AA ideas between Taxable/tax-free accounts

[bluecollarmusician]

Hi Friends-

Looking for ideas I may have overlooked here.

I am 46 and by all the numbers you can find we are FI and about 4 years ago I left my "steady" musician job and just freelance now, doing what I want when I want - not RE and not planning to RE.  Because- you don't quit playing because you grow old- you grow old because you quit playing :-).


I have (roughly speaking) 1/3 of liquid investments in a taxable account, and 2/3 in tax-free accounts. So at least another 13 years before I tap the tax free accounts- or maybe a bit earlier if I want to grab some from the Roth Acct.

Prior to my "semi-retirement" (i.e. doing what I want :-) ) my idea was that when I left my previous job that had a steady paycheck, that I could supplement income from taxable accounts; and so that money is in more "stable type" investments- I have a lot of Treasuries, some preferred shares, some solid growth stocks- old stodgy stuff for the most part.  This "seemed" like a good idea at the time.  As someone who never really made a lot of money, I didn't put a ton of thought into tax planning- I basically never owed much.

But as it turns out, I keep working more than I expected, and making more money than I planned to... this is causing an inefficiency in tax liability since the Treasuries, Dividends, etc.  create more income that I don't necessarily want right now.

However- I don't really want to be "stock" heavy in this portion of my portfolio as this portion I would rather have steady, stable returns vs. my longer term stock portfolios; however due to the nature of how capital gains are recognized that would be more tax efficient.

Any ideas of more conservative type investments that generate steady return without creating tax liability? 

* editing to add I have mostly been solving this so far by just shoveling more money into retirement accounts (IRA, Solo 401K) to minimize tax liability, but I am looking for other ideas, as I prefer to have access should life circumstances change in the next 13 years and we would like access to more of it then.

[MDM]

What do you think of the advice in Tax-efficient fund placement - Bogleheads?

[bluecollarmusician]

@MDM  This is great- thanks for sharing!

I must admit- I don't spend much time on bogleheads due to...*reasons*- but they definitely have a lot of good information, so maybe I ought to make a point to nose around over there a bit.

What I am seeing here seems to align with what I am already thinking- thanks for the link!

[MDM]

@MDM  This is great- thanks for sharing!

I must admit- I don't spend much time on bogleheads due to...*reasons*- but they definitely have a lot of good information, so maybe I ought to make a point to nose around over there a bit.

What I am seeing here seems to align with what I am already thinking- thanks for the link!

Bogleheads forum moderation isn't for everyone, but the wiki they maintain is a great resource.  Best wishes for continued success!

[SeattleCPA]

@bluecollarmusician this is off topic. But one sidebar comment about asset allocation. Something I think bogleheads miss.

You can probably fiddle with your asset location decisions and dodge some of the RMD troubles that occur later in life.

E.g., you have $1,000,000 in your nest egg. And you plan to draw $40k a year. (Just example numbers.)

Say $300K is in taxable account in something really tax efficient. Like Vanguard Total US stock portfolio. That'll maybe kick out $6K a year, or 2%, in qualified dividends and realized capital gains.

The $700K remainder in an appropriate blend of other funds. Probably some bonds. Maybe REITs. Whatever. Not taxable income unless you draw it. At this point, it's taxed at ordinary income tax rates.

You get roughly $6K in qualified dividends from taxable account. That's lightly taxed. Maybe not taxed.

You take the other $34K from the $700K. So nearly 5%.

What'll probably happen if you do this? Over retirement in relative terms you'll grow your taxable balance and shrink your tax-deferred balance. And by doing this? You'll avoid needing to worry about RMDs.