How much Ca$h in a ROTH?

[luv2travel]

I'm working on my asset allocation and have a question about the amount of "Cash" one should have in a ROTH. By Cash I mean Money Markets, CDs, Bonds, etc.

The reason I'm asking was because I was reading an article about which accounts to start drawing down first. The article mentions start with after tax brokerage type of account, then 401K, then Roth.

If the Roth is meant to be drawn down later, should you ben more Equity heavy in these accounts? I have maybe 10 years til I would start drawing down the Roth.

PS. What is teh amount one should have in cash in a regular retirement account and brokerage account? 40%? I'm 56 this month.

 

[N02L84ER]

Suppose your desired asset allocation is 60% stock, 40% fixed income. For tax efficiency, the 40% fixed income should be placed in the 401K/tIRA because the gains are regular taxable interest and anything withdrawn from a 401K/tIRA is taxed as regular taxable income. In other words, you are not forced to tax gains composed of tax advantaged capital gains as regular taxable income when you make withdrawals. If your 401K/tIRA is more than 40% of your total savings, you are done with fixed income and everything else should be stocks. If your 401K/tIRA makes up less than 40% of your total savings, then you should consider using munis in taxable or adding fixed income to taxable or Roth until you get to your desired 40% fixed income.

 

[luv2travel]

Is there somewhere on this Forum where you can look at examples of asset allocation, by age, etc? Just percentages and types of investments, not really individual stock recommendations. Thanks

 

[sengsational]

It used to be much simpler a decade ago, but I started out with Marrotta Gone Fishing AA calculator. They've gotten "too cute" IMO, but you can get AA by age bracket. What I don't like is they have too many asset classes now. But you can group them. So rather than have separate US equities, you just sum those percentagea up for a single US equity bucket, for instance. They do offer specific funds that have rock-bottom fees, which is key to success.

 

[mrfeh]

Is there somewhere on this Forum where you can look at examples of asset allocation, by age, etc? Just percentages and types of investments, not really individual stock recommendations. Thanks

You are asking questions that don't have quick answers. I suggest you do some reading.

Here's something regarding tax efficiency: https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

When it comes to asset allocation, only you can decide what is best for you.

https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

To answer your original question, I would have $0 cash in a Roth if you aren't drawing from it.

 

[CardsFan]

To answer your original question, I would have $0 cash in a Roth if you aren't drawing from it.

Yeah, that is my answer too. Our Roth's are likely for inheritance many years down the line (hopefully). Tax free growth is the objective.

 

[Finance Dave]

We have our highest growth assets in our Roth due to the non-taxed feature.

However, regarding your comment about withdrawing from an after-tax brokerage account first...I'd be careful following that like a lemming.

There are circumstances, IMO, when a person would want to spend from other accounts first.

If you are FIRE'd and your spending/needs is very low, then IMO it's wise to take money FIRST from a tax-deferred account up to a low tax bracket threshold. This ensures you get a low tax rate applied to your TIRA withdrawals. If you need more than that to live on, then take the remainder from an after-tax or Roth account. Doing this also ensures that should you die before your spouse, the widow tax is minimized.

Of course there are other complications as you progress through retirement, such as IRMAA, RMDs, and other such things.

 

[Out-to-Lunch]

I concur with 0% in a Roth.

I agree with Finance Dave regarding being a bit smarter about your order of withdrawals. You may want to blend your withdrawals. Here is a good article from Kitces about that: https://www.kitces.com/blog/tax-efficient-retirement-withdrawal-strategies-to-fund-retirement-spending-needs/

 

[RunningBum]

Also don't forget about step up basis for inherited assets in taxable accounts. Over half of my total assets are in 2 index funds in my taxable account that have huge gains. I'll spend down my other taxable assets, but I'll pull from my Roth before tapping those 2 funds. It's likely I won't need to sell those funds, or if I do it's because of medical needs and I'll have some deductions against the LTCGs. I've already paid the tax to get my Roth funds there, so withdrawing them has no additional tax. If I never sell the index funds the growth is tax free even though it's in a taxable account, because my heirs get a new basis.

So, with only a small tIRA left and those 2 stock index funds taking up so much of my taxable account space, I have a lot of CDs and TIPs ETFs in my Roth.

 

[Stormy Kromer]

0% cash in Roths.

2 years living expense in taxable account in cash equivalent. VG Fed MM Fund.

I don't go by percentages, I prefer 2 years worth of cash on hand then invest the rest, whatever percentage that may be.

I wouldn't keep any cash in Roths unless that is the only place I had left for the two years cash.

 

[G-Man]

0% cash in Roths.

2 years living expense in taxable account in cash equivalent. VG Fed MM Fund.

I don't go by percentages, I prefer 2 years worth of cash on hand then invest the rest, whatever percentage that may be.

I wouldn't keep any cash in Roths unless that is the only place I had left for the two years cash.

What is your approach in rebalancing your cash bucket? For example, if you had to use $100k from your cash bucket due to a bear market, how would you replenish the cash bucket?

 

[DrRoy]

The only cash I have in my Roth is interest/dividends that have accumulated until I do something else with it.

 

[target2019]

Is there somewhere on this Forum where you can look at examples of asset allocation, by age, etc? Just percentages and types of investments, not really individual stock recommendations. Thanks

This will make your head swim. But in the list are many popular portfolios with varying asset allocation approaches.

Lazy Portfolios
A lazy portfolio is a set-and-forget collection of investments that require little or no maintenance. Most portfolios consist of a small number of low-cost funds that are easy to implement and rebalance. Lazy portfolios are designed to perform well in most market conditions, making them the perfect choice for long-term investors.

Here you can find a list of the most popular lazy portfolios implemented with ETFs.
https://portfolioslab.com/lazy-portfolios

As for seeing recommendations by age, that is dependent on your factors.

Vanguard starts the discussion like this: https://investor.vanguard.com/investor-resources-education/education/model-portfolio-allocation

There you can see the historical long-term impact of various asset allocations.

But an important number that only you can decide is, "How much will you withdraw from the portfolio?" That helps you narrow down the equity percentage and what risk you'd accept. At least that's how I approach this.

 

[jazz4cash]

0% cash in a Roth but I disagree with your definition of cash. Bonds are not cash except short term. I count maturities 2yrs or less as cash but 6 months might be more typical.

 

[PatrickA5]

I have the same 60/40 Target Date Fund in my Roth as I have in my TIRA. I like to keep things really simple. We probably won't touch this money for years (other than conversions).

Agree with others on the distribution order. You need to consider all types (Taxable, Tax Deferred, Tax Free) and take money out based on your own tax situation. I wouldn't blindly, for example, take all of it out of Taxable first.

 

[Dean56]

To answer your original question, I would have $0 cash in a Roth if you aren't drawing from it.

Same here.......Zero cash in my ROTH.

 

[pb4uski]

My target is zero cash in Roth and tax-deferred accounts. Like you, no planned withdrawals from Roth for many years. Ditto with tax deferred. Between income and taxable account withdrawals we have plenty for our spending. Roth conversions are just transfers of bond positions from tax-deferred to Roth so no need for cash their either.

I did recently withdraw from an inherited traditional IRA and even that I just transferred positions from the traditional IRA to my taxable brokerage account.

My cash/liquidity is a years worth of withdrawals and $25k emergency fund in an online savings account. I have an automated monthly withdrawal, my monthly "paycheck" from that account to a credit union checking account that I use to pay our bills.

 

[OldShooter]

Is there somewhere on this Forum where you can look at examples of asset allocation, by age, etc? Just percentages and types of investments, not really individual stock recommendations. Thanks

@luv2travel, these decisions are highly dependent on your financial strategy, the amount of assets you have, on external factors, on your estate plan and many other factors specific to you.

For example, in our case we have a grand who will get a special needs trust when we die and a grand who will get an educational trust. We have segregated a Roth for the special needs trust because it will be needed far beyond the 10 year effective limit on IRAs and we don't want to get stung with the high trust income tax rate. The other trust will be spent well before the 10 years and proceeds distributed in a way that they will not be taxable to the trust. My point is that there are many zigs, zags, and wrinkles that must be considered. A simple rule book like you dream of is IMO impossible.

 

[bloom2708]

Zero cash or bonds in Roth. Mostly the last money used, so let it grow as long as possible.

If someone is very conservative or is using their Roth as a type of Emergency Fund, then adjust.

 

[Gotadimple]

Is there somewhere on this Forum where you can look at examples of asset allocation, by age, etc? Just percentages and types of investments, not really individual stock recommendations. Thanks

If you have a library card, go to your library and check out "All About Asset Allocation" by Rick Ferri. It contains portfolios for different ages.

 

[Alex The Great]

No cash in Roth. Pretty much all funds are high dividend individual equities such as REIT or BDC or others with unfavourable tax treatment of distributions. All distributions are reinvested.
No plan to withdraw anything from Roth until the higher tax hit due to SS.

 

[Stormy Kromer]

What is your approach in rebalancing your cash bucket? For example, if you had to use $100k from your cash bucket due to a bear market, how would you replenish the cash bucket?

I can live off of fixed income from rental property, plus I'll be eligible for SS in two years. The two years cash portion is for if things really hit the fan.

I've seen many downturns since 1987 and a two year cash reserve would get me back to even after most of them. If not I'll start to draw dividends from the taxable. I'd fill the cash portion back up in years like 2023.

I am completely ER'd and live off my investments, including the rental property (farmland)

 

[Sanstar]

My strategy was to start my Roth 50/50 NASDAQ/SP500 very low fee ETF via FIDO. Dividends are set to go to cash, SPAXX. Check periodically and rebalance to 90% equity. That way I have a chance to buy the dip, keep stocks USA and minimize fees.

Same process for tIRA with target: 80% equity, 10% cash and 10% CD or annuities. Whichever has better interest.

No bonds….ever. Roth will be last fund tapped or passed on to kids.

 

[Montecfo]

I don't keep any cash in tax deferred or Roth. I am not drawing from them.

 

[meleana]

I have only stock mutual funds in my Roth. Plus a treasury money market fund for the dividends, etc since I don’t reinvest.