How much Ca$h in a ROTH?

[engineernerd]

I'm working on my asset allocation and have a question about the amount of "Cash" one should have in a ROTH. By Cash I mean Money Markets, CDs, Bonds, etc.

The reason I'm asking was because I was reading an article about which accounts to start drawing down first. The article mentions start with after tax brokerage type of account, then 401K, then Roth.

If the Roth is meant to be drawn down later, should you ben more Equity heavy in these accounts? I have maybe 10 years til I would start drawing down the Roth.

PS. What is teh amount one should have in cash in a regular retirement account and brokerage account? 40%? I'm 56 this month.

I say use the FIRE calculator here to determine your overall asset allocation!!! I believe there is an option to enter all the other data and ask it to optimize your odds of success by varying your asset allocation.

Maybe you're not comfortable with what it spits out, or (probably correctly) believe the future will be different from the past, but at least find out how different asset mixes would have performed using the historical returns data before you make this decision.

If you play around with this calculator, you will find that it is not only your age but also the size of your portfolio that has a strong influence over the best asset allocation. If you have saved up a LOT of money, your odds of dying before you run out of money will be highest with a conservative mix, relatively heavy on fixed income. If you have saved up not-so-much money compared to your living expenses in retirement, then your odds of success will be highest with a portfolio that is more biased towards stocks.

On to where to put your different assets once you've decided on your overall asset allocations: I agree with others here that you should put as much of your stock portfolio in your Roth IRA as you can, and as much of your fixed-income portfolio in your tax-deferred accounts as you can. This is because capital gains will be taxed at 0% in your Roth, at 0%/15%/20% in your taxable brokerage account, and at ordinary income tax rates in your tax-deferred retirement accounts.

 

[indiajust]

Let the duration expectation for the Roth drive your AA decision. If its just for inheritance and you will never spend, use your life expectancy plus a few years as duration.

If its your primary spending and you will consume it, choose the AA to reflect that reality.

AA by account duration makes sense to me.