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Bond allocation with no taxdeffered space

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  • Bond allocation with no taxdeffered space

    I'd like to allocate 10% of my retirement accounts to bonds. I have no tax deferred account. I only have taxable with vanguard and tax free(Roth ira and Roth tsp/401k). I am try to figure out if it's best to use F/G fund in Roth TSP or bonds funds in my taxable account either total bond market fund(VBTLX), high yield tax exempt(VWAHX), or long term tax exempt(VWLTX). Tax bracket is 28% this year and climbing to 39% over next 4 years. I am not interested in getting involved in buying individual muni's at this time.

  • #2
    G fund in the TSP. Vanguards Muni fund if still not enough. Done.



    • #3
      I like the idea of taking as much risk within my asset allocation in non-taxable (Roth IRA, Roth TSP).  Therefore, I would be reluctant to put a bond allocation in a non taxable type of retirement account(s).

      My suggestion FWIW would be BND ETF (Vanguard Total Bond Market) in a taxable account.  Once you get to the 39% tax bracket, then do a muni mutual fund that fits.  The ETF will be more tax efficient for you versus the same/similar Vanguard mutual fund.


      • #4
        Agree with AJM.   Roth TSP would go full bore C for the long term.  If it were regular TSP G fund would be okay vs Muni TE in taxable.

        I would do the Muni TE in Taxable and use that as a mini-Emergency fund backup as Muni Bonds are stable enough for such purposes IMHO.

        Taxable bond is hard as AJM mentioned because of the turnover and gains reported causes efficiency issues with the gains.


        • #5
          WCICON24 EarlyBird
          Why Roth TSP versus traditional TSP?  Is your state of residence tax free?  Do you have a low enough income or enough credits from children and mortgage(s) that your effective tax rate is quite low?  Do you just have a much lower effective tax rate now than you expect you'll have after leaving federal service?

          I doubt that you truly have no tax deferred space available.  Rather, you currently are in a situation where going for the Roth makes more sense based on your current and projected tax treatment.

          If you're active duty and you're on the hook for a deployment in the near future, I'd recommend fully funding the savings deposit program for a guaranteed risk free 10% return as soon as you can.  I also would try to put as much after tax income into the TSP as possible to hit the full $53K per year.  Nothing like turning your tax free pay for a combat zone into a tax free mega backdoor Roth.