Thank you. How do you define a "high tax state". As in at what tax rate does the recommendation change for you? Or is it only if the state has a special additional tax?The tax advantage of stocks in a taxable account is increased if bond yields are higher, or if your time horizon is longer (more time to benefit from tax deferral), and decreased if you pay higher-than-normal taxes on stock dividends.Assuming a person is in their late 30s, high federal/state tax brackets. This person is maximizing their tax advantaged savings opportunities and has leftover $ for investments in taxable accounts.
1. What situations would favor putting bonds (tsy or index fixed income fund) in a tax advantaged account vs taxable account?
2. Are there any specific factors that should be considered on an individual basis that may change your generic answer to #1 above?
There is also the consideration of investment options. If the only low-cost fund in your 401(k) is an S&P 500 index, then you should hold that fund in your 401(k), and hold your bonds in some other account even if that increases the tax cost. Conversely, if you have an unusually good fixed-income option such as TIAA Traditional Annuity or the TSP G fund, you should prefer to hold that fund for your bond allocation and stocks in your taxable account.
In general, at current yields, I recommend stocks in taxable, except for taxpayers in high brackets in a high-tax state with a low-cost muni fund available. These taxpayers pay about double the normal tax cost on qualified dividends, but no more tax on in-state munis than anyone else.
Statistics: Posted by Apple300 — Sat Feb 03, 2024 11:23 am — Replies 10 — Views 786