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Background: I'm 37 and work in the U.S. I have a gross income ~100k, a 401k funded to the legal limit, a Roth IRA funded to the legal limit, and a regular investment account. The 401k has most of the money; the other two are more recent.

I'm rebalancing my portfolio. This is the first time I've done so across multiple account types, which is the impetus for this question.

My intended asset allocation is something like: 25% large-cap stock, 25% small-cap stock, 25% international stock, 25% cash and bonds; of the latter, six months expenses is cash (in an online high-yield savings account), the rest bonds. Optionally, 5-10% in REITs, dividend-focused stocks, or something similar (I'm unsure which category these should count as; I might ask in a separate question). All investments are index funds when possible.

My three investment accounts have different tax structures, so:

  1. How should I distribute the different types of investments among the accounts, given their different tax treatment?
  2. Is the difference significant enough to be worth working it out, as opposed to just mimicking the total allocation percentages in each account?
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    Do you consider the Roth to be a savings account that you might use for retirement, or that it's ironclad won't-touch-until-retirement? – RonJohn Jan 15 at 18:24
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    Ditto for the taxable investment account? – RonJohn Jan 15 at 18:24
  • I don't have a strong opinion either way, but if pressed for one: I would prefer not to touch the Roth, while the taxable account is just a place to put excess savings and could conceivably get drained for e.g. a house down payment. I don't see that happening this year, though. – Andrew Jan 15 at 18:35
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  • That link was exactly the sort of thing I was looking for, thanks. – Andrew Jan 17 at 15:52
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I treat all accounts -- taxable, 401(k), Rollover IRA & Roth IRA -- targeted for a single purpose as a single unit. Thus, in your shoes, I would KISS and not divide each account in quarters.

Specifically, the "... six months expenses is cash" would go in an online savings account, so your other accounts would have to be more heavily weighted towards equities and bonds.

Also, dividend-heavy funds should go more in tax deferred accounts (so that you don't have to pay taxes on the reinvested dividends every year). This means that your taxable accounts will lean more towards stocks which rely on capital appreciation.

| improve this answer | |
  • The cash part is already in an online savings account; I'll edit to clarify. – Andrew Jan 15 at 18:57
  • @Andrew that doesn't change my answer. You've just already done that part... :) – RonJohn Jan 15 at 19:04

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