Asset Allocation and Roth Accounts

[tsoispf]

Does the same asset allocation apply to both your Traditional IRA and Roth IRA? Did you make any changes when you retired? I'm probably about 9 years out from retiring myself. I have a small Roth, about 10% ($50k) of my portfolio. It contains all equities...the idea being to maximize the return on investment, while still being able to recover from a market downturn before FIRE'ing. However, once retired, I'm looking to use some taxable account space to do large Roth conversions early on. That's got me thinking that all equities may not be suitable. Do you recommend applying the same AA to both Traditional and Roth accounts? Or do you suggest not, and why? Did working vs. retired make any difference? Thanks.

 

[pb4uski]

I look at my AA across all my accounts because AA is relevant to investment risk so whether the money is taxable, tax-deferred or tax-free doesn't matter.

At the same time, I want my accounts to be tax efficient. I carry some online cash and equities in my taxable account... the former for liquidity and the latter for tax efficiency since all qualified dividends and long-term capital gains are taxed at 0% as long as I keep our total income in the 15% tax bracket. Bonds are in my tax-deferred accounts since bonds are not tax efficient investments. My Roths are all equitiies.

Also see https://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement

 

[DrRoy]

I look at my AA across all my accounts because AA is relevant to investment risk so whether the money is taxable, tax-deferred or tax-free doesn't matter.

At the same time, I want my accounts to be tax efficient. I carry some online cash and equities in my taxable account... the former for liquidity and the latter for tax efficiency since all qualified dividends and long-term capital gains are taxed at 0% as long as I keep our total income in the 15% tax bracket. Bonds are in my tax-deferred accounts since bonds are not tax efficient investments.

+1. I do pretty much the same.

 

[bingybear]

I look at my AA across all my accounts because AA is relevant to investment risk so whether the money is taxable, tax-deferred or tax-free doesn't matter.

At the same time, I want my accounts to be tax efficient. I carry some online cash and equities in my taxable account... the former for liquidity and the latter for tax efficiency since all qualified dividends and long-term capital gains are taxed at 0% as long as I keep our total income in the 15% tax bracket. Bonds are in my tax-deferred accounts since bonds are not tax efficient investments. My Roths are all equities.

Also see https://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement

+1.5
Most of my bond/fixed income is in my TIRA... but do have a little in normal equities. RIRA are mostly in emerging market ETFs (for now). Taxable is mostly in equity ETFs excepting cash to buffer market downturns.

I'm about 55% after tax/41%TIRA /4% RIRA. (ignoring HSA). There are some exceptions such as I/EE bonds are in taxable (about 1.5%)

I've had advice to put riskier investments in TIRA since if you loose, you pay less in tax and safer in RIRA since you are never taxed. This is betting on being wrong with your investments. I use the RIRA for growth opportunities... slightly shifting my overall allocation. It is a small % of assets.

 

[GalaxyBoy]

+1 on the tax-efficient placement of funds. However, once my taxable accounts are full, I put the remaining portion of the equity allocation in the Roth first.

 

[pb4uski]

Right now, my tIRA exceeds my bond allocation so my tIRA also includes equities. It might we'll change as a result of relying on taxable funds for living expenses and Roth conversions.

 

[tsoispf]

Thanks for the insights. I had lost track of the tax efficient fund placement concept. Got it down now. Thanks again.

 

[mrfeh]

+1. I do pretty much the same.

+2

OP - if you don't understand why you can keep all equities in your Roth accounts, let us know and we can explain why.