Different Allocations in Brokerage vs IRAs Based on Each Time Horizon?

[DogGone]

So, I’m a month or two away from FIRE and have had a 90-95% equity portfolio the last many years.

Last week, I reallocated my advisor’s brokerage to about 70/30 and my other account will be 80/20 by the end of the week. I’ll lower more next year when I have no income. This is the money I will need for college expenses and living until I have to withdraw from IRAs in 16 years... I am 52 now.

The remaining third of my assets are in IRAs still at 90% equity. If I am not touching them for 16 years, should I have a different allocation here? ... or the same 50-70% in equities?

 

[marinauser]

Personally, I look at asset allocation as a whole across all accounts. Then I try to allocate to the individual accounts based on tax friendliness. So, say you want 70% equities and 30% fixed income. In my current situation, I would put all of the fixed income in tax deferred accounts so that I defer the taxes on the income. I end up with working cash for this year along with nearly all equities in the taxable account. This results in nearly all qualified dividends in the taxable account along with some capital gains. Right now I essentially have no other income. Since everyone's tax situation is different, you may want a different allocation. This way, you simply take the money you need each year, if any, from which ever account works tax wise for you and then rebalance across the accounts to your asset allocation. So you could end up with the advisor account all equities and the other account very heavy in fixed income or the reverse depending on your situation.

 

[DogGone]

Thanks... that is something I was considering, the ad hoc and sell decision each time, but with the muni binds mostly in taxable accounts sine in a market turndown, I’d rather sell munis or fixed income at a lesser loss and leave the equities alone to recover.

 

[marinauser]

I start each year with two years expenses in cash so that I don't really worry about downturns too much. One half of that cash is in a taxable account and 1/2 is in a tax deferred account that I can access at no penalty at my age along with all of the fixed income holdings. In addition, dividends are replenishing a fair portion of taxable account cash as the year progresses. If there were a bad downturn say this fall, I could weather at least 18 months before even considering cashing equities and in that situation, a rebalance would already have me whittling off some fixed income that I could use if necessary. We haven't seen the value of munis for us.