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Recently I was reading a finance article and it mentioned occasionally utilizing Roth funds to stay within a targeted maximum tax bracket. Also I believe someone recently commented about having a small amount of bonds in a Roth account to limit to some degree the volatility. If everything in the future goes as hoped the Roth funds will be inherited by our children decades from now
Both of these points got be thinking (maybe perseverating) on what to do with my wife’s Roth account. I have been slowly converting all of my wife’s traditional IRA into a Roth in order that RMDs will only have to be taken from my 20% greater portfolio percentage. At this point 60% of my wife’s retirement accounts are in the Roth. The goal is to have her account 100% Roth in 2-3 years. At this time 10% of her total retirement funds are in an intermediate bond fund in her traditional account.
Now for some crowd sourcing questions:
1) If this were you by the time all the conversions are completed what would you consider the ideal percentage in bonds based on the fact that these funds may be inherited decades from now, the goal to reduce the volatility of the funds somewhat, as well as to preserve some funds for potential occasional control of our tax rate
2) What type of bond fund would you recommend? Treasuries, core bond, TIPS?
3) What length of time for a bond fund do you think would be ideal? I would only consider intermediate or shorter term.
People worry too much about being in a high tax bracket. If you’re in a high tax bracket, then you have a high income. My buddy who has been retired for 20 years has an income of $750K, and pays $250K in tax. As he says, would you rather have an income of $75K and pay no tax?
It’s the effective tax rate that is all that matters and for most people that pretty low.
I think what Ormode is saying is what matters is what you keep after paying taxes.
My situation is somewhat unique, I guess that’s why it is called PERSONAL finance. Our 2 big concerns are inflation and taxation. Please allow me to explain. Due to my spouse’s family & her own medical history; and my family longevity, (my mom is still alive at 101 this August). We may most likely be a single taxpayer sooner rather later. I am 73 this year & she will be 73 next year. Our 2 SS & other income sources are more than enough to cover all our expenses,so that we will not need to touch our investment for years to come. In order to address our taxation & inflation problems, we invested our bond portion with 30 yrs Tips ladder to the amount equal or up to the lesser SS benefits to cover the loss of one’s spouse. The bond ladder is about 10% of our total allocation and it is within our Roth to avoid any taxation. We have allocated 76% domestic stocks/ETFs & 10% Foreign ETF;.& about 4% ST as in cash. Since we are not going to touch our Roth for legacy purposes, we will have converted all of our t-IRA into Roth by this year. We will not have any RMD worries. Because our Roth will be about 58% of our total asset, that means we have a much larger (about 42%) are in taxable growth stocks ETFs, of which 1/3 is earmarked for long term care, & the rest are not touch if necessary so that they can be step up on their basis when they pass on to our heirs. I know this may be SO different from some traditional thinking but it is the best problem to have when you have the biggest bowl you could have to weather any storm.