In Retirement Cash or Tax Free bond funds?
- Thread starter Bruno
- Start date
Thanks mrfeh, I have chased T-bills, Ibonds, Bank bonus, and the state tax is nothing its the Federal tax thats a killer for me. I won the battle and just looking for something simple and not pay so much in taxes.
First question - why are you holding so much cash?
If you need to continue to do so, then municipals may be good, but I cannot recommend anything in that space.
At a young age I was taught to SAVE. Money was always the KING. I am not sure that is true today world. It was my plan to pay the taxers on my RMD with cash in brokerage but my thinking is now changing. I have slowly been adding more VOO, SCHD, VYM. I am not sure how much more I would be venting if ALL my cash had been invested.
Have you visited the bogleheads wiki? If you're a novice, I suggest starting here:
yes been investing a long time Stinky my best BH and Ladygeek not so much.
engineernerd
Full time employment: Posting here.
Have you put as much of your fixed-income, interest-bearing assets as possible into your tIRA? That's the best place for them, since your withdrawals will all be taxed as ordinary income regardless of the actual source.
How did you decide what percent of your total portfolio to put in stocks and stock funds? Did you use FIRECalc to help make that decision? It has a great "Investigate changing my allocation" option in the Investigate tab, usually showing more failure from too low a stock allocation than from too high a stock allocation.
How did you decide what percent of your total portfolio to put in stocks and stock funds? Did you use FIRECalc to help make that decision? It has a great "Investigate changing my allocation" option in the Investigate tab, usually showing more failure from too low a stock allocation than from too high a stock allocation.
Al18
Thinks s/he gets paid by the post
If you invested $100,000 in the tax free funds listed above in April, 2021, then you would have $105,180 or $106,230 on May 1, 2026. The $5,180 or $6,230 is federal tax free.
On the other hand, if you invested $100,000 in the CD on April, 2021, then you would have $118,000 on May 1, 2026. Subtract 22% federal taxes on the $18,000 and that leaves you with $114,040. The CD made about 2.5 times more money, even after paying taxes.
On the other hand, if you invested $100,000 in the CD on April, 2021, then you would have $118,000 on May 1, 2026. Subtract 22% federal taxes on the $18,000 and that leaves you with $114,040. The CD made about 2.5 times more money, even after paying taxes.
COcheesehead
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
CDs are now paying about 3.8% so the 22% tax equivalent yield = 2.96%. Less if you include state tax.
My state specific laddered muni’s yield 4.8% tax free so the taxable equivalent at 22% + no state tax is 6.05%
Muni yields are rising. CD yields are generally dropping.
My state specific laddered muni’s yield 4.8% tax free so the taxable equivalent at 22% + no state tax is 6.05%
Muni yields are rising. CD yields are generally dropping.
Al18
Thinks s/he gets paid by the post
What happens when muni’s bonds drop in value? CD values have never dropped in value.
COcheesehead
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Muni bonds have a par. A predetermined value, usually $1000/bond, that they will return to at maturity.
Also CDs and bonds have a daily market value (mark to market) so both bounce around prior to maturity. Neither stays steady until maturity.
Al18
Thinks s/he gets paid by the post
That’s why I hold multiple CD ladders, typically with maturities staggered every 3 months. There are no daily values with CD’s purchased at a bank or credit union. Held to maturity, you always collect all the interest promised.
COcheesehead
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
They have a prematurity value, whether market based or early surrender based. You may not be aware of it, but it’s true.
Last comment, for someone desiring better taxation on investments in a taxable, I could not recommend a CD right now.
Al18
Thinks s/he gets paid by the post
Those who cannot remember the past are condemned to repeat it
I’ll take a 3.6% yearly CD’s over the 1.02% tax free municipal funds all day, every day.
I’ll take a 3.6% yearly CD’s over the 1.02% tax free municipal funds all day, every day.
Chuckanut
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
The trick if a person can pull it off is to either avoid IRMAA entirely, OR, only get caught by the first step. IIRC, the first step is a more gentle hit than those that follow it. So, it might be better to take the 10% out each year.
Of course, then you have to reinvest it at the current rates.
NOW i see why this is under you Nickname.
Thinks s/he gets paid by the post
I guess a person can't factor in the Dividends you will get paid. Last time I figured The FTABX Divs for 100k it was about $3300 a year. During your 2021 to 2026 timeline that alone is $16k and I assume that would also be tax free. I want my money to be avalible whenever i want it. I HAVE MYGA, CD's, FZDXX, Discover Saving and CD.Thanks AI18 for you input but I have read many of ur posts and you worry of the 1.02%/1.22%. You might be corerct but what you KEEP talking about is NOT for me!!
Al18
Thinks s/he gets paid by the post
The final values after 5 years for FTABX and VWAHX of $105,180 and $106,230 INCLUDES all dividends paid plus the values of the bonds! The $3,300 dividends paid per year is not correct. That is why I keep mentioning it. I verified by putting FTSBX into Weiss Rating, who reports nearly the same number for 5 years of TOTAL return Fidelity Tax-Free Bond Fund (FTABX - NASDAQ)
Again - looking at how something performed the previous 5 years is a terrible way to choose an investment.
COcheesehead
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I feel bad for the OP. They asked a question about what to do now, not 5 years ago. Saying to not buy muni’s today because of the fastest rise in interest rate history in 2022 is like saying don’t buy stocks because of 1929.
Al18
Thinks s/he gets paid by the post
So the SP500 from 2000 to 2009 lost money - no guarantee at all it will make money. This was called the lost decade. The same could happen with municipal bond funds, and this happened in 2022. This does not happen with CD's and MYGA's - value always goes up.
I own stocks and fixed income. I expect the stocks to be volatile. I don't expect the fixed income to be volatile.
I own stocks and fixed income. I expect the stocks to be volatile. I don't expect the fixed income to be volatile.
COcheesehead
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Lot of false beliefs and disconnect in this thread. I am not going to bother posting anymore thoughts in this one.
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