Moving stock allocation outside tax-deferred retirement accounts

[SimpleMom]

Hi – Newbie here. (This will be obvious from my next sentence...) We have our stock funds in our tax-deferred retirement accounts and cash/bond investments in taxable accounts. Without changing our AA, I believe we should sell some of our stock funds inside the retirement accounts and buy bond investments with those funds, and then buy those stock funds outside of our retirement accounts. Now seems like a good time to do so. Is there a timing tax issue, for example, not being able to sell Vanguard VTSMX in my IRA and turning around and buying the same fund outside my IRA without penalty? Would I need to buy a comparable, but not identical fund to avoid any penalty? Thanks so much.

 

[LOL!]

There would be no penalty for selling stocks in IRA and buying in taxable. I presume you are worried about a wash sale. A wash sale applies only to assets sold in a taxable account at a loss. If you sell at a loss in tax-deferred, you probably cannot deduct the loss anyways, so no wash sale is possible. So sell VTSMX in tax-deferred and buy in taxable without any concerns at all.

So if you have bond funds in taxable and sell at a loss (a very real possibility), then you will need to consider whether the wash sale applies. If you sell a bond fund at a loss in taxable and buy a substantially identical replacement shares in your IRA, there is no penalty, BUT you will not be able to deduct the loss on your tax return ever. However, it should be easy to buy something that is not substantially identical.

If you list your bond funds with losses, then we can suggest replacement funds that are not substantially identical.

 

[SimpleMom]

Thanks LOL. We don't have any bond fund loses at this point and would be using cash to buy add'l bond funds. Any recommendations for bonds other than VBMFX? Our AA isn't too formalized and we probably have too much in cash (CD's and savings accounts), though it feels good with all the stock market turmoil.

 

[LOL!]

Many people believe that short-term bonds and TIPS are more appropriate nowadays with the threats of inflation and of rising interest rates. It is so hard to make any concrete suggestions in this environment. So in my 401(k), I have intermediate term bonds (PTRAX, PIMCO total return and FBIDX, Fidelity US Bond Index) while in my IRAs, we have Vanguard short-term investment grade and GNMA funds. I swing trade the Vanguard inflation-protected securities fund (VIPSX). These are not recommendations, but I list them to show you that I don't have a clue, so I have some of many different things.

 

[DblDoc]

If you want to keep it simple TBMFX is fine. I slice and dice and split 1/3 each between Vanguards short and intermediate term treasuries and TIPS funds. I do own TBMFX as well as it is the only bond fund choice in both my HSA and my 403b.

DD

 

[SimpleMom]

Thanks to both of you. Simple is good. I think I'll keep my cash in CD's for now while learning more about bond funds and seeing where interest rates head.