What percentage of your portfolio is tax deferred

[tmm99]

69% tIRA/401K. I consider my tax-deferred to be high, but I guess there are people whose % is even higher.

 

[RunningBum]

Deferred means it will still become taxable eventually.

My portfolio is all tax-sheltered. Its gains are not taxed.

Everyone knows what tax deferred means.

Tempted as I am to ask how you are 100% tax sheltered, history tells me I won't get a straightforward answer, so I'm not going to.

 

[CRLLS]

Combined, we are 87% tIRA, 13% Roth and 0% in taxable. That last one will build as RMDs hit us in a few years. I'd like the 1st to be lower.

I participated in the pre-tax 401k's when they came out. tIRA's were made available mid-career. Roth IRAs were a relative late comer in my career as far as availability. I was not an early adopter there because I was stuck in the common, but false mentality of "taxes will be lower when you are retired." If I knew then what I know now......

 

[Dtail]

Combined, we are 87% tIRA, 13% Roth and 0% in taxable. That last one will build as RMDs hit us in a few years. I'd like the 1st to be lower.

I participated in the pre-tax 401k's when they came out. tIRA's were made available mid-career. Roth IRAs were a relative late comer in my career as far as availability. I was not an early adopter there because I was stuck in the common, but false mentality of "taxes will be lower when you are retired." If I knew then what I know now......

Somewhat the same here, but earned too much for the Roth. Nevertheless, I would have built up my taxable some more.
OTOH, did get TIRA deductions at fairly high rates.

 

[Perryinva]

While not a very high earner, high percentage 401k and IRA made sense on pure luck, for me, as between 1983 and 2003, while I was my most ignorant, my deductions were in the 28% rate, which translated down to 25% during the main larger deduction years, where by 2010, I realized my retirement tax rate would be likely the same, and I started Roths and after tax 401k. So at worst, whatever I don’t convert will be at the same or lower rate I deferred at originally, while the conversions will occur much lower at 15 & 22%.

 

[Rianne]

While not a very high earner, high percentage 401k and IRA made sense on pure luck, for me, as between 1983 and 2003, while I was my most ignorant, my deductions were in the 28% rate, which translated down to 25% during the main larger deduction years, where by 2010, I realized my retirement tax rate would be likely the same, and I started Roths and after tax 401k. So at worst, whatever I don’t convert will be at the same or lower rate I deferred at originally, while the conversions will occur much lower at 15 & 22%.

Good point.

 

[Rianne]

The marginal tax rate on my IRA withdrawals today is 12% vs. the 31% I would have paid had I not deferred that income.

Also, good point.

 

[pb4uski]

Another good question to ask is how much of your taxable account is cap gains?

Agree... while we have a fair amount in taxable accounts, most of it is domestic equities that are ~50% unrealized appreciation so for every $1 of redemptions we get roughly 50c of capital gains. Until last year were were living on taxable but it was starting to interfere with doing Roth conversions so we now live off of tax-deferred instead with smaller Roth conversions.... as a result we can reduce tax-deferred accounts more before SS starts and we'll let the taxable equities grow to be harvested another day.

 

[ChicagoGal]

69% tax deferred (mostly 401k, small tIRA). The rest in taxable (brokerage, ESPP) with moderate capital gains taxes coming.

And yes, that does concern me a bit. Retirement is hopefully in about 18 months (age 58). I will have a pension that should cover about 1/2 my living expenses to start (non-COLA, so percent will decrease over time). Working through how to make this all work to hold off SS until 70, if possible. People in my family tend to either die early (mom@37) or live forever (dad still alive, 3/4 grandparents lived well into their 90s) so I have to plan pretty far.

That's why I love reading message here - lots of ideas and strategies to consider.

 

[Ed_The_Gypsy]

I'm surprised, too, but in the opposite way that you are. I always assumed that most people saved like megacorp-types (including myself): Max out the 401k tax-deferred, and only if there's anything extra to invest, put it somewhere else, like a taxable account. The result is the vast majority of the portfolio being tax-deferred.


I'm interested in hearing more about how the people have only a low percentage tax-deferred got there.

I converted my tIRA to Roth and payed the taxes. Initially, everything was in the tIRA.

We just started very early. I could never get DW to let me max my contribution, but matching helped.

 

[PhrugalPhan]

49% Tax Deferred (457)
34% Roth IRA / 457-Roth / HSA
17% Taxable Brokerage

However I also have a pension with a COLA I can get in 3 years (at 60 y.o.) that if I value it at 20 times annual payout and add that value to my tax deferred amount, I come up with:

70% Tax Deferred (4/7 pension, 3/7 457 account)
20% Roth
10% Taxable

Big problem is with the pension I won't be able to convert much to Roth at lower tax rates before RMDs kick in, at which point I will be in a higher tax bracket (22%/24%) than today (that is with me doing 90% Roth this year). I could put more in as tax deferred next year, but that will only increase my tax problems later after RMDs. I will start selling my few taxable losers next year to help offset this. First world problems I suppose.

 

[PERSonalTime]

We are at about 80% because DW's law firm enabled multiple tax deffered avenues. We also both have pensions and DW has SS so any Roth conversions would be at 24% as are my RMDs and DW's in a few years. Based on the optimization thread I suspect that we could still eke out some advantages for our heirs by converting up to the top of the 24% bracket but I am not convinced it is worth the effort.

X2. Similar situation.

 

[ChrisC]

We are at about 80% because DW's law firm enabled multiple tax deffered avenues. We also both have pensions and DW has SS so any Roth conversions would be at 24% as are my RMDs and DW's in a few years. Based on the optimization thread I suspect that we could still eke out some advantages for our heirs by converting up to the top of the 24% bracket but I am not convinced it is worth the effort.

I'm in the same boat but we aggressively convert. We have two heirs that currently are in the 35% brackets and one that's currently in the 24% bracket. My heirs are trending upward for future earnings. A million here and a million there in tax free earnings for heirs does add up.

In our situations, I can still see someone not converting for tax management purposes if one will commit a big chunk of tax deffered funds to charity, if one believes heirs will always be in lower tax brackets, or if one believes too much tax free money in the hands of heirs might be a bad thing.

So, why isn't it worth your efforts to convert?

 

[donheff]

I'm in the same boat but we aggressively convert. We have two heirs that currently are in the 35% brackets and one that's currently in the 24% bracket. My heirs are trending upward for future earnings. A million here and a million there in tax free earnings for heirs does add up.

In our situations, I can still see someone not converting for tax management purposes if one will commit a big chunk of tax deffered funds to charity, if one believes heirs will always be in lower tax brackets, or if one believes too much tax free money in the hands of heirs might be a bad thing.

So, why isn't it worth your efforts to convert?

I better do the math. I guess the biggest worry is what will happen if one of us dies and the other is catapulted into a higher bracket.

 

[googily]

I'm 75% tax deferred, 15% taxable, and 10% Roth. Was 0% Roth less than two years ago, but started converting both a smallish after tax amount sitting in my 401k and some of my IRA holdings, plus maxing out the mega back door, replacing that paycheck money with money from my taxable account. Next year I am also going to move to Roth 401k contributions. I'm at the top of the 22% bracket, and widowed, so the tax torpedo looms large (two pensions, SS starting with survivor at 60 then mine at 70). Am 53, so there's a lot of years for taxes to go up. But I also don't have children, so my concern about taxes for those who inherit my nest egg aren't quite so important. I may ease off on IRA conversions (which go into the 24% bracket) until I quit working.

I mainly want to build up Roth holdings to give me some flexibility in withdrawals for tax purposes.

 

[GenXguy]

32% 457B & 401a combined tax deferred
8% Roth

 

[ChrisC]

I better do the math. I guess the biggest worry is what will happen if one of us dies and the other is catapulted into a higher bracket.

I have a CSRS pension like you, with a survivor’s annuity for wife and I get nothing from SS spousal benefits because of GPO. Without conversions, if I survive wife, pension goes up 10% and we no longer have her SS retirement income or modest pension, I will be on the verge of crossing into the 35% bracket, which would certainly be the case if I get substantial gains in our deferred tax portfolio of 80/20 equity/fixed income. Without conversions, if wife survives me, she gets 55% of my CSRS pension, and is firmly in the 32% bracket.

I’m currently at the upper end of the 22% bracket with
my outsized pension and wife’s modest pension. Once wife drafts SS in 2 years, we’re now in the 24% bracket. We can’t convert all our deferred into Roth’s before RMDs kick us in the butt, and we can live off pensions alone, but we’ll make a substantial dent. Doing conversions intuitively seems sound to us without sharpening pencils and doing the math.

 

[rodi]

I'm over 90% in tIRA. But if you add in the value of our rental Granny flat it drops to closer to 80%

Sure I wish I'd paid more taxes previously so I wouldn't have to pay taxes now. But at the time it made sense to make the 401k on autopilot. But I'm still happy I'm able to be retired with a 3-3.5% withdrawal rate. And that withdrawal rate includes my tax expenses.

Taxes get paid eventually....

 

[donheff]

I have a CSRS pension like you, with a survivor’s annuity for wife and I get nothing from SS spousal benefits because of GPO. Without conversions, if I survive wife, pension goes up 10% and we no longer have her SS retirement income or modest pension, I will be on the verge of crossing into the 35% bracket, which would certainly be the case if I get substantial gains in our deferred tax portfolio of 80/20 equity/fixed income. Without conversions, if wife survives me, she gets 55% of my CSRS pension, and is firmly in the 32% bracket.

I’m currently at the upper end of the 22% bracket with
my outsized pension and wife’s modest pension. Once wife drafts SS in 2 years, we’re now in the 24% bracket. We can’t convert all our deferred into Roth’s before RMDs kick us in the butt, and we can live off pensions alone, but we’ll make a substantial dent. Doing conversions intuitively seems sound to us without sharpening pencils and doing the math.

Yeah. e are right with you but worse. DW has SS and a smallish pension putting us in 24% now. But in 4 years when she is 70 the RMDs will be substantial. I'm looking at the numbers and converting at the 24% bracket makes sense even if we remain joint forever. If one of us dies, the RMDs are sufficient to dump either of us into 32% immediately.

I guess the sensible thing is to maximize the conversions by rolling over whatever we can without busting out of 24% bracket and pay the additional taxes by selling equities in taxable. Gotta watch for the impact of the CG's.
Should have started this years ago. Darn confusing.

 

[Sunset]

Combined, we are 87% tIRA, 13% Roth and 0% in taxable. That last one will build as RMDs hit us in a few years. I'd like the 1st to be lower.

I participated in the pre-tax 401k's when they came out. tIRA's were made available mid-career. Roth IRAs were a relative late comer in my career as far as availability. I was not an early adopter there because I was stuck in the common, but false mentality of "taxes will be lower when you are retired." If I knew then what I know now......

I'm sure you have a reason, but why not withdraw from IRA now, in excess of what you spend to build up your taxable (cash stash) ?

 

[Retch The Grate]

58% taxable, 34% tIRA, 8% Roth

 

[tdv2]

We are at 40% tIRA, 60% taxable. Would have been more like 30% tIRA had DW not taken lump sum pension payout. We have always been Millionaire next door types, investing significant $$ in taxable accounts....compound interest is a beautiful thing.

 

[RunningBum]

Combined, we are 87% tIRA, 13% Roth and 0% in taxable. That last one will build as RMDs hit us in a few years. I'd like the 1st to be lower.

I participated in the pre-tax 401k's when they came out. tIRA's were made available mid-career. Roth IRAs were a relative late comer in my career as far as availability. I was not an early adopter there because I was stuck in the common, but false mentality of "taxes will be lower when you are retired." If I knew then what I know now......

Were you really in a lower tax bracket while working than you are/will be in retirement?

Tax deferral is a funny thing, mentally. When you are working, it's great to defer taxes, and stuff money away for your retirement and let it grow. Then you retire, and you are faced with the reality of paying taxes on the deferrals, and wishing the money was in a Roth where it couldn't be taxed. However, as long as you're not paying a higher rate now than while you were deferring, it was still the right move. And many of us got employer matching, which makes the deferral decision even better. And if you are the less common case paying higher taxes now, it may have been difficult to forecast, especially since a lot of it may be due to making great gains in the deferral account.

 

[donheff]

Now that you folks have tilted me toward Roth conversions are there any gotchas you need to deal with? Do you just transfer the proceeds from the IRA sale into a Roth account or do you need to document anything for IRS? Is there some way to characterize the investment as a conversion vs a regular income supported contribution?

 

[googily]

Now that you folks have tilted me toward Roth conversions are there any gotchas you need to deal with? Do you just transfer the proceeds from the IRA sale into a Roth account or do you need to document anything for IRS? Is there some way to characterize the investment as a conversion vs a regular income supported contribution?

If your IRA is with Vanguard, when you are looking at the Holdings page one of the options should be Convert to Roth. Just go from there. Don't even need to sell first unless you want to.

ETA: But do you have both pre-tax and non-deductible contributions in your IRA? If so, there are some pitfalls to be aware of. The Bogleheads wiki should have lots of explanations.