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nkyguy1988 t1_jebvnq5 wrote

Tax rate is irrelevant. Just look at the dollars in the account and allocate accordingly. Don't overthink it.

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ToothPicker2 OP t1_jebzn4v wrote

But how can we compare apples to oranges? The non-retirement account assets are POST-TAX, and the retirement account assets are PRE-TAX.

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Werewolfdad t1_jec08js wrote

You don’t. He doesn’t have anywhere close to enough money to bother with this much granularity

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nkyguy1988 t1_jec1bef wrote

There's literally zero need. You are looking for a solution to a problem that doesn't exist.

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ToothPicker2 OP t1_jec2oie wrote

Someone yesterday said: something to keep in mind is that after-tax and before-tax dollars are not equal. If it is a traditional 401k then there are still income taxes to be paid. That might change what the actual split is when compare on an after tax basis.

Which is why I asked.

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nkyguy1988 t1_jec38q1 wrote

That's true, but not when it comes to asset allocation. You get around it by doing the same split in each type.

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ToothPicker2 OP t1_jed5m2q wrote

I’m not sure what you’re saying. Split and asset allocation mean the same thing right?

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nkyguy1988 t1_jed6b61 wrote

Yes. If you use 2 funds, buy the same funds in identical proportions in each tax status.

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ToothPicker2 OP t1_jed716t wrote

Yeah and that’s very difficult to do, because my funds are spread out all over in different quantities and proportions, so I can’t just consider the pre-tax assets and post-tax assets equal to reach my asset allocation, ratio right?

Ok let me explain in the most basic way:

Assume I have $100 to invest and I split it between VTI and BND in a 60:40 ratio ($60 in VTI and $40 in BND), so my asset allocation is 60:40.

Now, assume the VTI sits in a tax-advantaged account like a 401k or IRA, and the $40 of BND is in a taxable brokerage, so that $60 is actually pre-tax dollars, while the $40 is post-tax dollars.

If I assume my tax rate in retirement would be 10%, the $60 of VT is effectively $54 of assets I own.

So my actual asset allocation is $54:$40 or 57:43.

That’s what I’m trying to say.

Ok let me explain in the most basic way:

Assume I have $100 to invest and I split it between VTI and BND in a 60:40 ratio ($60 in VTI and $40 in BND), so my asset allocation is 60:40.

Now, assume the VTI sits in a tax-advantaged account like a 401k or IRA, and the $40 of BND is in a taxable brokerage, so that $60 is actually pre-tax dollars, while the $40 is post-tax dollars.

If I assume my tax rate in retirement would be 10%, the $60 of VT is effectively $54 of assets I own.

So my actual asset allocation is $54:$40 or 57:43.

That’s what I’m trying to say.

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nkyguy1988 t1_jed8bmx wrote

You run 60/40 in taxable and 60/40 in IRA/401k. Problem solved

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ToothPicker2 OP t1_jed8hp6 wrote

That would require a lot of buying and selling, for example - I’m 100% stocks in 401k.. which is why I’m wondering is it important?

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nkyguy1988 t1_jed99ej wrote

It costs nothing and is tax blind in a 401k. Literally can change allocations in about 3 minutes.

It's not important because the differences are minimal in the grand scheme of things.

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ToothPicker2 OP t1_jedak3n wrote

It’s tax blind in the 401k and IRA but would trigger taxable events in the brokerage right?

Besides, it would go against the ideology of putting maxing out bonds in tax advantage accounts right?

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