Bond allocation in taxable vs non-taxable accounts

[SugarMountain]

I am nearing FIRE (well, I'm FI just not RE yet).  Age 51.  I have about 30% of my assets in tax deferred accounts the rest in taxable accounts and real estate.  My target for the non-real estate portion of my stache to be 75% stock, 20% bond, 5% cash.  I've got some allocation work to do to get there, and I was thinking about not only the allocation situation but which accounts are allocated which ways.

It occurs to me that while I was in accumulation phase, the bond component of my assets should have been in the tax deferred accounts while the stock component should have been in taxable, but when I retire I want the more stable piece to be available so I should have bonds in the taxable accounts.  Basically, if I retire tomorrow and the market tanks in September again, I'd want to be in a position to be living off of bonds more than having to sell the stocks. Does this make sense? 

[EvenSteven]

The first part makes sense, but not the second where you move bonds to taxable in withdrawal. You can always adjust your AA to keep it where you want, and have funds placed in a tax efficient manner.

[seattlecyclone]

Right. Keep your stocks and bonds where they are. If you decide you want to withdraw $X from your taxable account, and sell bonds, but all your bonds are in your retirement account, here's what you do:
1) Sell $X of stock in your taxable account. Withdraw the proceeds.
2) Sell $X of bonds in your retirement account.
3) Buy $X of stock in your retirement account.

Net result is that you have the same amount of stock that you started with, $X less of bonds, $X less in your taxable account, and everything is still allocated in a tax-efficient manner.

[Andy R]

Right. Keep your stocks and bonds where they are. If you decide you want to withdraw $X from your taxable account, and sell bonds, but all your bonds are in your retirement account, here's what you do:
1) Sell $X of stock in your taxable account. Withdraw the proceeds.
2) Sell $X of bonds in your retirement account.
3) Buy $X of stock in your retirement account.

Net result is that you have the same amount of stock that you started with, $X less of bonds, $X less in your taxable account, and everything is still allocated in a tax-efficient manner.

+1 to this.

Bonds in tax deferred, then follow as mentioned described above.
If it is at a time when stocks are down (as is normally when you use bonds), then you get to tax loss harvest.
If it is at a time when stocks are up, well, stocks are up (yay), and paying tax is just part of life.

[SugarMountain]

Right. Keep your stocks and bonds where they are. If you decide you want to withdraw $X from your taxable account, and sell bonds, but all your bonds are in your retirement account, here's what you do:
1) Sell $X of stock in your taxable account. Withdraw the proceeds.
2) Sell $X of bonds in your retirement account.
3) Buy $X of stock in your retirement account.

Net result is that you have the same amount of stock that you started with, $X less of bonds, $X less in your taxable account, and everything is still allocated in a tax-efficient manner.

Great points, thanks, I hadn't thought about that.  Right now about 2/3rds of my bonds are in the taxable account and was debating what to do with cash, whether to buy stock, bonds, or park it in as high yield account/cds as I can.  I need to think about this.  It's basically free from a tax perspective for me to change this so 100% are in the tax deferred account since their appreciation has been very little and they were relatively recent purchases as I dumped a bunch of employee stock over the last year. From what you're saying and as I think about it, it seems like I should probably do this and push all bonds to the tax deferred accounts, and have only stock in the taxable account due to the better tax treatment of dividends and capital gains.

[EvenSteven]

Right. Keep your stocks and bonds where they are. If you decide you want to withdraw $X from your taxable account, and sell bonds, but all your bonds are in your retirement account, here's what you do:
1) Sell $X of stock in your taxable account. Withdraw the proceeds.
2) Sell $X of bonds in your retirement account.
3) Buy $X of stock in your retirement account.

Net result is that you have the same amount of stock that you started with, $X less of bonds, $X less in your taxable account, and everything is still allocated in a tax-efficient manner.

Great points, thanks, I hadn't thought about that.  Right now about 2/3rds of my bonds are in the taxable account and was debating what to do with cash, whether to buy stock, bonds, or park it in as high yield account/cds as I can.  I need to think about this.  It's basically free from a tax perspective for me to change this so 100% are in the tax deferred account since their appreciation has been very little and they were relatively recent purchases as I dumped a bunch of employee stock over the last year. From what you're saying and as I think about it, it seems like I should probably do this and push all bonds to the tax deferred accounts, and have only stock in the taxable account due to the better tax treatment of dividends and capital gains.

That sounds like a good idea.