"All gains are regular taxable income". This is not a helpful way to think about it. The taxes that you're paying aren't "gains", they're money that was never yours. A traditional 401k or IRA is exactly the same (except for RMDs!) as the sum of two Roths, one of which you own, one of which the government owns. You have to manage them both identically, but that's still how the math comes out.I have the same problem as OP.
Bonds in taxable are bad because yield is taxed as income (compared to capital gains from stock dividends and appreciation)
Bonds in tax-advantaged are bad because those are the longest horizon investments - they're meant to be pulled only when you retire. You'd want to have high risk high return items in something you're not gonna touch for decades.
So if you're less than 45 years old, there seems to be no wise place to put bonds.
Two other wrinkles:
1. reduced rates for LTCG. If you have a traditional 401k or IRA there is no reduced rate, all gains are regular taxable income (federal and some states).
E.g., if you somehow knew that your marginal rate was going to be 22% when you withdrew, then you can think of it as 78% your Roth, and 22% the government's Roth. (It's actually slightly *better* than 78% of a Roth, because under some circumstances you can get the government to give you back some of that 22%, e.g. high medical bills.) You can prove this to yourself by doing the math on the situation where you *didn't* take advantage of the tax-deferral, but paid taxes up front and invested it immediately. Even if it throws off zero dividends in the intermediate years, you're still far behind in taxable.
The downside of taxable accounts is that it's after-tax-money and you still have to pay capital gains on it. That's not a boost for taxable accounts relative to traditional IRAs/401ks if you're doing all your comparisons on after-tax money.
Statistics: Posted by brightlightstonight — Fri Aug 23, 2024 5:20 pm