Asset allocation within Roth

[spammy_davis]

Hello all and happy 2021.

I'm about to do some rebalancing and have a question that hopefully some of the wise folks here can help me out with. The background:

- 52 years old, retired 6 years now.
- Have funds in rollover IRA, Roth IRA, and taxable, 65/35 stocks/bonds.
- Taxable savings is intl stock mutual fund, covering that part of my overall asset allocation since tax efficient.
- I live and drink beer by withdrawing from said taxable intl stock fund in January then rebalancing.
- IRAs are mostly a mix of all three asset classes.

The question:

Someday I will be withdrawing from IRAs when the well runs dry on the taxable account, which should happen after I'm 59.5 years old. At that point the IRAs will likely be about the same asset mix of 45% us stock, 20% intl stock, 35% bond funds.

Assuming I'd be withdrawing a combination of Rollover IRA up to a certain (to be determined) tax bracket then Roth for what i need over that, is there a certain asset class that should be in that Roth? Currently the Roth is all total stock mkt index with Rollover being a mix of things, I haven't given it much thought since won't be touching them for at least 8 more years.

Sometimes I wonder if the Roth should either mimic the overall asset mix within itself so if market tanks when I'm withdrawing it doesn't suffer outsized damage compared to the other IRA.

Thanks in advance. Second post in over 15 years, maybe I'll have another question in 2035.

 

[walkinwood]

Since

- all your gains in the t-ira are treated as income and all the gains in the ROTH are tax free, and
- cap gains are taxed more favorably than income...


I would start putting my bond allocation into the t-ira & any overflow goes into taxable. On the other end, I'd start with stocks in the ROTH and the overflow in the taxable account.


A further refinement would be that stock funds with larger dividend distributions go into the ROTH first (eg. small cap stocks) and stocks with international taxes that can be deducted from income or taken as a tax credit should go in the taxable accounts first.



That's how my investments are set up.

 

[pb4uski]

Agree.. tIRA should hold entire bond allocation if it is big enough... holding equities in a tIRA is just converting tax preferenced qualified dividends and LTCG into ordinary income that is taxed at higher rates than preferenced income.

Anyway, if stocks provide higher returns in the long run wouldn't you want those returms in a tax-free account rather than a tax-deferred account?

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

 

[Ronstar]

I have a single stock fund in my Roth. I have the same fund in my tIRA and transfer shares from my tIRA to Roth for my Roth conversion.

 

[mrfeh]

Since

- all your gains in the t-ira are treated as income and all the gains in the ROTH are tax free, and
- cap gains are taxed more favorably than income...


I would start putting my bond allocation into the t-ira & any overflow goes into taxable. On the other end, I'd start with stocks in the ROTH and the overflow in the taxable account.


A further refinement would be that stock funds with larger dividend distributions go into the ROTH first (eg. small cap stocks) and stocks with international taxes that can be deducted from income or taken as a tax credit should go in the taxable accounts first.



That's how my investments are set up.

Agree.. tIRA should hold entire bond allocation if it is big enough... holding equities in a tIRA is just converting tax preferenced qualified dividends and LTCG into ordinary income that is taxed at higher rates than preferenced income.

Anyway, if stocks provide higher returns in the long run wouldn't you want those returms in a tax-free account rather than a tax-deferred account?

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

+1

 

[gerntz]

Thanks for the confirmation of my thoughts. HNY.

 

[spammy_davis]

I shall manage it that way, thanks for the kind advice my friends.