Personal Investments • Should I stop investing in assets yielding Interest and Dividends to reduce Tax Liability?

I *think* I should stop investing in things like CDs, T-Bills, MMAs, etc. which all hit line 2b on a 1040. Ok, so if I do that, what do I do with the money? Just let it sit there and do ...... nothing???? That's the part that I'm having difficulty accepting.

In this account, the major holdings are VTSAX, VBTLX, VPCCX, and VCADX. The first three throw a fair amount of dividends and the only saving grace for VCADX is that it seems to go 100% into line 2a, which does not count against me when determining total taxable income. Perhaps the real problem here is my asset allocation, but throughout my accumulation years, I maxed pre-tax first, and then the extra amount ended up in taxable, and here we are today. Yes, first world problems, I know, but I could use some suggestions on what to do here.

It sounds like you have not paid much attention over the years to "asset location"...placing assets in the most tax-efficient manner. It is also possible you didn't have a lot of choice in how you placed at least some of your assets.

Fixed income assets like CDs, T Bills, money market produce interest (sometimes called dividends). If held in a taxable account, that interest is taxable every year (line 2b). To the extent one can, like bonds, these are better held in tax-deferred accounts.

Total bond index and Prime Cap are also not tax-efficient. If given a choice, it is better to hold those elsewhere or maybe not at all.

What can you do about this now? Depends on your tax bracket in retirement, what your desired asset allocation is, and what your current portfolio looks like. The fact that you wish to get ACA subsidies do make this tricker and longer. In order to get specific help with that you should post your information in the format shown in the link at the bottom of this message.

If you have large gains in the Prime Cap, the best use for that may be to use it for charitable giving if you do that.

There is no financial reason to have no RMDs when you reach that age. But a good goal for everybody is to arrange (as much as possible) for the RMDs to not be terribly large...pushing you into higher tax brackets as you age.

Statistics: Posted by retiredjg — Mon Jul 29, 2024 9:50 am — Replies 3 — Views 543

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