PP in IRA

General Discussion on the Permanent Portfolio Strategy

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Xan
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PP in IRA

Post by Xan » Wed May 20, 2020 2:06 pm

I personally favor having a separate PP in each tax category. In other words, one PP for taxable, another for traditional IRA, and another for Roth IRA.

The IRA money won't/can't be touched for quite a long time. What are everyone's thoughts on dialing back the cash percentage in IRA PPs?
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mathjak107
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Re: PP in IRA

Post by mathjak107 » Wed May 20, 2020 3:11 pm

I keep no cash in valuable ira space ...that space is golden and tax advantaged ...no place I want to keep a low yielding asset with zero gain

Plus if I need more cash I want it accessible to me now with no tax liability.
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Re: PP in IRA

Post by Xan » Wed May 20, 2020 3:16 pm

That would seem to be a disadvantage of the "PP-per-tax-treatment" scheme. But I don't like having to forecast which assets will have gains and which won't. That seems like a very un-PP activity to me.
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Re: PP in IRA

Post by mathjak107 » Wed May 20, 2020 4:17 pm

Cash gains are minimal even using shy .....to take up valuable compounding space in an ira makes no sense .....I would keep some pp assets in the taxable account that won’t fit in the ira .

The rebalancing taxEs would likely be no where near the gains on the bulk of the pp assets and what you would give up in compounding
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Re: PP in IRA

Post by pmward » Wed May 20, 2020 4:23 pm

mathjak107 wrote:
Wed May 20, 2020 4:17 pm
Cash gains are minimal even using shy .....to take up valuable compounding space in an ira makes no sense .....I would keep some pp assets in the taxable account that won’t fit in the ira .

The rebalancing taxEs would likely be no where near the gains on the bulk of the pp assets and what you would give up in compounding
One caveat, I think that there may be a case for someone that is stuck with a large traditional IRA/401k balance to keep the cash in the traditional to avoid large and increasing forced distributions. But yeah, in a Roth or HSA cash is wasted space and opportunity, imo.
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Re: PP in IRA

Post by pp4me » Wed May 20, 2020 4:27 pm

Xan wrote:
Wed May 20, 2020 2:06 pm
I personally favor having a separate PP in each tax category. In other words, one PP for taxable, another for traditional IRA, and another for Roth IRA.

The IRA money won't/can't be touched for quite a long time. What are everyone's thoughts on dialing back the cash percentage in IRA PPs?
Selecting which assets to place in which type of account seems to be the only kind of tinkering and placing bets on the future left if you strictly follow the PP. So far, my bets have been completely wrong so I'm going to have to re-evaluate my strategy at the end of this year and maybe I will just treat each account the same, if that's what you are suggesting.

I opened up Roth accounts around the same time I started the PP in 2008 and at that time I decided to place a long term bet on gold because it was soaring. Then I switched to the GB, sold the gold, and used the Roth accounts for the SCV portion. Wrong idea again, as SCV is now the asset that is tanking the most and the IRA account where I put all the "safe" assets is doing the best.

So it does seem to make sense to apply the same level of agnosticism about the future to all of the account types.
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Re: PP in IRA

Post by mathjak107 » Wed May 20, 2020 4:43 pm

pmward wrote:
Wed May 20, 2020 4:23 pm
mathjak107 wrote:
Wed May 20, 2020 4:17 pm
Cash gains are minimal even using shy .....to take up valuable compounding space in an ira makes no sense .....I would keep some pp assets in the taxable account that won’t fit in the ira .

The rebalancing taxEs would likely be no where near the gains on the bulk of the pp assets and what you would give up in compounding
One caveat, I think that there may be a case for someone that is stuck with a large traditional IRA/401k balance to keep the cash in the traditional to avoid large and increasing forced distributions. But yeah, in a Roth or HSA cash is wasted space and opportunity, imo.
You can always take your rmd from the ira and sell an asset and immediately rebuy it in the taxable account. Pretty much you are just switching hats
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Re: PP in IRA

Post by mathjak107 » Wed May 20, 2020 4:46 pm

In case you have not read it , kitces did a look at what assets to keep where .

Kitces :

Given that recent research has shown effective asset location strategies can add 20-50+ basis points of “free” value to annual returns, providing guidance on asset location is becoming increasingly popular. Yet unfortunately, asset location strategies are often dominated by myths and misperceptions! Ultimately, the reality is that good asset location decisions actually should be influenced by both the tax efficiency of investments and also their expected returns, which makes the analysis somewhat more complex… but also reveals why in today’s environment most bonds AND CASH actually should NOT go into tax-deferred accounts!

https://www.kitces.com/blog/asset-locat ... io-design/
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Re: PP in IRA

Post by Xan » Wed May 20, 2020 5:11 pm

"today's environment" -- I'm looking for a more, er, permanent outlook.
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Re: PP in IRA

Post by Xan » Wed May 20, 2020 5:13 pm

pp4me wrote:
Wed May 20, 2020 4:27 pm
Xan wrote:
Wed May 20, 2020 2:06 pm
I personally favor having a separate PP in each tax category. In other words, one PP for taxable, another for traditional IRA, and another for Roth IRA.

The IRA money won't/can't be touched for quite a long time. What are everyone's thoughts on dialing back the cash percentage in IRA PPs?
Selecting which assets to place in which type of account seems to be the only kind of tinkering and placing bets on the future left if you strictly follow the PP. So far, my bets have been completely wrong so I'm going to have to re-evaluate my strategy at the end of this year and maybe I will just treat each account the same, if that's what you are suggesting.

I opened up Roth accounts around the same time I started the PP in 2008 and at that time I decided to place a long term bet on gold because it was soaring. Then I switched to the GB, sold the gold, and used the Roth accounts for the SCV portion. Wrong idea again, as SCV is now the asset that is tanking the most and the IRA account where I put all the "safe" assets is doing the best.

So it does seem to make sense to apply the same level of agnosticism about the future to all of the account types.
This anecdote definitely does line up with my preference of having separate PPs.

Anybody have thoughts on reducing cash in a not-needed-for-a-long-time PP?
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Re: PP in IRA

Post by sophie » Wed May 20, 2020 5:16 pm

If you're safely below the 22% tax bracket and have no state income tax to worry about, then it makes sense to run separate PPs in each account. It sure makes tracking and rebalancing a lot easier.

For me, the tax advantages of spreading assets around multiple types of accounts are very significant given my tax bracket and state of residence. I get Xan's concerns but they pale in comparison to, say, reducing the tax consequences of rebalancing to zero.

There's also the major advantage of keeping cash accessible so you can use it as an emergency fund. My answer to "do you dial down cash in a 401K" is not to have cash in the 401K. It's in taxable, I bonds (i.e. tax-deferred), or Roth.

I did stuff the one tax-deferred account that I have in the PP with gold and bonds, figuring that over time those assets would not do as well as stocks which would reduce the eventual tax bite. While my Roth focuses on stocks and cash. The markets, of course, are laughing at me.
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Re: PP in IRA

Post by mathjak107 » Wed May 20, 2020 5:30 pm

Xan wrote:
Wed May 20, 2020 5:13 pm
pp4me wrote:
Wed May 20, 2020 4:27 pm
Xan wrote:
Wed May 20, 2020 2:06 pm
I personally favor having a separate PP in each tax category. In other words, one PP for taxable, another for traditional IRA, and another for Roth IRA.

The IRA money won't/can't be touched for quite a long time. What are everyone's thoughts on dialing back the cash percentage in IRA PPs?
Selecting which assets to place in which type of account seems to be the only kind of tinkering and placing bets on the future left if you strictly follow the PP. So far, my bets have been completely wrong so I'm going to have to re-evaluate my strategy at the end of this year and maybe I will just treat each account the same, if that's what you are suggesting.

I opened up Roth accounts around the same time I started the PP in 2008 and at that time I decided to place a long term bet on gold because it was soaring. Then I switched to the GB, sold the gold, and used the Roth accounts for the SCV portion. Wrong idea again, as SCV is now the asset that is tanking the most and the IRA account where I put all the "safe" assets is doing the best.

So it does seem to make sense to apply the same level of agnosticism about the future to all of the account types.
This anecdote definitely does line up with my preference of having separate PPs.

Anybody have thoughts on reducing cash in a not-needed-for-a-long-time PP?
Cash is an integral part of the pp. in fact I never would consider spending the cash in the pp down anymore then I would any other asset in the pp ....the cash serves two purposes ....it acts as the other side of the barbell for the long term treasuries so you don’t want to unbalance that ..plus the cash acts as an option would , letting you buy assets cheaper when they are down except it has no expiration date
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