Once you retire, what combined (Fed + state) tax bracket do you anticipate being in? If Roth conversions will keep you in the upper portion of the 24% bracket for a while, holding munis in taxable makes sense. I would follow this plan, rather than impede the growth if your Roth space by holding fixed income in Roth.On the one hand, I understand that the Roth account would typically hold the higher growth equity assets to maximize the non-taxable tax status of the account. However, this would require trading equity for more fixed income in the taxable accounts. This doesn’t seem very tax efficient. Alternatively, we could utilize fixed income in the Roth and maintain the current allocation in taxable (keeping in mind that our heirs will get a stepped up basis when we pass, hopefully not for a very long time), but this seems less than optimal.
As you whittle down the tax-deferred space by Roth conversions, your fixed income in taxable will grow. To my way of thinking, that's preferable to hobbling the growth of your new Roth IRAs by investing in bonds there.
Another consideration if your state tax rate is high is that most states tax LTCG as OI- by putting munis in taxable, you are displacing capital gains from that space. High income folks might be facing capital gains of 18.8%-23.8% Fed + 8%-10% state tax, making munis even more attractive.
Since you obviously have enough taxable funds to pay conversion taxes on 100% of your TIRA, you need to do some research on the optimal amount to convert vs retain in TIRA, for QCD or health care spending vs passing on fully funded Roths to heirs.
Post by David Grabiner on asset location, which may be of interest- viewtopic.php?p=7749825
Statistics: Posted by Navillus1968 — Mon Feb 10, 2025 7:26 pm