Percentage of Taxable Money in Portfolio

[Alan]

60% after tax at present.

 

[Surewhitey]

I put the wrong amount in...more like 60%, not 20-30...

We're living off the divy's of taxable currently.

 

[Lsbcal]

+1. After 13 years of retirement my after tax amount is 0%.

That is hard to do. You don't have a checking account? OK, I'm probably quibbling a little here.

Our after tax amount is around 2% if I don't count the Ibonds which are tax deferred for another 20 years. Also I'm not counting the SS which flows into our checking accounts and is taxed.

 

[packrat44]

I find this thread confusing regarding what falls under the definition of "taxable". It appears many classify 401k and IRA funds as "non-taxable". The OP goes as far as classifying his ROTH account as "taxable".

My definition of "taxable" is any investment where taxes are or will be due. I consider investments in 401k and IRA accounts as "taxable" because they will be taxable once they are liquidated. Granted, some may pay no taxes due to their tax bracket. But that is the same for "taxable" income for someone in a low tax bracket.

My definition for "non-taxable" is any investments where no further taxes are due. Investment in a ROTH account would fall under this definition.

This poll might be more useful if it asked for percentage of investments in "taxable"; "tax-deferred"; and "non-taxable".

 

[NW-Bound]

We have additional investments in taxable accounts that we don't count as part of our retirement portfolio.

Perhaps you have money set aside for charity or other purposes.

As for me, everything I have can and will be spent if I need to stay afloat in retirement. However, I do not plan to die broke, and surely hope to leave money behind, plus my real estate.

Since you didn't specify in your poll, I assume you want current percentages.

At the risk of being accused of quibbling (who, me?), my after tax % is considerably lower now after 7+ years of retirement than it was when I pulled the plug. Most of that money was used up funding our living expenses prior to age 59.5 and to allow for some Roth conversions.

I was not thinking of the situation of people who have been retired for a while. I was indeed thinking only about the starting portfolio when one's retirement starts. For me who just stopped working, the two are the same. I should have been clearer and say "starting portfolio" so that we can compare apple and apple.

However, the partitioning of the current portfolio is relevant too. It makes the difference of whether one gets to enjoy the 0% tax rate on dividend and cap gains for the 15% tax bracket.

I do expect to spend down the taxable accounts first, but then I will also be doing Roth conversion. I have no plan yet, nor done any calculation to see what my accounts will look like in the future.

Just over 50%. I think it would be easier with a higher percent in taxable as then i wouldn't need to worry about 72t distributions. But the deferred tax benefit is so great, it wouldn't make any sense not to max out retirement accounts.

We always maxed out our retirement accounts. However, the years when I was doing independent consulting work, I could have sheltered a bit more money by doing solo 401k. But as my income was so erratic, and the expenses were high with college tuition, I thought I would not have that much money to save. I could have deferred some more money instead of paying much taxes some years.

I am guessing that you are doing Roth conversions while spending the after tax money. That's a good tactic.

Running ORP can help a little to show what income streams to draw from. The tax picture is not at all obvious and is difficult to generalize. ORP is not that strong at considering the tax picture.

What I've done is to run TurboTax with various scenarios and created my own tables showing marginal rates. I don't want to let our IRA's grow too much and force large RMD's at the same time as having SS income. So it can be a good thing to pay taxes up to at least the 15% bracket. SS income is not taxed at the state level.

This is my 1st year of ER, and I will look to do Roth conversion in the future, but have not figured out all the details yet. The bitty Roth accounts came from the few years when the income was such that we happened to qualify to put away a few Ks (already maxed out 401k, and made too much for IRA, but not too much for Roth).

Fascinating poll response. There are 10 categories. The 54 responses in the first five hours are spread almost uniformly across them. Most polls with even buckets would show some sort of a bell curve.

Like some others here, we burned off most of our taxable assets early in retirement.

I would expect a bell curve too.

Perhaps a lot of younger early retirees were able to do so with non-qualified stock options and still have much in taxable accounts, while the older retirees might have spent theirs and the after-tax savings, and only have 401k or rollover IRA's left. That spreads out the two tails of the curve, and flattens it out.

I assumed that by "% of money in taxable accounts", you mean $ value of all invested assets in taxable accounts. 2 very different things, but likely if you meant money per se you would have made that clear.

Ha

Yes, I meant "asset values" rather than "money". The latter might be confused with cash, which was not what I meant. Most posters seemed to understand what I meant.

I find this thread confusing regarding what falls under the definition of "taxable". It appears many classify 401k and IRA funds as "non-taxable". The OP goes as far as classifying his ROTH account as "taxable".

My definition of "taxable" is any investment where taxes are or will be due. I consider investments in 401k and IRA accounts as "taxable" because they will be taxable once they are liquidated. Granted, some may pay no taxes due to their tax bracket. But that is the same for "taxable" income for someone in a low tax bracket.

My definition for "non-taxable" is any investments where no further taxes are due. Investment in a ROTH account would fall under this definition.

This poll might be more useful if it asked for percentage of investments in "taxable"; "tax-deferred"; and "non-taxable".

I have always called my 401k and IRA "tax-deferred" or "pre-tax" accounts. There's no confusion there.

But the other part of the assets, what I like to call "after-tax", I found that many posters here called it "taxable", hence the latter was what I used.

Both "after-tax" or "taxable" descriptions are ambiguous. My "after-tax" money has already been taxed, yes, but that applies only to the principal. The dividend and cap gain portions are yet to be taxed. I guess that's why people call it "taxable".

 

[panhead]

I'm right around 70% in taxable. A little over if you include my rental real estate value, a little under if you don't. I'm working hard to retire early (45ish) so this is necessary as I would rather not do the 72t deal, tho I am and have been maxing out all of my deferred options.

 

[truenorth418]

17% in IRAs.

 

[donheff]

We only have about 20% taxable (after pulling for a few years). DW had a lot of different options for squirreling away after tax dollars and the deductions were valuable. But we will pay the piper in ten years or so when all our withdrawals become regular income. Coupled with my fully taxed pension that will keep us in nose bleed brackets. But I guess that isn't such a bad problem to have.

 

[H2ODude]

About 50-50. Interesting how evenly spread the poll shows the respondents.

 

[Midpack]

I find this thread confusing regarding what falls under the definition of "taxable". It appears many classify 401k and IRA funds as "non-taxable". The OP goes as far as classifying his ROTH account as "taxable".

My definition of "taxable" is any investment where taxes are or will be due. I consider investments in 401k and IRA accounts as "taxable" because they will be taxable once they are liquidated. Granted, some may pay no taxes due to their tax bracket. But that is the same for "taxable" income for someone in a low tax bracket.

My definition for "non-taxable" is any investments where no further taxes are due. Investment in a ROTH account would fall under this definition.

This poll might be more useful if it asked for percentage of investments in "taxable"; "tax-deferred"; and "non-taxable".

I acknowledged the issue in my earlier post. But it would take too much time to break out the various levels of taxation my 8 accounts will get hit with. It's normal convention for folks to count 401k's and IRA's as sheltered. Everything is taxable, just a matter of when/how...

 

[NW-Bound]

Everything is taxable, just a matter of when/how...

... except for Roth accounts, which have been taxed, and whose gains and incomes will not be taxed. Well, until they find a way to do it, or to change the law.

And the deferred accounts are only "sheltered" until you try to spend it.

I wonder if other countries' tax laws are as convoluted. Is this the way politicians muddy the taxes and divert people's attention, so people can't tell what is coming or going, and spend so much time shuffling their money around to minimize their taxes that they forget about other problems?

 

[pb4uski]

My 42% was higher than what i would have thought off-the-cuff.

 

[haha]

My definition of "taxable" is any investment where taxes are or will be due. I consider investments in 401k and IRA accounts as "taxable" because they will be taxable once they are liquidated.

Although your reasoning has much to recommend it, unless you can commandeer communication channels, few other people will know what you are talking about, as "taxable" has a long history of being accepted as meaning “in this account if you get income subject to taxes, and if you are a taxpayer, you will pay taxes annually on this income, subject to the details of your own 1040 and schedules, and the laws in force during that year".

Ha

 

[Koogie]

97.3% in taxable accounts. Or double taxable. Or triple taxable. Depends on your point of view.

 

[jclarksnakes]

The results are getting quite a bit heavier for the lower percantages. This just confirms what we already pretty much assumed which is that a lot of us on this forum have a sizeable percentage of our assets in tax deferred accounts. My post over in another thread is probably what precipitated this thread. I will just say that I am highly thankful for what a good deal tax deferred savings have been for us.

 

[Lsbcal]

When one has investments, it's a lot easier and can even completely control the investment process if you have money in tax deferred or untaxed accounts versus taxable (each and every year). As Ha mentioned above, it's all about that 1040 you have to do each year.

My investment approach would change a lot if I had to worry about yearly taxation of traded stocks/bonds. That tax deferral is huge to me.

 

[scrabbler1]

When one has investments, it's a lot easier and can even completely control the investment process if you have money in tax deferred or untaxed accounts versus taxable (each and every year). As Ha mentioned above, it's all about that 1040 you have to do each year.

My investment approach would change a lot if I had to worry about yearly taxation of traded stocks/bonds. That tax deferral is huge to me.

+1. I do more rebalancing in my TIRA than I do in my taxable accounts (i.e. I have a smaller AA range in my TIRA), partly because I don't have to worry about any tax consequences. In fact, in 2011 for the first time since I began investing in taxable account mutual funds more than 20 years ago, I did not have to file a Schedule D because I made no exchanges or redemptions in any taxable account mutual funds.

 

[ejman]

44% in taxable accounts. As dividends and CG from my taxable accounts +SS constitute all of my income I expect that percentage to decline over the next 8 years until I start RMD's

 

[NW-Bound]

When one has investments, it's a lot easier and can even completely control the investment process if you have money in tax deferred or untaxed accounts versus taxable (each and every year). As Ha mentioned above, it's all about that 1040 you have to do each year.

My investment approach would change a lot if I had to worry about yearly taxation of traded stocks/bonds. That tax deferral is huge to me.

+1. In the past, that is.

For me, that was only true in theory. In 1999-2000, I loaded my rollover IRA with tech stocks (no dotcoms here, mind you), and had nice, darn nice gains. I could have sold and kept mucho money without any tax dues. Sadly, my fear did not conquer my greed and I did not sell until most of the gains had evaporated.

Anyway, with the tax-free dividends and cap gains for an early retired couple earning less than $90K (15% bracket+exemptions etc...) from taxable investments, for me that pretty much levels out the advantage of the deferred accounts. Some people here are truly rich and may exceed that threshold, but at a hypothetical dividend yield of 4%, that means $90K/0.04 = $3.6 mil in taxable accounts. That's many times more than what I have as principal in those accounts.

I will be sure to sell/buy-back more equities to "launder" them as much as my headroom in the $90K bracket will allow, to clean out any cap gains and to reset the basis. Who's to say Congress may not take this away in the future?

 

[Lsbcal]

+1. In the past, that is.

For me, that was only true in theory. In 1999-2000, I loaded my rollover IRA with tech stocks (no dotcoms here, mind you), and had nice, darn nice gains. I could have sold and kept mucho money without any tax dues. Sadly, my fear did not conquer my greed and I did not sell until most of the gains had evaporated.

Many of us have one of those "the one that got away" stories. Don't feel too bad.

Anyway, with the tax-free dividends and cap gains for an early retired couple earning less than $90K (15% bracket+exemptions etc...) from taxable investments, for me that pretty much levels out the advantage of the deferred accounts. Some people here are truly rich and may exceed that threshold, but at a hypothetical dividend yield of 4%, that means $90K/0.04 = $3.6 mil in taxable accounts. That's many times more than what I have as principal in those accounts.

I will be sure to sell/buy-back more equities to "launder" them as much as my headroom in the $90K bracket will allow, to clean out any cap gains and to reset the basis. Who's to say Congress may not take this away in the future?

Good idea. I think we can count on several tax advantages going away in the future.

In case I gave the wrong impression, when RMD's kick in I will be forced into a high tax bracket because then the SS gets fully taxed. I will be paying at a hefty marginal tax rate I think. I will do my duty too.

 

[unclemick]

Since you didn't specify in your poll, I assume you want current percentages.

At the risk of being accused of quibbling (who, me?), my after tax % is considerably lower now after 7+ years of retirement than it was when I pulled the plug. Most of that money was used up funding our living expenses prior to age 59.5 and to allow for some Roth conversions.

Ditto. 49.5 to 69 lived largely off some cash, div stocks, RE and 1 yr or so temp work. Now under 10%. also took early (55) pension and SS(62).

Coming up on 70 1/2 and good old RMD.

Heh heh heh - Jump in Taxes will be an ouch.

 

[FUEGO]

We have around 30% in taxable accounts. We have maxed out retirement accounts (IRA, 401k x2, 457), Health Savings Accounts, and 529 College savings accounts to the extent possible. I even had about 10% of our total portfolio in a former employer's ESOP plan which is being rolled into my IRA in equal annual installments over the next 4 years.

In spite of these tax deferred options, we always end up out of tax deferred savings options at some point during the year so we dump a decent amount into the taxable account. We'll probably spend it down first in ER along with a 72t or withdrawals from the 457. Having 30% of the portfolio in taxable accounts means it could fund 10-12 years of withdrawals if that were the only source of income for us.

 

[ziggy29]

Many of us have one of those "the one that got away" stories. Don't feel too bad.
Good idea. I think we can count on several tax advantages going away in the future.

In case I gave the wrong impression, when RMD's kick in I will be forced into a high tax bracket because then the SS gets fully taxed. I will be paying at a hefty marginal tax rate I think. I will do my duty too.

For me there is something to be said in many cases for adding to taxable investment accounts even before you've maxed out your tax-deferred or tax-free options. (At least unless you are in a very high bracket now, and even then possibly so if you believe that taxes will be higher in the future.)

When you have all three types of investments -- traditional retirement accounts, Roth vehicles and taxable accounts -- it's more possible in retirement to "engineer" income streams in a way that gets you all the benefits of the lower tax brackets while adding more income that will not be taxed into the next bracket. For example, if the top of the 15% bracket were at $60K, you could withdraw from TIRAs and 401Ks in conjunction with SS and any pensions or tax-deferred annuities up to nearly $60K (locking in those withdrawals at low marginal rates), and if you needed another $20K, you can get that from taxable accounts and Roths. And if in some year you needed less than $60K, you might still withdraw as much as you could at a 15% tax rate and move the excess cash flow into taxable savings or investment accounts. This is even more true if you are looking at very large RMDs or if you have a large pension.

 

[NW-Bound]

Many of us have one of those "the one that got away" stories. Don't feel too bad.

No, not just one. They all got away! Most of them!

Anyway, back on taxable accounts, I spent a lot more time looking at my tax-deferred accounts because of that possibility of booking gains without paying taxes, and also loaded my taxable accounts with stocks that I hoped would be for longer term holding. Hence, when I thought about pulling the plug, silly me did not even know if I had to do 72t or not. Could you believe that?

But now, I am glad that I have some freedom to decide what to draw on. But, but, but this degree of freedom means that I may be spending a lot of time to optimize my taxes, to squeeze out a bit here and there, to play the shell game with the tax man.

See what Congress does to keep our mind busy?

PS. Oh never mind. The IRS has Xray vision and can see right through the shells, and even my cupping hands covering them, to see what is in each shell.

 

[NW-Bound]

Just spotted this arithmetic error. $90K/0.04 = $2.25 mil, which is still a lot more than what I have in taxable accounts.

...Some people here are truly rich and may exceed that threshold, but at a hypothetical dividend yield of 4%, that means $90K/0.04 = $3.6 mil in taxable accounts. That's many times more than what I have as principal in those accounts.