We did pay some AMT in 2006 and 2007. I think the financial media overstates the pain of AMT. If you paid $20 in AMT, would that bother you?

It would not bother me too much if it were only $20. Also please note that as soon as you start paying AMT, you are now in larger tax bracket. To be more precise, if you were at 33% before AMT, with AMT you are now at least in 41.25% bracket (33*1.25) for federal taxes.


I guess to summarize this tax discussion, it inspires me once again to review tax-efficiency of my investments. Even though I do pay a lot in taxes, unfortunately, I did not hear any glaring issues as to what I might be doing wrong.

Also, I hope you now understand LOL! how some of us here get to quote those high tax rates... In my case, I cannot put 40k into 401k, but only ~16k. I do not have dependents and do not believe getting huge mortgage / property taxes will benefit me from financial standpoint. (Not to mention I live in a state where I end up paying ~7% in effective tax rate for state and local taxes relative to AGI.) Income from portfolio DOES need to be reevaluated but it's small relative to W2 income and so its further efficiencies will only go so far given the W2 income still needs to get taxed.

 

[LOL!]

My taxes were less than 16% of AGI, not of total or gross income. That is, my effective tax rate would be even lower if I included the 401(k) contributions.

You can hold CDs in IRAs rather easily. If you don't have an IRA, then get one.

As for AMT, maybe I was in the 28% bracket and AMT pushed me into the 33% marginal rate? I dunno. I determine my marginal rate by adding $100 to my W2 income in TurboTax and seeing that my taxes go up by $33. I do not use charts or tables.

I also realize that most of the tax-savings tips amount to giving away your money to someone besides the IRS. Either way that leaves you with less to spend on yourself.

As some point, your portfolio income should exceed your W2 income. This is why you want to be set up tax-efficiently now, so that you don't have to move things around in the future with the associated tax costs.

I do realize that not everyone can use some of the things I use, but many people put bonds in taxable and stocks in 401(k)s. That's bass-ackwards and costs them in extra taxes.