For a decade I put a target retirement fund in my Roth IRA. It was an easy, one-size-fits-all approach to my retirement account. Hell, it even had the word "retirement" in the fund name. It wasn't until I started investing in higher-yield funds that I realized my mistake: *I was buying high-yield funds in my non-retirement account and paying taxes on those dividends for a decade all while the low-yield retirement fund was growing tax free.*
I was paying taxes on income when I had a way to not pay taxes on it at all! Oops.
Here's what I did - it's super simple:
I took at look at what my Target Retirement Date fund invested in and bought those ETFs in my brokerage account with the same weighting as the Target Retirement Date fund. (ie. total market - 53%, international fund - 33%, etc)
Then I sold my higher-yield funds and rebought them in my ROTH IRA account.
In the end I went from a tax-sheltered account paying 1.78% yield and brokerage account paying 3.23% and essentially switched them!
The only downside is paying capital gains tax on the sale of the non-retirement funds (but I have unrelated capital losses this year to negate that. YMMV).
Edit- Because I didn't sell my entire brokerage or Roth IRA portfolio I recalculated the yields. As of today, after rebalancing, my brokerage account has a 2.06% yield and my Roth IRA has a 3.71% yield. Dividends from all sources should be about $7,350/year with $3,280 (45%) coming from brokerage account and $4,070 (55%) coming from Roth IRA. The brokerage account it still at 45% of total because I am limited on what I pupt into my Roth IRA to $11,000 per year for my wife and I. These are not perfect yet and I'll still play around to make the Roth yields higher, but it's a start. Brokerage account balance is ~$140,000. Roth IRA balances are about ~ $109,000.
Submitted May 22, 2018 at 11:17AM by secondnameIA https://ift.tt/2Lkr4ah
