If the majority of the fixed income needs to be in taxable, look beyond the bond funds. Buy Treasury bills or I-bonds from Treasury Direct. Guaranteed 5%+ yield, whereas the non-guaranteed yield on VBTLX is 4.74%, VGIT is 4.55% and 2.05% for VTIP (this last one is inflation + 2.05%).Greetings Community,
Assuming one is in the 24% tax bracket and needs to hold fixed income in taxable and tax-advantaged accounts, with the majority being in taxable, which of these investments should get priority in tax-advantaged accounts?
VTIP
VGIT
VBTLX
Thank you!
Caveat, to capture the 5.14% yield from the I-bonds, they need to be bought TOMORROW, Monday April 29th!! On May 1st, the variable rate on the I-bonds is expected to be reset to 2.96%, making the cumulative yield either 4.16% or 4.26% (fixed rate is also expected to drop to 1.2%). Of course, the other catch is that you can only buy $10k per person per year.
Edited to add: on reading your question closer, you are only asking which of these options in tax-advantaged accounts you should invest in. I would not change my post above, so consider my answer to be suggesting NOT to invest in any of those choices, invest in equities there instead, and invest in T-bills that are state tax free in your taxable account for your entire fixed income.
Yes yes, I see it coming from a mile ahead ... "what about tax efficiency?". My rejoinder is "efficiency/schmefficiency, are you so afraid to send a $2 tax to Uncle Sam, that you are willing to see your $100 become $90 in bond funds?" [ $2 is 40% tax rate on $5 earnings from a $100 investment in T-bills ]
Statistics: Posted by lakpr — Sun Apr 28, 2024 7:27 pm — Replies 2 — Views 169