Author Topic: Asset placement between brokerage, 401K, and Roth IRA  (Read 833 times)

wooooooooooooo

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Asset placement between brokerage, 401K, and Roth IRA
« on: January 12, 2024, 10:15:42 PM »
For the past several years, my Roth IRA has remained pretty flat while my 401K and brokerage accounts have grown substantially. This leads me to question whether I am making best use of the space in my Roth IRA.

I've followed the Vanguard and Boglehead approach of keeping international stock and bonds in my tax advantaged Roth IRA. I contribute maximums to Roth IRA and 401K funds and ~50K to brokerage annually. Combined with the relative under performance of bonds and international equity, my Roth IRA is growing much more slowly than my other accounts.

Target Allocation:
90% equity/10% bond
65% US / 35% international

Brokerage Account (482K):
VTIAX (international equity) & VTSAX (US equity)

401K (188K):
VFFVX (target date 2055)

Roth IRA (103K):
VTIAX (international equity), VBLTX (us bond) & VTABX (international bond)

Questions
1. Is it in my best interest to replace VTBLX (us bond) in my Roth IRA with an equities, and add the buy the same $ amount of FXNAX (us bond) in my 401K?
2. Is their a better placement I should consider?

ATtiny85

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Re: Asset placement between brokerage, 401K, and Roth IRA
« Reply #1 on: January 13, 2024, 06:05:06 AM »
Roth should hold equities as a general rule. You understand, so make the swap. Should be doable.

maizefolk

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Re: Asset placement between brokerage, 401K, and Roth IRA
« Reply #2 on: January 13, 2024, 07:58:40 AM »
Holding international equity in your tax advantaged space (either Roth or traditional) means you are giving up the ability to claim the Foreign Tax Credit for dividends withheld by international companies because of tax withholding laws in their home countries.

It's not huge, but last year it amounted to very roughly 0.2% of the value of my international stock holdings. A 0.2 difference in expense ratios would be a big enough difference to motivate me to move funds around to avoid it.

lhamo

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Re: Asset placement between brokerage, 401K, and Roth IRA
« Reply #3 on: January 13, 2024, 08:14:11 AM »
What are your plans for tapping the Roth accounts?  For me, I have a two-fold strategy:

1)  I have just over 4 years until I hit 59.5 and can withdraw earnings from the Roths penalty free, but I COULD tap into my contributions now.  I am in the process of moving at least some of the contributions (I have quite a lot in one account as it was a Roth 403b that I maxed out for several years and then rolled to a Roth IRA when I FIREd) into more stable funds in case I need to tap them for my upcoming home renovations and/or living expenses.

TLDR:  If you want to treat Roth contributions as something like a backup emergency fund, move the money you contributed to something less volatile -- this could be cash or something similar (money market funds are paying around 5% these days, so that is what I am using) or a bond fund

2)  For the money that you intend to keep in the Roth LOOOOONG term (I'm hoping I won't have to touch mine until 10-20 years down the road, if ever), put a sizaable chunk of it into a total stock market fund.  And then just let it grow.  If the market tanks it will go down.  Throw more money in there during the downturns (do your conversions then if you can).  It will bounce back up eventually and then you'll have a nice fat tax-free stash to live off of.

NotJen

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Re: Asset placement between brokerage, 401K, and Roth IRA
« Reply #4 on: January 13, 2024, 08:16:51 AM »
Holding international equity in your tax advantaged space (either Roth or traditional) means you are giving up the ability to claim the Foreign Tax Credit for dividends withheld by international companies because of tax withholding laws in their home countries.

It's not huge, but last year it amounted to very roughly 0.2% of the value of my international stock holdings. A 0.2 difference in expense ratios would be a big enough difference to motivate me to move funds around to avoid it.

Another consideration - I lose out on getting the full Foreign Tax Credit in retirement because my income is so low.  For 2022, I paid $241 in foreign taxes from VTIAX, but only got to "claim" $129 in foreign tax credit, because that was my total federal tax liability.

MustacheAndaHalf

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Re: Asset placement between brokerage, 401K, and Roth IRA
« Reply #5 on: January 14, 2024, 05:29:30 AM »
Holding international equity in your tax advantaged space (either Roth or traditional) means you are giving up the ability to claim the Foreign Tax Credit for dividends withheld by international companies because of tax withholding laws in their home countries.

It's not huge, but last year it amounted to very roughly 0.2% of the value of my international stock holdings. A 0.2 difference in expense ratios would be a big enough difference to motivate me to move funds around to avoid it.
Most people seem to ignore the dividend yield when making the tax consideration.  VTI had a dividend yield of 1.7% while VXUS had a dividend yield of 5.9%.  Put in real numbers, you can decide if $1000 in taxable is VTI or VXUS:

$1000 VTI issues $17 in taxable dividends
$1000 VXUS issues $59 in taxable dividends
With triple the tax impact, it is unlikely the foreign tax credit makes up for it.

https://www.nasdaq.com/market-activity/etf/vti/dividend-history
https://www.nasdaq.com/market-activity/etf/vxus/dividend-history

RWTL

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Re: Asset placement between brokerage, 401K, and Roth IRA
« Reply #6 on: January 14, 2024, 07:11:57 AM »
I plan on pulling funds from my Roth a long time from now, so I have 100% S&P 500 index in the Roth.  I think your allocation should depend on when you want to use the funds. 

Mariposa

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Re: Asset placement between brokerage, 401K, and Roth IRA
« Reply #7 on: January 14, 2024, 07:53:12 AM »
Holding international equity in your tax advantaged space (either Roth or traditional) means you are giving up the ability to claim the Foreign Tax Credit for dividends withheld by international companies because of tax withholding laws in their home countries.

It's not huge, but last year it amounted to very roughly 0.2% of the value of my international stock holdings. A 0.2 difference in expense ratios would be a big enough difference to motivate me to move funds around to avoid it.
Most people seem to ignore the dividend yield when making the tax consideration.  VTI had a dividend yield of 1.7% while VXUS had a dividend yield of 5.9%.  Put in real numbers, you can decide if $1000 in taxable is VTI or VXUS:

$1000 VTI issues $17 in taxable dividends
$1000 VXUS issues $59 in taxable dividends
With triple the tax impact, it is unlikely the foreign tax credit makes up for it.

https://www.nasdaq.com/market-activity/etf/vti/dividend-history
https://www.nasdaq.com/market-activity/etf/vxus/dividend-history

I noticed this as well while doing our taxes. At this point, our taxes on dividends are thousands a year. I put new international investments in our 401k and 457 accounts. I've thought of putting our VTIAX in our taxable account into a DAF because of the high taxable dividends.

Scandium

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Re: Asset placement between brokerage, 401K, and Roth IRA
« Reply #8 on: January 19, 2024, 06:40:35 AM »
Holding international equity in your tax advantaged space (either Roth or traditional) means you are giving up the ability to claim the Foreign Tax Credit for dividends withheld by international companies because of tax withholding laws in their home countries.

It's not huge, but last year it amounted to very roughly 0.2% of the value of my international stock holdings. A 0.2 difference in expense ratios would be a big enough difference to motivate me to move funds around to avoid it.
Most people seem to ignore the dividend yield when making the tax consideration.  VTI had a dividend yield of 1.7% while VXUS had a dividend yield of 5.9%.  Put in real numbers, you can decide if $1000 in taxable is VTI or VXUS:

$1000 VTI issues $17 in taxable dividends
$1000 VXUS issues $59 in taxable dividends
With triple the tax impact, it is unlikely the foreign tax credit makes up for it.

https://www.nasdaq.com/market-activity/etf/vti/dividend-history
https://www.nasdaq.com/market-activity/etf/vxus/dividend-history

ok, maybe I'm an idiot, but that don't' seem right. How is yield on VXUS 6%, or $3.3/share/year? The numbers on the page, and the vanguard site don't seem to give that? That site shows 4 distributions in 2023 which add up to about $1.85/share. Where is the $3.3/share number from?

Yahoo give 3.25%, which I think is correct.
https://finance.yahoo.com/quote/VXUS

But yes, it's still higher than VTI, about double. In dec I got twice as much distributed from XUS as from my US fund, even though I have much less! Your idea is good, I might have to start considering stopping contributions to international in my taxable. The FTC is not really worth it I think.

MustacheAndaHalf

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Re: Asset placement between brokerage, 401K, and Roth IRA
« Reply #9 on: January 19, 2024, 08:45:01 AM »
Maybe Nasdaq has the wrong numbers?  Morningstar cites 3.25% VXUS and 1.44% VTI, which still means double the tax impact of placing international (VXUS) in taxable:
$1000 VXUS $32.50 taxed
$1000 VTI $14.40 taxed

Same point, though: the foreign tax benefit is nowhere near enough to overcome paying twice as much in taxes.

https://www.morningstar.com/etfs/xnas/vxus/quote
https://www.morningstar.com/etfs/arcx/vti/quote