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    For a portfolio comprised of a mixture of bonds, total US, total international, small cap value, and REIT, which account type preferentially gets which asset? This is my current understanding

    Bonds
    - avoid taxable
    - preferentially pre-tax retirement accounts before Roth or HSA

    Total US
    - goes fine anywhere
    - likely to have some of this in all accounts to help with rebalancing

    Total International
    - put in taxable for foreign income tax credit? Otherwise the pre-tax retirement accounts like 401k, etc
    - generally prefer to avoid in Roth / HSA given historically lower returns

    Small Cap Value
    - put in Roth / HSA preferentially, pre-tax 401k etc fine also
    - would this go well in taxable given the volatility and potential for TLH? Or are you not going to find good TLH equivalent funds that give you your small cap value exposure without being "substantially identical"?

    REIT
    - avoid taxable, I think even with the 20% passthrough deduction from TCJA still it would be better in Roth or pre-tax retirement account if eligible? Though if investing extra taxable income in private real estate funds choosing one that has been restructured to REIT does make sense now
    - prefer roth / HSA, pre-tax fine as well


    So looking at it from a perspective of how to fill up the different accounts

    Start with Roth accounts (roth IRA, roth 401k)
    - put in a balanced mix of REIT and Small Value
    - if this accomodates all the REIT/Small Value allocation, leftover room goes to total US market
    - there almost certainly won't be more space, but if there is total international goes next, last would be bonds

    For HSA
    - not entirely sure, I think treat the same as the Roth accounts?

    For the pretax retirement accounts (401k, 403b, 457b, etc)
    - put all bonds in here
    - then put in whatever REIT/Small Value doesn't go in Roth/HSA
    - then put in total US
    - then put in whatever total international doesn't go in taxable

    For Taxable
    - put in total international
    - leftover space goes to total US
    - if allocation calls for small-value or REIT that won't fit into 401k/Roth/HSA space (highly unlikely), that would go next
    - if somehow you needed to put bonds in here, look for muni bonds


    Would anyone change the order of operations?

    I would think treat 529s separately and they get their own asset allocation.
    I would also think you would not include HSA in the above if you are planning to make withdrawals from it currently, rather than paying the expenses out of pocket and letting the HSA grow.

  • #2
    you almost recreated this page

    https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

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    • #3
      I was going to type a long post, but I'll just say that for me personally I try to optimize asset location based on expected tax efficiency rather than expected return.  Why?  Tax efficiency is really a free lunch.  Trying to optimize based on expected return (by putting high return classes in Roth, etc) isn't, because when you increase your expected after-tax long-term return, you increase your long-term risk commensurately, which is really just modifying your after-tax asset allocation.  If you really want to make things complicated, you could multiply all the asset classes by their expected after-tax value in withdrawal (e.g. Roth/HSA = 100%, pre-tax = 75%, taxable = 85%).  Actually, I'd probably put the HSA somewhat lower, maybe 90% in case you don't use it on health care costs.

      So what I do is order everything in terms of tax efficiency, then put stuff in taxable accounts.  In your case, that order would be Total US, then Total Intl, then SCV.  After that, you could buy municipal bonds if you are still trying to fill taxable space.  I would not buy REITs in taxable under any circumstances.

      As for what to put in pre-tax vs Roth space, I don't honestly think it matters too much if you're adjusting for after-tax value.  So if you assume that your pre-tax 401k is going to be worth 75% of value at retirement as your Roth/HSA, I don't think it really matters whether you put $40,000 in bonds in your 401k or $30,000 of bonds in your Roth IRA.  I would probably just start with the best funds in your 401k and then buy whatever else you need in your Roth IRA.

      Edit - I guess I typed a long post after all.

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      • #4
        Does anyone have a lot of taxable international funds? I read somewhere that the foreign tax credit gets complicated after a certain amount. Can anyone speak to this point.

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        • #5




          Does anyone have a lot of taxable international funds? I read somewhere that the foreign tax credit gets complicated after a certain amount. Can anyone speak to this point.
          Click to expand...


          Form 1116 kicks in on your tax return if you claim more than $300 of the FTC.  At some point I think the form can reduce the credit you claim if the credit is too high relative to your income.

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          • #6
            Is form 1116 difficult or cumbersome? That is what I remember reading but cannot find the source.

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            • #7




              Does anyone have a lot of taxable international funds? I read somewhere that the foreign tax credit gets complicated after a certain amount. Can anyone speak to this point.
              Click to expand...


              not complicated if you use tax software, handles it automatically.

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              • #8
                I have only invested in vtsax in taxable thus far but some changes to my 401k might make it advantageous to put some international there as well.

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                • #9
                  600 married right?
                  It's a non issue

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                  • #10
                    The dividend yield is around 3% so you will hit $600 once you have 20k in there right?

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                    • #11
                      Or is it when the amount that you can deduct gets to 600?

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                      • #12




                        Or is it when the amount that you can deduct gets to 600?
                        Click to expand...


                        when foreign taxes paid hit $600.

                        Looking at my tax return last year, I'm guessing you might get to this point when you hit around $200k or a little more in total international.

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                        • #13
                          No foreign tax actually paid. As lithium calculated it takes a sig sum.

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                          • #14
                            Yeah it might take me a bit to get 200 k worth in taxable. Still that is a number we will reach at some point and it it hard to undo mistakes in taxable. Thanks for the clarification!

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