Author Topic: Tax-advantaged Retirement Accounts: Bonds or Stocks?  (Read 1185 times)


  • Stubble
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Tax-advantaged Retirement Accounts: Bonds or Stocks?
« on: February 27, 2019, 11:46:51 AM »
I have a question about what kind of index fund to have in certain tax-advantaged retirement accounts.

My husband and I have:

My husband's 401K from work, 100% invested in VINIX.
My husband's HSA from work (which we are using as a retirement savings vehicle), 100% (minus $5K in cash) in VBTLX.
Two Roth IRAs (mine & my husband's), 100% in VBTLX.
My inheritance IRA (which I received when my mother passed away last year), temporarily in Vanguard's settlement fund.

I'm a SAHM with no plans to work outside the home. My husband hopes to retire at the age of 60, in six years, though that's not set in stone.

The bulk of our portfolio is the 401K. We are comfortable with being mostly invested in a total stock market index fund, but I'm wondering if it would be better to have the accounts that we won't be required to draw from at some point in bonds, and the ones that could grow longer in stocks, still maintaining a high stock to bond ratio.

Thoughts, please?


  • Stubble
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Re: Tax-advantaged Retirement Accounts: Bonds or Stocks?
« Reply #1 on: February 27, 2019, 12:02:30 PM »
In my non-expert opinion, if I knew I wanted to be, say, 75% stocks and 25% bonds, and if I had a Roth IRA and a work 401K, I'd add the total of both accounts together and hold the 25% of that total in bonds in just the 401K.

My reasoning is, if I'm going to get lucky and hit a home run with stocks somehow, I want as much of that potential growth in the Roth IRA so I don't have to pay any taxes on it. I'm not likely to hit it big in returns on bonds.

For example, if my 401K was worth $200,000, and my Roth IRA was worth $100,000, I'd want to own $75K in bonds and $225,000 in stocks. So I'd make sure my 401K held all of the $75k of bonds, and the remainder ($125k) in stocks. My Roth would be all $100,000 in stocks.

An HSA focused on being mostly a retirement vehicle I'd include in the total as a place to lean more toward stocks since, again, if I get lucky and somehow buy the next Netflix in there, I want to get that win completely tax-free.


  • Magnum Stache
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Re: Tax-advantaged Retirement Accounts: Bonds or Stocks?
« Reply #2 on: February 27, 2019, 12:24:42 PM »
Bond interest is generally taxed as ordinary income tax rates so many investors prefer to hold bonds in tax advantaged accounts rather than taxable accounts.

Assuming similar investment options in all your accounts, I'd place bonds in the inherited IRA first since you'll be required to start taking distributions this year or have to fully distribute within 5 years. The remainder of the bonds I'd hold in the 401k. The last place I'd put bonds is in Roth IRAs because the eventual distributions are tax free and there are no RMDs in your lifetime. I'd also invest as aggressively as possible in HSA because the portion used for medical expenses is distributed tax free and they are not subject to RMDs.


  • Bristles
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Re: Tax-advantaged Retirement Accounts: Bonds or Stocks?
« Reply #3 on: February 27, 2019, 08:41:36 PM »


  • Walrus Stache
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Re: Tax-advantaged Retirement Accounts: Bonds or Stocks?
« Reply #4 on: February 28, 2019, 10:07:04 PM »
I would say it depends on your tax bracket and the type of retirement account.

If you're in a higher tax bracket, just use tax-exempt bonds in a taxable account.  No need for bonds in the retirement accounts.

If you need some bonds in retirement accounts, I'd put it in Traditional IRA/401(k).  The growth gets taxed at ordinary income tax rates, just like bond income.

One tricky aspect of all this - your portfolio grows at a certain rate, regardless of where the stocks/bonds sit.  So if you grow your Roth IRA with stocks, later you'll need to buy bonds there to keep your asset allocation (plus you'd want a higher bond allocation as you approach retirement age).


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