PP implementation on IRA

[niki]

My question is what would be the best way to implement PP on a Roth IRA. Gold on an IRA takes space from the other three assets which need the tax protection IRA’s provide. In addition, the reason for T-Bill on the PP is for availability purposes in case of an emergency. Very hard to take money of an IRA without consequences. So, how should the diversification / re-balance be implemented considering the fact that every year I am maximizing my IRA?


50/50 stocks/bonds in IRA (balancing each other when needed)

25 Gold outside IRA

25 T-Bills outide IRA

re-balance last two with each other.

or 33/33/33 stock/bonds/gold in IRA and t-bills directly through treasury. Just worry about balancing the first 3 with each other and the $5500 annual maximization. T-bill, I will buy more when falling short from the other 3?

[Pointedstick]

You can remove your contributions from a Roth IRA at any time, which makes withdrawals less problematic. But I wouldn't have any problem with using the IRA to go 50% stocks and bonds, and holding the gold and cash outside in a taxable account. There are only two real issues with this,

As you pointed out, rebalancing into the Roth IRA if stocks or bonds fall will be problematic because you'll be maxing your contributions every year, but you can deal with that possibility by being mentally okay with holding stocks or bonds in a taxable account should the need ever arise due to rebalancing concerns.

Personally, I have a 4x25 HBPP in my Roth IRA to avoid those annoyances so I can do all the rebalancing within the Roth.

[niki]

Thank you for you response. However, isn't true that when I remove money from my IRA before the age of 59 1/2, there are tax penalties and/or if I borrow from my IRA then interest too. My last question is, should I buy all 4X25 at the same time or should I wait. Meaning now stocks are cheap, bonds and gold expensive. So buy stocks now, then when interest rates go up start buying bonds and as the economy improves and booms again then buy gold?
I am really thinking about keeping my T-bills out of the IRA since T-bills are like savings accounts for the PP and I have a limitation of money on the IRA.

[Pointedstick]

Buy now. Something always looks expensive. From my perspective, stocks look expensive and gold looks cheap. Save yourself the anguish and just go all in.

Roth IRA contributions can be withdrawn penalty and tax free. If over the years you've contributed 50k to your Roth IRA and its balance is now 100k (go you!), you can always withdraw 50k at any time with no taxes or penalties.

[niki]

Thank you so much. Now I am ready to invest some money. Last but not least, what about keeping T-bills outside?

[rocketdog]

Personally, I have a 4x25 HBPP in my Roth IRA to avoid those annoyances so I can do all the rebalancing within the Roth.

I second that.  Not being able to rebalance between accounts can really throw things out of whack.  The only exception I can think of is if you can "rebalance" by simply adding funds to each account in a way that brings the proportions back to 4x25 overall.  But that becomes impossible when the balance of one account grows substantially larger than another account (due to the differences in contribution limits of Roth accounts vs. 401K accounts, for instance). 

[niki]

Thank you both!!!!

[Pointedstick]

You're welcome. It's actually looking like an even better time to go in now, what with Gold and stocks taking a bit of a tumble over the past few days.

[AgAuMoney]

Some thoughts...

While you can take your contributions out of the Roth at any time, you probably do not want to.  If you take them out, you cannot replace them.  (All you can do is your normal annual contribution, which you said was already max'ed out.)

I also did a 4x25 in my IRA.  But that only started after I did my 401k rollover.

Before the rollover I had my PP spread among accounts.  I initially tried to optimize it, (before 2004) while taking rebalancing and taxes into consideration, but finally just let it seek its own level both in and out of the IRA.

What I mean by that, is that while I had the entire bond allocation in the IRA (100% of the 25% of the whole).  I only had 1/5 (20% of the 25% or 5% of the whole) of the gold in the IRA and 4/5 of the stocks (80% of the 25% or 20% of the whole) in the IRA.  I had the cash about 1/2 in and 1/2 out.  This means I had 4 asset classes in the IRA and 3 asset classes out of the IRA.  Outside the IRA was slightly smaller since it had 20% of the gold and 5% of the stock and about 1/2 the cash.  I was able to rebalance OK, but sometimes I had to do an extra transaction or two.

Over time I shrunk the gold in the IRA and I finally sold it all because I didn't want to sell taxable gold (taxed as a collectible).  The bonds also were slightly more selling than buying, but mostly keeping up while the stock and cash outside of the IRA grew more easily so I was buying stock in the IRA using all the cash I could get inside trying to keep stock as sheltered from taxes as I could.

If I hadn't been able to do the 401k rollover then I was going to redistribute assets again on my next rebalance.  But I decided to just do the entire 401k as my PP all in one account.

A one account PP is SO much easier.

[sophie]

Thank you so much. Now I am ready to invest some money. Last but not least, what about keeping T-bills outside?

Keeping half of your T-bills in the Roth and half in taxable is a perfectly good plan.  If something goes on sale and you end up rebalancing, it's nice to have "dry powder" inside the Roth to buy the cheap asset with.

If you need to access the cash in the Roth for any reason and you plan to invest more money in taxable space later, you could use this neat trick from the Bogleheads wiki:

http://www.bogleheads.org/wiki/Placing_ ... ed_Account

The idea is that you can harvest cash from the Roth without changing your asset allocation or reducing the Roth balance.  It's probably not as helpful now with T bills earning about the same amount of interest as your couch cushions, but keeping some of the volatile assets in taxable is still a good idea so you can tax loss harvest. For which see:

http://www.bogleheads.org/wiki/Tax_Loss_Harvesting

Love these little tricks....