Bonds in Roth401K

[BigBob]

I am planning my annual rebalance and was wondering if it made sense to invest my new contributions(next year) in the VG Total Bond Market Index in a Roth 401k? If it does not make sense in the Roth 401k, what about in my 401K?
Can someone point out any reasons why or why not? This is not specifically a question of whether to invest in the Roth vs Regular 401k, but the "bond" aspect of it.

 

[ats5g]

I am planning my annual rebalance and was wondering if it made sense to invest my new contributions(next year) in the VG Total Bond Market Index in a Roth 401k? If it does not make sense in the Roth 401k, what about in my 401K?
Can someone point out any reasons why or why not? This is not specifically a question of whether to invest in the Roth vs Regular 401k, but the "bond" aspect of it.

I'll take a stab. The Roth 401(k) is just the after-tax equivalent of the regulator 401(k). So, if you had $1,000 in VG Total Bond Market Index in the Roth 401(k), that'd equal, assuming 28% tax rate, $1,388.88 in Total Bond Market Index in the regular 401(k). IMO, it shouldn't make all that much difference which assets [stocks or bonds] you put where [Roth or regular].

- Alec

 

[walkinwood]

mmmm.. tough one - for me at least..

401-K - your principal hasn't been taxed yet, so you'll get dividends on a larger $ value. But you'll have to pay tax at some point on the whole thing

Roth - You've already paid taxes on your principal and there are no taxes on dividends (I think you need to wait 5 years or until 59 1/2).

I'd say the Roth is better $ for $. ie. if you need $1000 more in your bond fund & have that amount in the 401-k and the Roth IRA, use the Roth IRA.

Hope that helps. If I'm wrong, would be glad to be corrected.

Regards,
ww.

 

[snodog]

I am just learning about this investing stuff so I could be wrong, but I think you would want your higher appreciating assets in the roth since it is tax free. So in the end you would have more of it. Therefore I would think it would be better to put the bonds in the regular 401k. Does this make sense?

 

[mathjak107]

not an easy answer. with capital gains rates so low and even hitting zero you may want to do the reverse. for a while

 

[2B]

I'll tell you what I'm doing.

A basic emergency fund is in my taxable account. All fixed income is in my IRA (not Roth) because when I take it out it will be taxed as ordinary income but hopefully at a lower rate than my taxable accounts. I don't put any in my Roth because I hope/believe that the very long term return of stocks will be higher than fixed income. I also don't intend to harvest any money from my Roths for many, many years.

 

[mathjak107]

as i get closer to retirement i have been shifting more and more of the equities out of the ira/401k . at this point my 401k is 90% bonds and cash and most of the funds were re-bought in the taxable account.

more and more im adjusting the mixes getting more and more conservative with 2-3 years left. and paying 15% on the gains at this point is just fine

 

[jIMOh]

put best growing assets in the Roth and lowest growing assets in regular.

You want the Roth accounts to have highest balance possible- as that amount can be withdrawn tax free.

You want the other accounts to be relatively low, because those assets will decide your tax bracket.

 

[bots2019]

Along the line of what others have said - I put assets with the highest appreciation potential (emg mkts, smallcap) in Roth accounts and those with the lowest potential in 401k (since you'll pay ordinary income on it in the future).

Bonds work well in a 401 since you'd be paying the taxes now in a brokerage account.