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Where to allocate bonds - Roth 401(k) or traditional 401(k)?

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  • Where to allocate bonds - Roth 401(k) or traditional 401(k)?

    Hi all -

    Would love your input on this one.

    I have a 401(k) with both pre-tax dollars as well as Roth dollars (from in-plan Roth rollovers of after-tax contributions).  I also have many years of compounding ahead of me.  I've realized that I need to rebalance and move some money out of stocks and into bonds.

    My question: should I preferentially hold my bonds in my pre-tax 401(k) bucket and hold my stocks in the Roth 401(k) bucket?

    Since I'll eventually have to pay taxes on gains from the pre-tax 401(k) bucket, but not the Roth (401)k bucket, I'm thinking that I should put the investments with the smallest potential upside (bonds) into the pre-tax 401(k) and investments with the highest potential upside (stocks) in the Roth 401(k). Thoughts?  Poke a hole in my reasoning please!

     

    Many thanks

  • #2
    should you be using a r401k?

     

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    • #3
      I like your idea. I also prefer stuffing Roth accounts with equities for that very reason. As long as you can manage your asset allocation between your various accounts you should be fine.

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      • #4
        Your reasoning is sound.  I also put all of my most aggressive investments in Roth (and HSA) accounts.

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        • #5
          Thanks everybody - just made the switch in Vanguard.   Appreciate your help

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