Asset locations

[vnatale]

I know that is has been discussed prior. And, I know I can go back to read those discussion (many of which I have). However, I'd like an up-to-date discussion in which I can participate as opposed to only reading prior ones.

My latest goal is to (FINALLY!) go 100% classic Permanent Portfolio in the first week of January. And, me saying this in public puts the good form of pressure on me so as to make it a priority to accomplish that goal by that time.

I know exactly what I'll be doing for the stock / equity purchase. I know exactly what I'll be doing for the cash purchase and what I will, hopefully, soon be transforming that to. I know what I'll be doing with the long term bonds purchase while still having some questions as to how I'll be making that investment more pure. I have the most questions regarding the gold purchase.

But the absolute FIRST decision I need to make is where of three locations each of these investments should go: 1) taxable 2) traditional retirement 3) Roth retirement.

A few months ago someone (Thank You!) here recommended this excellent book: The Overtaxed Investor: Slash Your Tax Bill & Be a Tax Alpha Dog https://www.amazon.com/Overtaxed-Invest ... l_huc_item

I immediately acquired it and quickly read it.

Now I am reading it in a studying fashion and will be putting portions of it here to get counter views to the author's thoughts.

Over the last several months I've been struck by the overall astuteness of the members of this forum. It feels like a privilege to be here. And, I highly value many of the opinions that I read in this forum. There is generally a high level of thought and logic behind them.

Vinny

[vnatale]

"Roth IRAs

If you have a Roth IRA/Roth 401(k), start here. All the capital appreciation is untaxed forever. The bigger this account grows, the happier you will be. Place the assets here that have the highest long-term expected return. Emerging market equities might fit this category. A small cap value stock fund would also be a good choice. More simply, stocks.

I also put moonshots here. Your crazy brother-in-law works for a startup. He gets you a hundred shares. There is a 99.9% chance they are worth zero and a 0.1% chance they are worth a million dollars. Put them in a Roth if you can.

Tax-intensive assets also thrive inside the Roth hothouse. Some people like real estate investment trusts (REITs) inside a Roth for that reason. Anything with high turnover and lots of ordinary nonqualified dividends or short-term capital gains can work. But growth comes first.

Unsure which asset class has the highest long-term expected return? Welcome to the club. You can check Research Affiliates’ view here: https://www.researchaffiliates.com/Asse ... rview.aspx.

Your Roth IRA is the first account to fill."


I question none of the above. It seems like it goes along with Mathjak (I believe) several times pointing us to the Kitces writing in which Kitces makes the case that a Roth (or retirement?) account is the spot for your equity investment.

Vinny

[ochotona]

It seems like it goes along with Mathjak (I believe) several times pointing us to the Kitces writing in which Kitces makes the case that a Roth (or retirement?) account is the spot for your equity investment.

Any asset which you think will have a really good chance of a big capital gain over your lifetime. Stocks or gold. Yes, it's a guess. Yes, it's not agnostic.

[vnatale]

"Taxable Accounts

Taxable accounts are a great place for anything that is going to appreciate in value that does not throw off too much taxable income, briefly, individual stocks and index funds. The ideal holdings from a tax perspective would be numerous uncorrelated assets that you rarely trade. Second place goes to a passive, marketwide exchange-traded index fund. From there it is a steep slippery slope downward. Most other assets will perform better in some flavor of IRA.

If you are primarily interested in the bequest angle, it will be better to leave the stocks in your taxable account instead of bloating your traditional IRA with them (for reasons to be explained later).

Another important use of taxable accounts is to house money you might need for near-term purposes—buying a house, having a baby, paying the $50,000 annual tuition for Junior’s pre-K schooling—and for emergencies. This should be kept in cash or near-cash equivalents (short-term muni bonds, perhaps, or some duration-matched asset for the future liability)."


I'm not seeing any clearcut #1 for Taxable Accounts.

Would it be the cash portion because it is currently paying so little (even though taxed at ordinary income rates)? In what order would the other three place for being in a taxable account?

Vinny

[vnatale]

Somewhat related to the asset location discussion...

"Minimizing Capital Gains

In the universe of passive index funds, there are still levels and levels. Tax-wise, exchange-traded funds (ETFs) run cooler than traditional mutual funds because the ETF structure allows them to swap out the stocks with capital gains in the course of creating and redeeming units without having to actually sell and recognize them. Both traditional mutual funds and ETFs typically will have unrealized capital gains in the stocks they hold, but the traditional mutual funds cannot dissipate them because they are not into “swapping.” This is a completely unfair advantage for ETFs. Note carefully, tax alpha dogs!

You can look up your fund’s unrealized capital gains liability at Morningstar.com under its “Tax” tab."


Is this an issue for Permanent Portfolio? This would not be an advantage for anything held in Roth or tax deferred. But it would be one in taxable accounts. And, for what which would be held in a taxable account should be purchased in ETF form rather than mutual fund form?

Vinny

[vnatale]

"At the time of this writing, with bond yields so low, it scarcely matters where you park your bonds, what kinds of bonds you buy, or even if you own bonds versus cash at all. Place them where they should be held anyway, in the event that the world ever returns to normal. The prospect cannot be ruled out entirely."


Here he is not taking into account the Permanent Portfolio philosophy of owning long-term bonds not for their income but for their capital appreciation?

Vinny

[vnatale]

"A First Pass at Tax Alpha Asset Location

You have a bunch of different accounts—what do you put where?

You open the box and shake the pieces onto the floor. Then you try to put each investment where it will do the least harm, tax-wise. Your asset allocation won’t divide perfectly into the three account types because you don’t have unlimited headroom in each one. You may have to shoehorn some investment somewhere it may not belong. Or you may already have a big portfolio with a good amount of capital gains where you can’t move anything without breaking a lot of crockery.

Table 2.2 gives you the cheat sheet.

TABLE 2.2

Which asset goes where?

Roth accounts

Moonshots

Emerging market stock funds

Small/value stock funds

Momentum funds

Tax-deferred accounts

Taxable bonds

REITs

Alternative investments

Gold

Dividend stocks

Low-volatility stock funds

Actively managed stock funds

Taxable accounts

Individual stocks

Stock index exchange-traded funds

Tax-managed mutual funds

Municipal bonds

Money needed for short-term goals"



The table seems to say (if using the Golden Butterfly)

Roth - small cap (value)

Deferred - Gold, long-term bonds, stock mutual fund

Taxable - stock ETFs

Not really addressed is the 20% to 25% investment in Cash (Treasury Bills)

Vinny

[mathjak107]

Because of all the gains I get with tlt and Gld they only go in my retirement accounts , they are like stocks .

The cash portion is only in our taxable account

[mathjak107]

Kitces found as little as a 2% dividend can wipe out any tax advantage over the long term ..old school thinking was wrong..

Unless you can take advantage of the zero capital gain brackets that money in equities should not follow old school thinking and go in a taxable account

https://www.kitces.com/blog/asset-locat ... io-design/

[vnatale]

Somehow the section from the book on Tax Deferred Accounts that I put here did not show up?



"Tax-Deferred Accounts

In your IRA and 401(k), the asset of choice is taxable bonds or anything income oriented, such as REITs or dividend stocks. Why? Because you avoid the annual hedge clipping these get when they are held in taxable accounts.

Advisors used to like to put stocks in an IRA first, because of the tax-deferred compounding. This turned out to be a mistake. Capital appreciation inside an IRA converts capital gains into ordinary income, which is taxed at even higher rates. This effectively transmutes gold into lead.

(Speaking of gold, bullion is taxed as a “collectible” at a special high 28% capital gains rate, so there is an advantage to holding it inside an IRA.)

Then, on second look, advisors decided it was better to hold stocks outside of an IRA. This, too, turned out to be a mistake.

Why? Because once you add stock dividends and portfolio turnover to the mix, most stock mutual funds still perform better in an IRA over the long run. The expense of paying taxes at marginal rates upon withdrawal from the IRA adds up to less than taking the annual tax pruning over twenty to thirty years inside the taxable account, which nibbles away at your fortune like rats in a granary. Unless you are following a disciplined low-dividend, low-turnover strategy in your taxable accounts, most stock funds (other than stock market index funds) fare better in IRAs and 401(k)s over the long run.

Actively managed mutual funds belong in tax-deferred accounts because of their high internal turnover and the potential for unqualified dividends. If you own any of these, your first move is to read John Bogle’s Common Sense on Mutual Funds, after which you will dump them. The same would hold for any “trading” accounts you manage. Turnover means taxes will eat you alive. Picture a cow being lowered into a pool of piranhas and you have it exactly.

Finally, all bonds (except municipal bonds) belong inside traditional IRA/401(k) accounts. This goes double for Treasury inflation-protected bonds (TIPS), because they generate “phantom” income. This has nothing to do with the purple leotard–wearing comic book crime
fighter of yore but refers to imputed income on which you must pay taxes even though you haven’t been paid the cash to pay the taxes with."

[mathjak107]

I know that is has been discussed prior. And, I know I can go back to read those discussion (many of which I have). However, I'd like an up-to-date discussion in which I can participate as opposed to only reading prior ones.

My latest goal is to (FINALLY!) go 100% classic Permanent Portfolio in the first week of January. And, me saying this in public puts the good form of pressure on me so as to make it a priority to accomplish that goal by that time.

I know exactly what I'll be doing for the stock / equity purchase. I know exactly what I'll be doing for the cash purchase and what I will, hopefully, soon be transforming that to. I know what I'll be doing with the long term bonds purchase while still having some questions as to how I'll be making that investment more pure. I have the most questions regarding the gold purchase.

But the absolute FIRST decision I need to make is where of three locations each of these investments should go: 1) taxable 2) traditional retirement 3) Roth retirement.

A few months ago someone (Thank You!) here recommended this excellent book: The Overtaxed Investor: Slash Your Tax Bill & Be a Tax Alpha Dog https://www.amazon.com/Overtaxed-Invest ... l_huc_item

I immediately acquired it and quickly read it.

Now I am reading it in a studying fashion and will be putting portions of it here to get counter views to the author's thoughts.

Over the last several months I've been struck by the overall astuteness of the members of this forum. It feels like a privilege to be here. And, I highly value many of the opinions that I read in this forum. There is generally a high level of thought and logic behind them.

Vinny

While I have a lot of money in the pp at this stage I still believe rising rates as a longer term trend is kryptonite to the pp if gold and treasuries stay joined at the hip ...

In my opinion I see nothing wrong with say 2/3’s of ones money in it . But I believe in hedging my bets by not doing 100% ....

I still keep 1/3 in a very conservative portfolio which is still 25% equities but is far less interest rate sensitive ...it uses bond funds that are far less sensitive , like floating rate bond funds , short duration high yield , some corporate bonds , etc .

Just in case 3 out of 4 pp components get to fixated on rising rates. Plus after a down turn that will be used to provide money to slide back in to a more aggressive model like my growth and income model I typically use when I am not hunkering down

[mathjak107]

Somehow the section from the book on Tax Deferred Accounts that I put here did not show up?



"Tax-Deferred Accounts

In your IRA and 401(k), the asset of choice is taxable bonds or anything income oriented, such as REITs or dividend stocks. Why? Because you avoid the annual hedge clipping these get when they are held in taxable accounts.

Advisors used to like to put stocks in an IRA first, because of the tax-deferred compounding. This turned out to be a mistake. Capital appreciation inside an IRA converts capital gains into ordinary income, which is taxed at even higher rates. This effectively transmutes gold into lead.

(Speaking of gold, bullion is taxed as a “collectible” at a special high 28% capital gains rate, so there is an advantage to holding it inside an IRA.)

Then, on second look, advisors decided it was better to hold stocks outside of an IRA. This, too, turned out to be a mistake.

Why? Because once you add stock dividends and portfolio turnover to the mix, most stock mutual funds still perform better in an IRA over the long run. The expense of paying taxes at marginal rates upon withdrawal from the IRA adds up to less than taking the annual tax pruning over twenty to thirty years inside the taxable account, which nibbles away at your fortune like rats in a granary. Unless you are following a disciplined low-dividend, low-turnover strategy in your taxable accounts, most stock funds (other than stock market index funds) fare better in IRAs and 401(k)s over the long run.

Actively managed mutual funds belong in tax-deferred accounts because of their high internal turnover and the potential for unqualified dividends. If you own any of these, your first move is to read John Bogle’s Common Sense on Mutual Funds, after which you will dump them. The same would hold for any “trading” accounts you manage. Turnover means taxes will eat you alive. Picture a cow being lowered into a pool of piranhas and you have it exactly.

Finally, all bonds (except municipal bonds) belong inside traditional IRA/401(k) accounts. This goes double for Treasury inflation-protected bonds (TIPS), because they generate “phantom” income. This has nothing to do with the purple leotard–wearing comic book crime
fighter of yore but refers to imputed income on which you must pay taxes even though you haven’t been paid the cash to pay the taxes with."

I think kitces work has taught us a lot of old school thinking ended up being wrong ...it was just that back in the day high speed numbers crunching and thinking outside the box from other angles was just in its infancy for all these financial researchers.

Also research and financial planners followed the boomer through the years . Basically through the accumulation cycle since that was where the money was ...so retirement and what happens decades later really was not of concern yet

[vnatale]

I know that is has been discussed prior. And, I know I can go back to read those discussion (many of which I have). However, I'd like an up-to-date discussion in which I can participate as opposed to only reading prior ones.

My latest goal is to (FINALLY!) go 100% classic Permanent Portfolio in the first week of January. And, me saying this in public puts the good form of pressure on me so as to make it a priority to accomplish that goal by that time.

I know exactly what I'll be doing for the stock / equity purchase. I know exactly what I'll be doing for the cash purchase and what I will, hopefully, soon be transforming that to. I know what I'll be doing with the long term bonds purchase while still having some questions as to how I'll be making that investment more pure. I have the most questions regarding the gold purchase.

But the absolute FIRST decision I need to make is where of three locations each of these investments should go: 1) taxable 2) traditional retirement 3) Roth retirement.

A few months ago someone (Thank You!) here recommended this excellent book: The Overtaxed Investor: Slash Your Tax Bill & Be a Tax Alpha Dog https://www.amazon.com/Overtaxed-Invest ... l_huc_item

I immediately acquired it and quickly read it.

Now I am reading it in a studying fashion and will be putting portions of it here to get counter views to the author's thoughts.

Over the last several months I've been struck by the overall astuteness of the members of this forum. It feels like a privilege to be here. And, I highly value many of the opinions that I read in this forum. There is generally a high level of thought and logic behind them.

Vinny

While I have a lot of money in the pp at this stage I still believe rising rates as a longer term trend is kryptonite to the pp if gold and treasuries stay joined at the hip ...

In my opinion I see nothing wrong with say 2/3’s of ones money in it . But I believe in hedging my bets by not doing 100% ....

I still keep 1/3 in a very conservative portfolio which is still 25% equities but is far less interest rate sensitive ...it uses bond funds that are far less sensitive , like floating rate bond funds , short duration high yield , some corporate bonds , etc .

Just in case 3 out of 4 pp components get to fixated on rising rates

I follow what you are saying. However, unlike you, I have zero intuition regarding where any markets are going. I subscribe to the belief that they are fairly random and that no one can predict. Plus, I am highly logical and formulaic. Therefore there is a strong draw for me to the Permanent Portfolio because it is clear and black and white and requires NO judgements or forecasts on my part.

I have a ton of investing inertia. Once I set upon a plan, it stays that way for decades because of how intensively I'll study something before moving on to something else. I'm now at the point where I am about to fully embrace the classic Permanent Portfolio 100%. Not looking for any enhancements (except maybe possibly broadening it to a Golden Butterfly). But THE issue for me right now with my current mindset of going fully Permanent Portfolio is in which of the three asset locations I put each of the four Permanent Portfolio investments.

Last month was the last time I analyzed my investable portfolio.

21% of it was in taxable accounts while 79% was in retirement accounts.

And, of those retirement accounts, 42% of it is traditional while 58% of it is Roth.

Vinny

[mathjak107]

Another look by kitces at asset location

EXECUTIVE SUMMARY

In an environment where generating portfolio alpha is difficult, strategies like managing assets on a household basis to take advantage of asset location opportunities to generate “tax alpha” are becoming more and more popular. The caveat, however, is that making effective asset location decisions is not easy, either.

For instance, while the traditional asset location strategy “rule of thumb” is that tax-inefficient bonds go into an IRA, while equities eligible for preferential tax rates go into a brokerage account, the reality is that for investors with long time horizons the optimal solution may be the opposite. Once stock dividends and portfolio turnover are considered, the ongoing “tax drag” of the portfolio can be so damaging to long-term returns that placing equities into an IRA may be more efficient, even though they are ultimately taxed at higher rates!

In fact, it turns out that almost any level of portfolio turnover will eventually tilt equities towards being held in IRAs given a long enough time horizon (and especially while today’s low interest rates result in almost no benefit for bonds to gain tax-deferred growth inside of retirement accounts). Which means in the end, good asset location decisions depend not only on returns and tax efficiency, but an investor’s time horizon as well!

https://www.kitces.com/blog/asset-locat ... e-horizon/

[mathjak107]

I know that is has been discussed prior. And, I know I can go back to read those discussion (many of which I have). However, I'd like an up-to-date discussion in which I can participate as opposed to only reading prior ones.

My latest goal is to (FINALLY!) go 100% classic Permanent Portfolio in the first week of January. And, me saying this in public puts the good form of pressure on me so as to make it a priority to accomplish that goal by that time.

I know exactly what I'll be doing for the stock / equity purchase. I know exactly what I'll be doing for the cash purchase and what I will, hopefully, soon be transforming that to. I know what I'll be doing with the long term bonds purchase while still having some questions as to how I'll be making that investment more pure. I have the most questions regarding the gold purchase.

But the absolute FIRST decision I need to make is where of three locations each of these investments should go: 1) taxable 2) traditional retirement 3) Roth retirement.

A few months ago someone (Thank You!) here recommended this excellent book: The Overtaxed Investor: Slash Your Tax Bill & Be a Tax Alpha Dog https://www.amazon.com/Overtaxed-Invest ... l_huc_item

I immediately acquired it and quickly read it.

Now I am reading it in a studying fashion and will be putting portions of it here to get counter views to the author's thoughts.

Over the last several months I've been struck by the overall astuteness of the members of this forum. It feels like a privilege to be here. And, I highly value many of the opinions that I read in this forum. There is generally a high level of thought and logic behind them.

Vinny

While I have a lot of money in the pp at this stage I still believe rising rates as a longer term trend is kryptonite to the pp if gold and treasuries stay joined at the hip ...

In my opinion I see nothing wrong with say 2/3’s of ones money in it . But I believe in hedging my bets by not doing 100% ....

I still keep 1/3 in a very conservative portfolio which is still 25% equities but is far less interest rate sensitive ...it uses bond funds that are far less sensitive , like floating rate bond funds , short duration high yield , some corporate bonds , etc .

Just in case 3 out of 4 pp components get to fixated on rising rates

I follow what you are saying. However, unlike you, I have zero intuition regarding where any markets are going. I subscribe to the belief that they are fairly random and that no one can predict. Plus, I am highly logical and formulaic. Therefore there is a strong draw for me to the Permanent Portfolio because it is clear and black and white and requires NO judgements or forecasts on my part.

I have a ton of investing inertia. Once I set upon a plan, it stays that way for decades because of how intensively I'll study something before moving on to something else. I'm now at the point where I am about to fully embrace the classic Permanent Portfolio 100%. Not looking for any enhancements (except maybe possibly broadening it to a Golden Butterfly). But THE issue for me right now with my current mindset of going fully Permanent Portfolio is in which of the three asset locations I put each of the four Permanent Portfolio investments.

Last month was the last time I analyzed my investable portfolio.

21% of it was in taxable accounts while 79% was in retirement accounts.

And, of those retirement accounts, 42% of it is traditional while 58% of it is Roth.

Vinny

I have been an investor since 1987 .. I have never seen a major bear market in bonds ..in fact we have not seen one in 40 years . We have had some speed bumps but no major trend back up ....

To be honest I think betting the ranch on the pp. is trying to rule out long term treasuries and gold being joined at the hip as we see, and that makes me uncomfortable about it . So to me not hedging that risk by betting everything on the pp is trying to rule it out.

Historically rates are in the 5% range as an average so there can be potential for lots of portfolio damage while we hope rising rates chokes the economy eventually . But for the most part the pp really is untested in this area in the modern day world so I would not use the pp for all my assets

[vnatale]

I know that is has been discussed prior. And, I know I can go back to read those discussion (many of which I have). However, I'd like an up-to-date discussion in which I can participate as opposed to only reading prior ones.

My latest goal is to (FINALLY!) go 100% classic Permanent Portfolio in the first week of January. And, me saying this in public puts the good form of pressure on me so as to make it a priority to accomplish that goal by that time.

I know exactly what I'll be doing for the stock / equity purchase. I know exactly what I'll be doing for the cash purchase and what I will, hopefully, soon be transforming that to. I know what I'll be doing with the long term bonds purchase while still having some questions as to how I'll be making that investment more pure. I have the most questions regarding the gold purchase.

But the absolute FIRST decision I need to make is where of three locations each of these investments should go: 1) taxable 2) traditional retirement 3) Roth retirement.

A few months ago someone (Thank You!) here recommended this excellent book: The Overtaxed Investor: Slash Your Tax Bill & Be a Tax Alpha Dog https://www.amazon.com/Overtaxed-Invest ... l_huc_item

I immediately acquired it and quickly read it.

Now I am reading it in a studying fashion and will be putting portions of it here to get counter views to the author's thoughts.

Over the last several months I've been struck by the overall astuteness of the members of this forum. It feels like a privilege to be here. And, I highly value many of the opinions that I read in this forum. There is generally a high level of thought and logic behind them.

Vinny

While I have a lot of money in the pp at this stage I still believe rising rates as a longer term trend is kryptonite to the pp if gold and treasuries stay joined at the hip ...

In my opinion I see nothing wrong with say 2/3’s of ones money in it . But I believe in hedging my bets by not doing 100% ....

I still keep 1/3 in a very conservative portfolio which is still 25% equities but is far less interest rate sensitive ...it uses bond funds that are far less sensitive , like floating rate bond funds , short duration high yield , some corporate bonds , etc .

Just in case 3 out of 4 pp components get to fixated on rising rates

I follow what you are saying. However, unlike you, I have zero intuition regarding where any markets are going. I subscribe to the belief that they are fairly random and that no one can predict. Plus, I am highly logical and formulaic. Therefore there is a strong draw for me to the Permanent Portfolio because it is clear and black and white and requires NO judgements or forecasts on my part.

I have a ton of investing inertia. Once I set upon a plan, it stays that way for decades because of how intensively I'll study something before moving on to something else. I'm now at the point where I am about to fully embrace the classic Permanent Portfolio 100%. Not looking for any enhancements (except maybe possibly broadening it to a Golden Butterfly). But THE issue for me right now with my current mindset of going fully Permanent Portfolio is in which of the three asset locations I put each of the four Permanent Portfolio investments.

Last month was the last time I analyzed my investable portfolio.

21% of it was in taxable accounts while 79% was in retirement accounts.

And, of those retirement accounts, 42% of it is traditional while 58% of it is Roth.

Vinny

I have been an investor since 1987 .. I have never seen a major bear market in bonds ..in fact we have not seen one in 40 years . We have had some speed bumps but no major trend back up ....

To be honest I think betting the ranch on the pp. is trying to rule out long term treasuries and gold being joined at the hip. As we see and that makes me uncomfortable about it . So to me not hedging that risk by betting everything on the pp is trying to rule it out

Again, I fully understand what you are saying. And, all you say may turn out to be 100% correct. But I don't want to be a market timer, trying to fathom when and which markets I should be in. That's far too nebulous for a black & white / binary personality such as mine. Hence why I will going 100% classic Permanent Portfolio. It's got a lot of good theoretical arguments behind it, good 40 year history, and is formulaic. No judgment required!

I've been an investor since 1981. I remember doing my first IRA ($2,000 maximum back then). I also remember it quite quickly only being worth $1,500 and then me telling myself, "So this is investing??!!"

Vinny

[mathjak107]

Anyway getting back to location . I think kitces is correct and as long term investors we should avoid putting equities in taxable accounts ... sometimes it is not possible to avoid doing it .. I have an s&p 500 fund I bought a long time ago .... it was bought from real estate proceeds so it is in the taxable account ...it has such large 6 figure gains I doubt I will ever sell it ....

It would trip all kinds of nasty stuff like Medicare premium surcharges even if I sold a piece at a time off. So much is linked to retirement income you can get in to trouble here with taxable dividends you can’t control the flow of.

The dividends in my taxable account killed off any chances I had of an aca subsidy when I first retired ....that ended up costing me thousands more for insurance from 62 to 65

[vnatale]

Anyway getting back to location . I think kitces is correct and as long term investors we should avoid putting equities in taxable accounts ... sometimes it is not possible to avoid doing it .. I have an s&p 500 fund I bought a long time ago .... it was bought from real estate proceeds so it is in the taxable account ...it has such large 6 figure gains I doubt I will ever sell it ....

It would trip all kinds of nasty stuff like Medicare premium surcharges even if I sold a piece at a time off. So much is linked to retirement income you can get in to trouble here with taxable dividends you can’t control the flow of.

The dividends in my taxable account killed off any chances I had of an aca subsidy when I first retired ....that ended up costing me thousands more for insurance from 62 to 65

As a side note, I am actively managing my Schedule C income so as to NOT incur those Medicare premium surcharges you reference above.

Vinny

[vnatale]

From the book's footnotes:


For Asset Location, see Michael Kitces:

https://www.kitces.com/blog/asset-locat ... io-design/

https://www.kitces.com/blog/asset-locat ... e-horizon/

Also see Reichenstein, Horan, and Jennings: http://www.cfapubs.org/doi/pdf/10.2469/faj.v71.n1.10

And, of course, the Bogleheads: http://www.bogleheads.org/wiki/Principl ... _placement

Vinny

[Pet Hog]

Somehow the section from the book on Tax Deferred Accounts that I put here did not show up?

"Tax-Deferred Accounts

(Speaking of gold, bullion is taxed as a “collectible” at a special high 28% capital gains rate, so there is an advantage to holding it inside an IRA.)

I believe this line from the book is incorrect. A common misconception. Someone please correct me if I'm wrong, but I'm sure collectibles are taxed at your marginal tax rate, and no higher than 28%. Not at a flat 28%. So it might be prudent to have some or all in taxable.

[ochotona]

Somehow the section from the book on Tax Deferred Accounts that I put here did not show up?

"Tax-Deferred Accounts

(Speaking of gold, bullion is taxed as a “collectible” at a special high 28% capital gains rate, so there is an advantage to holding it inside an IRA.)

I believe this line from the book is incorrect. A common misconception. Someone please correct me if I'm wrong, but I'm sure collectibles are taxed at your marginal tax rate, and no higher than 28%. Not at a flat 28%. So it might be prudent to have some or all in taxable.

Definitely gold cap gains are taxed as ordinary income with a maximum rate of 28%... so it's better than a Traditional IRA, where you don't have a 28% cap.

Mathjak, the Medicare IRMAA surcharge is re-evaluated every year, and if your taxable income falls below the limit, the Medicare premium goes back to normal again, correct? It's not a lifetime medicare premium increase based on what happens in your early 60s, is it?

[mathjak107]

yes , your income is reviewed every year .. remember it is based on income 2 years prior . as an example your rate is set in january but it is bnased on 2018 since 2019 taxes are not filed .

[ochotona]

yes , your income is reviewed every year .. remember it is based on income 2 years prior . as an example your rate is set in january but it is bnased on 2018 since 2019 taxes are not filed .

Well that's good. At least you don't screw yourself for a lifetime.

[mathjak107]

let me say this as it is so important .

there are unwritten rules so to speak the first year you retire .

so you could have sold assets 2 years before and now that you are retired and on medicare that very high income tripped the surcharges ....

as we learned , if you appeal it and it is your first year retired . they will classify the retirement as a life changing event and roll you back .

my buddy happened to tell me he got surcharged starting in january because he took a pension buy out ....

he had no idea he could appeal and they likely will roll him back .. he called today to set up a hearing ...

[Xan]

Definitely gold cap gains are taxed as ordinary income with a maximum rate of 28%... so it's better than a Traditional IRA, where you don't have a 28% cap.

Except you bought it with post-tax money instead of pre-tax money.