copyright1997reloaded
Thinks s/he gets paid by the post
Thank you for spelling that out. You don't know how helpful that was to me.
You are most welcome and yes it is nice to get positive feedback!
Thank you for spelling that out. You don't know how helpful that was to me.
I learned the above on this site ... up until recently, I used to buy CDs in my taxable account and equities in my IRAs. I had it backwards. So, with the increase in CD rates lately, I have now flipped it. I sold almost all my equities in my IRA and bought the equivalent equities in my taxable account so as to keep my Asset Allocation. And, I now have almost 100% of my IRAs invested in CDs and my taxable is a combination of equities and CDs.All withdraws from a traditional IRA (incluing rollover IRA's) come out as ordinary income. This suggest putting assets which have no tax advantages (such as CD's and other taxable fixed income) in this bucket.
Stocks (or equity funds) have several tax advantages: First, they are subject to long term capital gains rates on gains which are lower than ordinary income rates. Second, they get a step up in basis upon death, which can be very beneficial to your beneficiaries. Thus, these are typically better to have in normal (taxable) accounts. Another factor here would be to emphasize stocks or stock funds with good qualified dividends, as these also get the lower LTCG/Qualified Div tax rates.
I had a question related to this topic. If I wanted to pull some of the brokered CD's interest from my IRA's cash account into my taxable account at the beginning of the year for living expenses, since I am now over 59 1/2, I believe the transfer of funds is taxed as ordinary income with no penalty. So, it would be no different than if I had the CD in my taxable account. Correct? My primary question is, does Fidelity/Vanguard know I am over 59 1/2 so they tell the IRS not to apply an IRA withdrawal penalty or is this something I do when filing taxes?
Dumb question: How do RMDs work in an IRA that is invested exclusively in CDs? (Wow, that's a lot of acronyms!) Are there any early withdrawal penalties associated with RMDs in that situation?
All withdraws from a traditional IRA (incluing rollover IRA's) come out as ordinary income. This suggest putting assets which have no tax advantages (such as CD's and other taxable fixed income) in this bucket.
Stocks (or equity funds) have several tax advantages: First, they are subject to long term capital gains rates on gains which are lower than ordinary income rates. Second, they get a step up in basis upon death, which can be very beneficial to your beneficiaries. Thus, these are typically better to have in normal (taxable) accounts. Another factor here would be to emphasize stocks or stock funds with good qualified dividends, as these also get the lower LTCG/Qualified Div tax rates.
Roth's provide the ultimate in terms of - no taxes on any withdraw. So, if you could pick what assets to put there, it would be assets that have the best risk/reward ratio for good growth. The issue with ROTH holdings is that (at least for me), they are precious and small compared to the other two categories. Because of this, I am always in a quandary as to what to use my Roth for..."safe" stocks/funds or the biggest income producers?
...A question to confirm our understanding -
Do the Bonds in the Taxable account have the same step up as stocks in taxable ...