Using Stocks to Protect Tax Sheltered Space

[MiniB]

Im writing up my PP investment plan.  Im considering maxing out how much stocks may go into taxable accounts at 80% to protect my tax sheltered space.

Heres what I mean.  Suppose I have $70k in my IRA and $30k in taxable investments.  I should own $25k of stocks total.  Standard Boglehead theory says I should put all $25k stocks in my taxable account because its the most efficient.  Im proposing that I limit putting only up to 80% of stocks in taxable.  In this case I would keep $20k stocks in taxable and $10k gold.  The other $5k of stocks I would keep in the IRA.

My theory is that if Gold, Cash, and Bonds fall relative to Stocks, during a huge economic boom, I dont want to watch the ratio between my IRA and taxable accounts to shift in a way that destroys my tax-shelter.  At least by keeping 20% of my stocks within the IRA I preserve a little more of the Tax Shelter space.

I think 50-50 IRA-Taxable would preserve more tax sheltered space, however if this means I have to start keeping Treasuries in taxable, then its not worth it.  Im thinking 80-20 or 70-30, keeping SOME stock allocation within the IRA for purposes of both preserving the IRA levels as well as reducing tax costs since I can rebalance the stocks within the IRA first.

[KevinW]

IMO this kind of thing hurts more than it helps.  Keep in mind that the $5k stocks in a sheltered account are displacing something with even worse tax treatment.  If they are taking space that could otherwise hold bonds, say, you will be paying hefty personal income tax rates on the bonds' interest every single year, all for the chance that stocks will appreciate faster so you will have more room to shelter something later.  Instead you could've been paying a paltry 15% dividend tax on the 1-2% yield of the TSM.  Due to how compounding interest works, those income taxes on the interest are a real killer.  I had this idea myself once and my back-of-the-envelope calculation showed it wasn't worth it.

Here's the question that got me: what's the point of having sheltered space if you aren't going to put tax-inefficient assets in it?

There's also an intangible downside to complicating things in ways that involve hazy judgement calls like the 20% figure.  Figures like that are somewhat arbitrary based on speculations about how things will work in the future, and there is a strong temptation to rethink decisions like that and fiddle with things.  In hindsight, rethinking and fiddling has cost me a lot more than it's saved me.  So, I'm inclined to KISS and "stay the course" unless there's a very compelling reason not to.

[SmallPotatoes]

Right now my stocks are keeping my feet from getting cold.