Author Topic: Please help--Maxing ROTH w/ $$ from taxable acct or savings from home purchase?  (Read 1641 times)

Mrs. Healthywealth

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Hello mustachians,
I need feedback on how to go about funding my ROTH with the money I have, while also trying to get to my target international stocks allocation. I like to max out both ROTHs in the first 4 mos just to get it over with.  Below is the info on the money I want to focus on, it doesn’t acct for all our retirement accts or savings.

Tax Bracket 25%, California

TAXABLE ACCOUNT:
$11,000 in Vanguard Total International (VTIAX) w/ a loss of $1400 total. 
$9,800 in VTSAX w/ a $53 loss total. 

SAVINGS ACCOUNT FOR HOME PURCHASE
$47,000---No plan to purchase a home for at least 4yrs, and would like to have 100k saved.  Been saving over $24,000/yr.

CURRENT AA:        color=red]TARGET AA:[/color]
Large Cap 45%          Large Cap 40%
Med Cap 17%            Med Cap 15%
Small Cap 14%          Small Cap 10%
International 7%       International 15%    
Bonds 17%               Bonds 20%

Currently, I only have 7% of my portfolio in VTIAX.  I want to make this 15%, which I hope to eventually keep in our taxable account due to foreign tax credit.

How should I shift my money around to max out our ROTHs for 2016? Options:
a) Take $9800 from VTSAX in taxable acct and put in ROTH towards VTIAX, then add cash from paycheck to make up the $1200 difference in the ROTHs (to equal $11,000). For remaining year, use $$ from paycheck to increase VTIAX in taxable account so I can get it to 15% taxable acct.  I can readjust my allocation in the middle of the year so that the majority of the 15% is in the taxable acct.  The amount in ROTH can be adjusted to the VTSAX I carry in my ROTH.  It may take me 12-18 months to get my portfolio to 15% VTIAX in Taxable acct only.

b) Take money out of the "home bucket" to fund the ROTH, then use paycheck and tax return to replenish home bucket. This would mean I don't put any money in my taxable account for most likely the remaining year.

c) You're a hot mess, hand this over to a financial planner (i'll keep my fingers crossed it's not this one).

Side question, am I off base that I want to put all my VTIAX in taxable account?  I did get the foreign tax credit last year, which is the main reason why I wanted to keep it like that. Taxable accounts and  International stocks are a little more complex for me, I just keep reading about it. I won’t pay any capital gains b/c I lost money in the taxable acct, not sure I have a ton in the VTSAX and VTIAX to make much of a difference even if I had to pay something—correct me if I’m wrong.


Thank you as always!

harshalpatel

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A few questions:

1) Does your asset allocation include your retirement accounts that are not shown here?

2) I assume you are fairly young. Why do you want to have 20% in bonds?

3) I would do option B as long as your job is stable. Invest the money now from savings where it likely earns no interest.

Side notes:
For your home purchase, short term government bonds may be better. You may earn more interest and still be safe.


Mrs. Healthywealth

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1) Does your asset allocation include your retirement accounts that are not shown here?
Yes, I did not post all my retirement accounts since I didn't think it matters--we have a 457b, 401k, the 2 ROTHs, and the taxable account. We max out my 457b and the 2 ROTHS, and put about $10k in the 401k (my spouse works per diem only).

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2) I assume you are fairly young. Why do you want to have 20% in bonds?
I'm 37y/o.  I prefer 10% bonds, but my spouse is 40 y/o and prefers a little more in the bond dept.  We met in the middle.  I have a COLA pension that will cover all our liabilities and 80% of our healthcare when i'm 65y/o.  I'm saving for the years in btw. 

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3) I would do option B as long as your job is stable. Invest the money now from savings where it likely earns no interest.

Job is stable.  My interest rate is .75% in the savings account. 

I looked into the Vanguard Short Term Admiral Funds, and its less risk with a much higher yield than my savings account.  If I put this in a taxable account, I wonder what the tax ramifications would be? I also know that it may not be as stable as my savings acct, I keep reading about "bond bubbles".
« Last Edit: December 27, 2015, 08:18:56 PM by Mrs. Healthywealth »

harshalpatel

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If I put this in a taxable account, I wonder what the tax ramifications would be?

Same as having a savings account; interest in a savings account is taxable as capital gains.
Dividends from Vanguard would be as well.

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bond bubble
Bonds do fall when interest rates rise. That's partly why short term bonds are better.