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Old 09-14-2020, 10:15 AM   #141
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Be aware that leaving the taxible accounts to the next generation is a noble thing to do but then the tax liability is also transferred. If the next generation has a high tax rate... and during your retirement you are in a low tax rate, then you should consider all options.
That's flat out wrong. Taxable holdings get stepped up basis upon inheritance. Maybe that will change in the future, maybe not.
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Old 09-14-2020, 12:03 PM   #142
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....See a Certified Public Accountant which cost about $75 to $200 for one hour of consultation on your withdrawal strategy. A mistake on your part during your withdrawal can easily exceed the consultation cost of a CPA.

For example: Some people withdraw from their taxible accounts first until they reach a certain tax threshold....and then make up the difference with withdrawals on the tax free accounts.

CPA knows all the loop holes in the tax system and my own personal experience with CPA has been positive. ...
Retirement planning and withdrawal strategies are a very small niche in what CPAs do (I was a CPA for almost 35 years). Most CPAs are in corporate accounting, or audit or corporate tax. Some are individual tax practitioners but still not very focused on retirement withdrawal strategies.

If you can find a CPA with a PFS designation (Personal Financial Specialist) then it is more likely that a CPA will be helpful. This link is a place to start.

https://account.aicpa.org/eWeb/dynam...erralwebsearch
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Old 09-14-2020, 12:04 PM   #143
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Another novice here in understanding in all the implications of Bond investments - We have significant Intermediate Bond Fund Investments & looking for pointers to learn & make any changes -

I am 64, overall AA is 55/45, have 3 Bond Funds in an 5 Fund all vanguard Portfolio, plan to withdraw from the Bonds for next 15 years starting in 2 years & leave the taxable VTSAX & VTIAX for later in retirement or for the next generation.

Bond Portfolio - is 66% in TaX Deferred in VBTLX & VTABX 80%/20% & 34% in taxable in Tax Exempt Intermediate Fund VWIUX.

I am thinking of keeping VBTLX (in Tax Deferred) for the present till the FED starts raising the rate till whenever they decide to (2 yrs??) & then move to Short Term Bond Funds.


I have noted they usually raise the rate in 0.25% increments (& not in 1% increments) giving me time to make the change, although I would have taken some loss in the capital price of Bonds by the time I make the change.

Is this a too simplistic view/plan full of holes in the plan or is this a reasonable way ?? Market timing yes but I do not see any other way to avoid a major loss/blood bath in the funds which will fund our retirement living expenses.

Your thoughts/suggestions ?? with thanks
If you need this bond money starting in 2 years, I would match at least a portion of the bonds to the 2-3 year duration you need for income. The yield on some short term and Intermediate is not that much different. I wouldn't wait 2 years to make the move. I would keep 2-3 years in short term and the rest in intermediate.

I don't need mine until 2027, so mine is all intermediate at this time.

Good luck to you,

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Old 09-14-2020, 12:05 PM   #144
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Retirement planning and withdrawal strategies are a very small niche in what CPAs do (I was a CPA for almost 35 years). Most CPAs are in corporate accounting, or audit or corporate tax. Some are individual tax practitioners but still not very focused on retirement withdrawal strategies.

If you can find a CPA with a PFS designation (Personal Financial Specialist) then it is more likely that a CPA will be helpful. This link is a place to start.

https://account.aicpa.org/eWeb/dynam...erralwebsearch
Thanks pb, good info!!
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Old 09-14-2020, 12:44 PM   #145
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That's flat out wrong. Taxable holdings get stepped up basis upon inheritance. Maybe that will change in the future, maybe not.

I am not an expert in taxes. This is why I ALWAYS refer people to a CPA because tax rules are complicated.

Here is a link that "implies" there are taxes involved in an inherited transitional IRA.

See rule number 5 for an inherited taxible IRA in the link below.

https://www.nerdwallet.com/blog/inve...d-ira-options/

Here is another link that "implies" taxes under "Traditional : Non-spouse inherited" section.

https://www.schwab.com/ira/inherited...thdrawal-rules

The person who passed away took advantage of getting lower taxes during his contribution years. Generally Uncle Sam wants his taxes later during the withdrawal years.
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Old 09-14-2020, 01:11 PM   #146
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Originally Posted by pb4uski View Post
Retirement planning and withdrawal strategies are a very small niche in what CPAs do (I was a CPA for almost 35 years). Most CPAs are in corporate accounting, or audit or corporate tax. Some are individual tax practitioners but still not very focused on retirement withdrawal strategies.

If you can find a CPA with a PFS designation (Personal Financial Specialist) then it is more likely that a CPA will be helpful. This link is a place to start.

https://account.aicpa.org/eWeb/dynam...erralwebsearch

Great post. My CPA had informed me that she was doing both tax advising and financial planning in the past but recently California is trying to prohibit this dual function.

She was forced to focus on Tax advice only and she has a separate financial planner as a business partner. I guess we are going into specialties rather a jack of all trade environment.
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Old 09-14-2020, 01:12 PM   #147
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vchan, Both your above links apply to IRAs. Your original comment was regarding taxable accounts.
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Old 09-14-2020, 02:42 PM   #148
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vchan, Both your above links apply to IRAs. Your original comment was regarding taxable accounts.
I noticed that too... but it was indeed a well crafted dodge to try to rationalize the erroneous post regarding inherited taxable acccounts.
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Old 09-14-2020, 03:07 PM   #149
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vchan, Both your above links apply to IRAs. Your original comment was regarding taxable accounts.
My point is that the tax code on inheritance and estate taxes is complicated. This includes various state laws on inheritances taxes and estate taxes which can be different from federal laws.

Real estate has a stepped up basis which avoids some taxes but I never heard of an "inherited taxible investment account" having a stepped up basis to a non-spouse beneficiary that are applicable to both the federal tax code and the tax code for all 50 states.

I have never heard that an inherited taxible investment account is a tax free transfer to a non-spouse beneficiary that are applicable to both the federal tax code and the tax code for all 50 states.

Perhaps people can provide a link on this subject to increase my limited tax knowledge on this issue.

This is because I am currently transferring my wealth to my children while I am still living and not after my death due to the complexity of estate and inheritance tax. There is a $15,000 gift tax limitation per person per year. When you include my wife and my daughter's spouse, the transfer can be $60,000 per year (couple to couple). After 20 years, this is $1.2M of tax free transfer which will not be included as part of my estate when I kick the bucket.

However, if I discover that I can transfer money tax free after my death without worrying about possible changes in the inheritance and estate taxes then I can re-think my strategy.
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Old 09-14-2020, 03:59 PM   #150
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Originally Posted by vchan2177 View Post
My point is that the tax code on inheritance and estate taxes is complicated. This includes various state laws on inheritances taxes and estate taxes which can be different from federal laws.

Real estate has a stepped up basis which avoids some taxes but I never heard of an "inherited taxible investment account" having a stepped up basis to a non-spouse beneficiary that are applicable to both the federal tax code and the tax code for all 50 states.

I have never heard that an inherited taxible investment account is a tax free transfer to a non-spouse beneficiary that are applicable to both the federal tax code and the tax code for all 50 states.

Perhaps people can provide a link on this subject to increase my limited tax knowledge on this issue.
https://investor.vanguard.com/inherit/irs-taxes covers this, as do many other sites if you google something like "inheriting a taxable brokerage account".

Consider verifying your thoughts before posting them as advice, especially when you admit you have limited knowledge on the topic. That would make things less confusing to others.
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Old 09-14-2020, 04:20 PM   #151
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The concern with bond funds is that with rates so near to zero and the Fed saying that they do not want to go with negative rates, that it is more likely that interest rates will go up rather than down or stay the same and the value of bonds and bond fund decline when interest rates rise.

BND has a duration of 6.4 years. In theory, if rates increase 1/2% then the value of bonds in BND would go down 3.2%... wiping out the 1.33% yield and then some.
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Bond funds are fine, IMO, if you hold them for a very long period, well past the average duration. And you can simply rebalance with stocks as they go up and down.

But I only use short and intermediate duration bond funds and avoid long.

If thing go south - well, the damage has already been done, so you donít get any benefit by selling when bond funds are down.
8 pages of pontification, when the answers were given in the first 7 responses

There is no cookie cutter answer. Do what makes sense FOR YOU, given the above info.
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Old 09-14-2020, 08:09 PM   #152
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[QUOTE=vchan2177;2485472]My thoughts/suggestions:

Be aware that leaving the taxible accounts to the next generation is a noble thing to do but then the tax liability is also transferred. If the next generation has a high tax rate... and during your retirement you are in a low tax rate, then you should consider all options.

Thanks for helpful posts from all of you,

I am clear in my understanding that VTSAX & VTIAX in my taxable accounts will have a step up in cost basis when inherited, unless the present rules change.

That was an informative article on similar lines in Humble Dollar posted earlier from Jonathan Clements. https://humbledollar.com/2020/07/my-four-goals/
- about his plans to invest in short term inflation protected securities & short term treasury bonds & leaving the taxable stock funds for inheritance.
PB4uski and others on the forum have hinted their plans about spending from the tax deferred bonds & leaving the remaining stock funds in the taxable leading to increasing stock glide path.

My thoughts & plans are getting firmer about withdrawing from the Bond Portfolio namely VBTLX, VTABX & VWIUX which I may be exchanging to shorter terms.

Thanks for the advise on running my plan by a a CPA
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Old 09-14-2020, 08:14 PM   #153
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Originally Posted by vchan2177 View Post
My point is that the tax code on inheritance and estate taxes is complicated. This includes various state laws on inheritances taxes and estate taxes which can be different from federal laws.

Real estate has a stepped up basis which avoids some taxes but I never heard of an "inherited taxible investment account" having a stepped up basis to a non-spouse beneficiary that are applicable to both the federal tax code and the tax code for all 50 states.

I have never heard that an inherited taxible investment account is a tax free transfer to a non-spouse beneficiary that are applicable to both the federal tax code and the tax code for all 50 states.

Perhaps people can provide a link on this subject to increase my limited tax knowledge on this issue.

This is because I am currently transferring my wealth to my children while I am still living and not after my death due to the complexity of estate and inheritance tax. There is a $15,000 gift tax limitation per person per year. When you include my wife and my daughter's spouse, the transfer can be $60,000 per year (couple to couple). After 20 years, this is $1.2M of tax free transfer which will not be included as part of my estate when I kick the bucket.

However, if I discover that I can transfer money tax free after my death without worrying about possible changes in the inheritance and estate taxes then I can re-think my strategy.
I guess it can be complicated, but in most cases it isn't... certainly not as complicated as you might be making it. As I recall all assets except for tax-deferred accounts get a stepped up basis, including all taxable investment accounts.

Have you considered this?
Quote:
The Tax Cuts and Jobs Act (TCJA) doubled the estate tax exemption to $11.18 million for singles and $22.36 million for married couples, but only for 2018 through 2025. The exemption level is indexed for inflation reaching $11.4 million in 2019 and $11.58 million in 2020 (and twice those amounts for married couples).
If your estate is above the $22 million exemption limit, you can well afford to pay for professional advice.
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Old 09-14-2020, 09:12 PM   #154
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Old 09-15-2020, 06:00 AM   #155
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It's not at all complicated to pass on mutual funds, ETFs, and stocks to the next generation. It might be worth a small note in your will or its addendum, though. Make it clear that at the moment they receive stepped up basis, that becomes the optimum time to sell, with little or no tax effect. So if your Apple stock is not desirable at that time, the child can use an order to sell all, and invest the proceeds according to their plan. Maybe pay off a loan or two...
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Old 09-15-2020, 02:57 PM   #156
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RunningBum's reply is the correct answer to Lucky Penny's question.

Long term treasuries such as VUSUX (long term treasuries) are more volatile than short term treasuries and therefore has more risk but also have more reward.

I have both short term and long term treasuries because I use short term treasuries to lower my risk while I use long term treasuries to maximize my reward. Currently equities exceeds my risk tolerance so I am mostly in treasuries. I will probably go back to equities after the pandemic or after we have lower unemployment and/or a better economy. I prefer a capital preservation portfolio in uncertain times since my reward from VUSUX is sufficient for me for the time being.

A typical treasury portfolio may consist of 60% VUSUX/40% VFINX which is somewhat similar to a 60% equities /40% bond portfolio...except the former portfolio has less risk overall than the latter portfolio in the short term. In the long term, the reverse is true. Balancing out your higher risk investments (equities or VUSUX) with lower risk investments (bonds or VFINX) make sense to some investors.

Everyone has a different investment style, time horizons and risk tolerances. What matters is whatever risk versus reward tradeoff that you feel comfortable with.
So here's another very basic question: Is selling shares in Vanguard's bond funds - regardless of whether the fund invests in short term or long-term - as easy as selling shares in equity funds? If/when yields start diving, how quickly can you get out & move to something else?
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Old 09-15-2020, 03:13 PM   #157
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I have never heard that an inherited taxable investment account is a tax free transfer to a non-spouse beneficiary that are applicable to both the federal tax code and the tax code for all 50 states.
With all due respect, I don't mean to be rude, but if you've never heard of a stepped up basis as it applies to inherited taxable investment accounts (not IRAs or tax deferred accounts) then you shouldn't be commenting on the topic. It's a well known thing.
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Old 09-15-2020, 03:40 PM   #158
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So here's another very basic question: Is selling shares in Vanguard's bond funds - regardless of whether the fund invests in short term or long-term - as easy as selling shares in equity funds? If/when yields start diving, how quickly can you get out & move to something else?
Timing the bond market(interest rates) is no easier or any more successful than
trying to time the stock market. Many think they can do it, but very few of the pros have success beyond market returns.

I match the duration(short or intermediate) to when I expect to need the money. Having both is fine- no need to bounce back and forth.
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Old 09-15-2020, 03:45 PM   #159
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So here's another very basic question: Is selling shares in Vanguard's bond funds - regardless of whether the fund invests in short term or long-term - as easy as selling shares in equity funds? If/when yields start diving, how quickly can you get out & move to something else?
Yes, it's the same process as selling VG equity funds.

ETA: There may be restrictions on when you can buy again after selling, like maybe 30 or 60 days. Some equity funds also have this restriction, so it's not unique to their bond funds. You'll see the warning before you commit to selling.
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Old 09-16-2020, 01:57 PM   #160
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I believe I got my answer for now, with the FED indicating rates to remain low for a couple more years. I will continue with no changes to my 5 fund portfolio & revisit in a couple of years.
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