Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
You are special! You must be a high net-worth client. Fidelity offered little to us.
I’m definitely not considered HNW at Schwab (my advisor is from the "Mass Affluent Branch”). I just asked and figured the worst they could do was say no. Even if you can’t get a blanket waiver (one of my accounts doesn’t qualify), they will frequently give you a one-off TF refund if you ask.
Fido is miserly with extending anything to its clients. Mrs. Ruffles has significant assets there and an advisor ghosted us after we asked some basic questions about its services. You can’t even contact your advisor directly from their website as Schwab lets you do.
Schwab customer service sucks fetid, septic mud. That's been my experience. However, using their chat function often, but not always, produces results.
U'mmm... isn't "chat" a big part of customer service? The people at chat have always taken care of any questions or problems that I've had. And very important to me personally, as my hearing deterioration prevents use of the phone.
@Crash. I gotta disagree with you 100%. I have been a Schwab customer for 30 years and while no business is perfect Schwab is head and shoulders above the rest. Let’s start with the access,,, I always get through to an English speaker quickly, although some are in another country, Westlake, Tx. They don’t always know the answers but they commit to finding out and I get a phone call back in a timely manner. When it comes to customer service I am hard to please and can be demanding but all my encounters with Schwab are positive. My basis of comparison are previous relationships with Vanguard, Fidelity, multiple banks all over the place from my CD PHASE, and dozens of health insurers when I was in the employee benefits business. At Schwab I never have to hang up and hope the next rep speaks English and I never have to ask for a supervisor. What problems are you experiencing?
10-4 on that. The chat service comes from many locations in the US, most likely to minimize waiting time for the customers. Every single person writes in excellent standard English, and there is never a "canned" response as you get from many overseas "service" centers. Crash, sometimes you don't even realize when you've got it good.
I do agree with Crash that the local Schwab offices sometimes leave something to be desired. The people at the local office seem to function more as cashiers and providers of help in navigating the website than as real customer service reps- they don't seem to have anywhere near the knowledge or resources that the "chat" people do.
I'll go along with what you both are saying. What I had in mind is the (non-) ability to get through to the Agent with whom I made initial contact at the local office, when Schwab first took my money..... A bit later on, he sent an email to me asking if he should go ahead and do something that we'd already agreed he should have done. And he wished me a happy Easter. ...OK, anyone can make a mistake. He dropped the ball. I forgive. ...Since then, NO ONE will return my calls. Maybe because of the obscenities I respond with, directed at the F*****g machine which refuses to allow me to speak to a human?
That's why Schwab gets an "F" from me. Despite rather good success with the remote-chat people. And yes, Texas is foreign, by now. Might as well secede. @larryB. @Old_Joe
@Crash. Not about Schwab local but I opened a checking account at a brick and mortar branch of a very large national bank. . The idea was to have a back up to my Schwab Bank online checking account. I had a problem at the brick and mortar and they directed me to call the 800 number. The 800 number of this famous bank were morons relative to Schwab.
One fund doesn't make any sense to me. For instance, I want my high growth entities in my Roth (PRSCX, TRLGX, TTMIX), next highest growth in IRA (similar, but alongside an index fund), more balanced approach in 401K (Index, growth, CEF, OEF), and a higher concentration of cash, index funds in my taxable (but still a growth component to juice returns).
How I begin to draw that down in retirement (to better manage taxes) is still a work in progress. The first year, I will probably sell some long term one-off positions at Computershare, for simplification. Get them off the books without doing transfers, and absorb the LTCG before I begin any RMDs.
I am thinking of trying to max out our current tax bracket, and take advantage of that before we ultimately end up one bracket higher. Some simplification will occur as I sell off any holdings not at my primary broker, and move funds from employer accounts to my primary broker. I already eliminated/absorbed an inherited IRA account into our current tax bracket this year.
Schwab customer service sucks fetid, septic mud. That's been my experience. However, using their chat function often, but not always, produces results.
I’ve had really good luck with the remote account rep I was assigned a couple of years ago. (The local office staff were OK for routine tasks but didn’t seem to have much juice otherwise.) I can easily contact them directly from the website. Even if they can’t help me, they’ve been good about connecting me with someone else at Schwab who can and has helped me out.
Contrast this with Fido which doesn’t even identify (or have a way of contacting them) a named rep on your account page. When one did reach out to us and we asked some basic questions about their services, they ghosted us and were never heard from again. It’s a classic case of where if everyone is responsible then no one is responsible.
Some unconventional thoughts on your allocation/drawdown plans, FWIW:
1. If all the money in your (future) RMDs will be taxed at the same rate, and if your RMDs will (along with other income including SS) will be less than your cash flow needs, then there doesn't seem to be much value in managing T-IRA and T-401(k) differently.
Reasoning: if RMDs are more than you need, then it is better to keep them down (and more assets tax-sheltered) by keeping slower growth assets in traditional accounts and faster growth assets in Roths, as you are doing. You don't want to be forced to draw more out of any sheltered account than you need. But this justification vanishes if RMDs are not sufficient for cash flow needs.
By "all RMD money taxed at the same rate" I mean: Suppose that you add up all your other ordinary income (SS, taxable interest, etc.) .and find that you're, say, in the 22% bracket. Then when you add in your RMD, you find that you're still in the same 22% bracket. Not higher. If this is true then it doesn't matter how you split investments between T's and Roths.
Say you've got $100K in your traditional accounts and $78K in your Roths. After tax, they're each worth $78K. Suppose you allocate assets so that your Roth accounts double and your traditional accounts stagnate. Then your Roth will be worth $156K after tax and your traditionals will be worth $78K after tax for a total of $234K after tax.
If you flip the allocations, then the traditional accounts will double to $200K pre-tax, or $156K after tax. The Roth will be sitting at $78K, for a total of $23KK after tax.
The trick is to keep after tax values in mind when allocating investments. Are there any portfolio trackers that can handle this?
2. Since cap gains don't (for the most part) affect what rate your ordinary income is taxed at, you might be better off holding onto your long term positions in taxable accounts (that are pseudo-tax-sheltered by deferring gain recognition) and instead sheltering cash by using it to pay the taxes on Roth conversions.
Suppose you have $22 in cash (taxable) and $100 in a traditional IRA (worth $78 post tax). That's worth a total of $100 after tax. Convert and you've got $100 in a Roth, also worth $100 after tax.
If you convert, then instead of having to pay tax on the cash as it generates income, you've fully sheltered that $22 in the Roth. As for the securities that you could have sold instead of converting, they'll continue to appreciate, tax-deferred, until you recognize the gain.
3. If you're planning on working past RMD age (currently 73), then you can defer RMDs longer in your 401(k) with your current employer. If that's the case, that may militate for keeping higher growth assets in the 401(k). Otherwise, allocation between T-IRA and T-401(k) doesn't seem to matter. Though the choice of investments available to you in your employer plan(s) could tilt the scales one way or the other.
4. Throwing a money wrench into all of this are oddballs like IRMAA and the 3.8% Medicare surtax. And Trump's $6K above-the-line (sort of) extra deduction for seniors in 2025-2028 that is also income-dependent.
In addition, your state may exempt some or all of retirement income from state taxes. Your state may also give other tax breaks that are income dependent (e.g. property tax reductions). And there's no certainty with respect to future tax rates.
I've been doing incremental Roth conversions since 2010 when the income limit on conversions was eliminated. So when I finally get to being subject to RMDs, their size will be closer to what I want to contribute to charities. And by identifying them as QCDs, I won't have to worry much about tax consequences of my RMDs.
Contrast this with Fido which doesn’t even identify (or have a way of contacting them) a named rep on your account page.
Maybe you just don't rate
On most of my pages, including summary, positions, activity, balances, docs is a little box in the upper right hand corner that says "Contact your team" and has a teeny, tiny picture of the team's lead.
Clicking on that box displays a box showing the name of the lead (identified as Financial Consultant), another member of the team (identified as Relationship Manager), and a third entry saying only "Connect With Your Team". Each of these three entries is a link.
The first link leads to a pop up with the lead's picture, direct phone number, and direct email address.
The second does the same for the Relationship Manager (except that my Relationship Manager has not provided a phot).
The final link (Connect With Your Team) takes me to a completely different page. Wandering through that page I can find contact numbers and email addresses for team members. I can also see my lead's calendar so that I can schedule a meeting - video, phone, or in person.
I'm currently trying to help a friend plan investments and cash flows for the next decade, when they will go from retirement pre-SS, to retirement w/SS, to retirement w/SS and RMDs. They also have two inherited IRAs, one traditional, one Roth.
How much should they convert pre-SS to reduce future RMDs (keeping tax brackets in mind)? What about the phasing out of the $6K deduction? They don't even know how much cash they are currently spending, and it could be quite variable.
The time from retirement to ss should be the time to convert as much as possible staying in the desired tax bracket IMHO. I took my ss at 63 and it would have been nice not to take it until later because ss income limits your conversions. Looking back I don't regret taking it at 63 because I converted a LOT even taking ss at 63. I converted a lot from 53 (retirement) to 63 (ss) since I had no other income at that time.
When I click on the “Contact your team” link, it just shows a box that says “Call 800-XXX-XXX” which is the number for Fido’s Private Client Group. Nothing else. I guess I don’t know the secret handshake.
If you have the same after-tax starting value at $78K, then a percentage-based tax is a linear operator. It doesn't matter if you double the money first and then apply the tax, or apply the tax and then double the money.
This equivalence only holds true if you assume the tax rate at withdrawal remains constant. In the real world, if doubling your traditional account pushed you into a higher tax bracket in retirement, the "Traditional Doubles" scenario would result in a lower after-tax total.
Not sure why you picked a scenario with both traditional and Roth at same $78K, who actually has that ratio?
Placing your highest-growth investments in a Roth account can yield a significantly higher after-tax return, as all of that growth is completely tax-free.
Ticker Fund Name 5 Yr 10 Yr 15 Yr 20 Yr FCNTX Fidelity Contrafund 14.6% 15.8% 13.2% 9.1% FBGRX Fidelity Blue Chip Growth Fund 17.8% 18.0% 14.9% 10.7% PRPFX Permanent Portfolio Fund 4.3% 5.9% 6.6% 5.3% AGTHX American Funds Growth Fund of America 13.5% 14.7% 11.9% 8.9% TRBCX T. Rowe Price Blue Chip Growth Fund 18.3% 16.1% 12.3% 10.5% VFINX Vanguard 500 Index Fund 13.0% 13.7% 10.2% 7.8%
Answers from AI just depend on which websites they choose to scrape. Perhaps their mood has something to do with it. I got different answers than @equalizer did.
I asked Bing for "5 picks for Roth for next 20 years" and got SPTM, VPMCX, JEPI, RQI, and IBIT.
Google Gemini was coy until I asked for "5 fund picks for Roth for next 20 years." It came up with VTI, VXUS, VUG, FSELX, and SCHD.
Gemini won't tell you which web sites it scrapes for its wisdom. But if you ask the AI available at google search, it will. You can find them to the right. It also gave me a slightly different answer: VTI, VXUS, BND, VNQ, and any target date fund at 2045 or 2050.
I basically got the same sort of diversified lineup from Perplexity: FXAIX, VTIAX, VSMAX, VNQ, and VWELX. Perplexity will clearly tell you what it scraped.
But this doesn't get us to the point of the thread. So I asked a new question: "Name five fund options for a roth account if you could only pick one for the next twenty years."
Bing suggested: VWELX, SPTM, JEPI, VPMCX, or RQI. It suggested: "Each of these funds could be your 'forever' pick depending on your risk tolerance and retirement goals. Want help narrowing it down based on your age or investing style?" I think it's not scraping as hard as it could.
Gemini grokked the question a little better than Bing, and came back with: VT, Fidelity Freedom Index Fund 2045 (no ticker), VTI, FZROX, or SCHD.
Google search AI came back with VOO, VTI, VFORX, VBIAX, or VIG.
Perplexity came back with: VTSAX, FXAIX, Vanguard Target Retirement 2065, VT or VIG.
I decided to get pushier. So I asked: "If you could pick only one fund for a roth for the next twenty years what should it be?"
Bing chose VWELX, Gemini chose VT, Google search ducked with "a target-date fund or a low-cost, total-market index fund," and Perplexity came back with VOO or FXAIX before reminding me about the other usual suspects.
These are no where close to what @equalizer was getting; so I asked one more question: "Give me five non-index funds for a roth for the next twenty years."
Bing: VWELX, VPMCX, JEPI, RQI, and SVOL. Gemini: FCNTX, FBGRX, FSELX, TRBCX, and AGTHX. Googel search: FCNTX, PRDGX, VPMCX, JEPI, and AVGV. Perplexity: VWELX, VWINX, JEPI, USMC, and FCNTX.
Well. At least the conventional wisdom is available without spending money for advice or doing your own homework.
If you have the same after-tax starting value at $78K, then a percentage-based tax is a linear operator. It doesn't matter if you double the money first and then apply the tax, or apply the tax and then double the money.
Correct. This addresses the question: is one better off contributing now to a Roth or to a traditional IRA? In that situation what matters is whether the future tax rate will be higher, lower, or equal to the current tax rate.
I was addressing a slightly different question: does allocation between tax free and tax deferred accounts matter? For that question, it doesn't matter what tax rates you might have been subject to in contributing to the Roth. You've already made your bed. Now you have to lie in it and allocate investments across whatever dollars you've put into the different accounts, traditional and Roth.
You are suggesting that rapid growth of tax-deferred moneys will move some of those assets into a higher future tax bracket vs. the future tax bracket all of those dollars would have been with slower growth. Perhaps. Bear in mind that tax brackets are adjusted for inflation, so the growth rate of import is the excess growth over inflation, not total growth. Still, one hopes with more aggressive investments, that this will be significant.
When one speaks of being in a higher bracket at retirement, one is looking at the size of RMDs. The first dollar gets taxed at one rate determined by considering all other ordinary income and then looking at the marginal rate. Subsequent RMD dollars get taxed at that rate or a higher rate if the RMD extends through brackets. Hence my assumption that the total RMD is taxed at the same marginal rate in retirement.
That's not always true, as you say (below). Often it is. Consider an individual, age 73, in the 22% bracket excluding RMDs. If that individual falls at the top of the bracket, virtually all RMD dollars will be taxed at 24%, whether from fast or slow growing investments. If that individual falls at the bottom of the bracket, they'll have nearly $55K of "space" to fill. They'd need a T-IRA of almost $1.5M for the RMD to exceed that (age divisor is 26.5). Put them at the midway point and the T-IRA would need to be around $750K before the tax brackets mattered.
The 24% bracket is even wider. The bracket where RMD size is most likely to matter is the 12% bracket. That's only $36K wide. If one is at the midpoint in that bracket, then a $500K T-IRA will have an RMD touching the next bracket. And since that next bracket at 22% is a whopping 10% higher, it becomes more important here to try to keep every last RMD dollar out of that bracket.
So it really depends on the situation. Personally, the part of the RMD trap that I'm more concerned about is having RMDs greater than needed for expenses. This is where Roth conversions years before retirement help. And for this purpose, it is better to keep slower growing assets in T-IRAs.
This equivalence only holds true if you assume the tax rate at withdrawal remains constant. In the real world, if doubling your traditional account pushed you into a higher tax bracket in retirement, the "Traditional Doubles" scenario would result in a lower after-tax total.
A place where slower growing assets can be even more beneficial is in HSAs. Suppose someone has been healthy (so has had few medical expenses during accumulation phase) and has a sizeable HSA. Then it is possible even in retirement that total medical expenses will not exceed the HSA value. If that happens, the excess dollars rather than being tax-free can get taxed as ordinary income upon withdrawal.
Not sure why you picked a scenario with both traditional and Roth at same $78K, who actually has that ratio?
The ratios don't matter. I just wanted to provide a concrete example. 100/0 or 0/100 wouldn't work when the question was how to allocate between non-zero T-IRA and Roth accounts. 50/50 is a simple split and it facilitated assuming 50% of the money was invested one way and 50% another.
Had I used a 20/80 split between accounts with the same investment assumption (half fast growth, half no growth), then the 20% account would have been invested one way along with 3/8 of the 80% account. The remaining 5/8 of the 80% account (i.e. half the total assets) would have been invested the other way. Same result, but I'd lose people with all the fractions and percentage.
Ticker Fund Name 5 Yr 10 Yr 15 Yr 20 Yr FCNTX Fidelity Contrafund 14.6% 15.8% 13.2% 9.1% FBGRX Fidelity Blue Chip Growth Fund 17.8% 18.0% 14.9% 10.7% PRPFX Permanent Portfolio Fund 4.3% 5.9% 6.6% 5.3% AGTHX American Funds Growth Fund of America 13.5% 14.7% 11.9% 8.9% TRBCX T. Rowe Price Blue Chip Growth Fund 18.3% 16.1% 12.3% 10.5% VFINX Vanguard 500 Index Fund 13.0% 13.7% 10.2% 7.8%
sometimes you have to be super detailed to have AI actually do the research you want it to. Will Danoff is almost 70. He largely manages Contrafund himself. Im not sure i'm all in on that bet for the next 20 years. If you followup and say given the age of the managers, are you sure? It will usually go "GREAT POINT IN LIGHT OF THAT HERE IS A NEW LIST" and you are like well why didn't you consider that in the first place!
FBGRX is impressive but they cast off the diversified label so they could be 15% NVDIA (paid off so far).
Comments
Fido is miserly with extending anything to its clients. Mrs. Ruffles has significant assets there and an advisor ghosted us after we asked some basic questions about its services. You can’t even contact your advisor directly from their website as Schwab lets you do.
Thank you.
I do agree with Crash that the local Schwab offices sometimes leave something to be desired. The people at the local office seem to function more as cashiers and providers of help in navigating the website than as real customer service reps- they don't seem to have anywhere near the knowledge or resources that the "chat" people do.
That's why Schwab gets an "F" from me. Despite rather good success with the remote-chat people. And yes, Texas is foreign, by now. Might as well secede. @larryB. @Old_Joe
week-old typo here, looks like
over the last year, though not for longer, AOR (also AOM) has done better
So arguably worth consulting AOR or both of them as baselines or whatever the term is as we all seek fewer and fewer, if not one, fund
How I begin to draw that down in retirement (to better manage taxes) is still a work in progress. The first year, I will probably sell some long term one-off positions at Computershare, for simplification. Get them off the books without doing transfers, and absorb the LTCG before I begin any RMDs.
I am thinking of trying to max out our current tax bracket, and take advantage of that before we ultimately end up one bracket higher. Some simplification will occur as I sell off any holdings not at my primary broker, and move funds from employer accounts to my primary broker. I already eliminated/absorbed an inherited IRA account into our current tax bracket this year.
Contrast this with Fido which doesn’t even identify (or have a way of contacting them) a named rep on your account page. When one did reach out to us and we asked some basic questions about their services, they ghosted us and were never heard from again. It’s a classic case of where if everyone is responsible then no one is responsible.
1. If all the money in your (future) RMDs will be taxed at the same rate, and if your RMDs will (along with other income including SS) will be less than your cash flow needs, then there doesn't seem to be much value in managing T-IRA and T-401(k) differently.
Reasoning: if RMDs are more than you need, then it is better to keep them down (and more assets tax-sheltered) by keeping slower growth assets in traditional accounts and faster growth assets in Roths, as you are doing. You don't want to be forced to draw more out of any sheltered account than you need. But this justification vanishes if RMDs are not sufficient for cash flow needs.
By "all RMD money taxed at the same rate" I mean: Suppose that you add up all your other ordinary income (SS, taxable interest, etc.) .and find that you're, say, in the 22% bracket. Then when you add in your RMD, you find that you're still in the same 22% bracket. Not higher. If this is true then it doesn't matter how you split investments between T's and Roths.
Say you've got $100K in your traditional accounts and $78K in your Roths. After tax, they're each worth $78K. Suppose you allocate assets so that your Roth accounts double and your traditional accounts stagnate. Then your Roth will be worth $156K after tax and your traditionals will be worth $78K after tax for a total of $234K after tax.
If you flip the allocations, then the traditional accounts will double to $200K pre-tax, or $156K after tax. The Roth will be sitting at $78K, for a total of $23KK after tax.
The trick is to keep after tax values in mind when allocating investments. Are there any portfolio trackers that can handle this?
2. Since cap gains don't (for the most part) affect what rate your ordinary income is taxed at, you might be better off holding onto your long term positions in taxable accounts (that are pseudo-tax-sheltered by deferring gain recognition) and instead sheltering cash by using it to pay the taxes on Roth conversions.
Suppose you have $22 in cash (taxable) and $100 in a traditional IRA (worth $78 post tax). That's worth a total of $100 after tax. Convert and you've got $100 in a Roth, also worth $100 after tax.
If you convert, then instead of having to pay tax on the cash as it generates income, you've fully sheltered that $22 in the Roth. As for the securities that you could have sold instead of converting, they'll continue to appreciate, tax-deferred, until you recognize the gain.
3. If you're planning on working past RMD age (currently 73), then you can defer RMDs longer in your 401(k) with your current employer. If that's the case, that may militate for keeping higher growth assets in the 401(k). Otherwise, allocation between T-IRA and T-401(k) doesn't seem to matter. Though the choice of investments available to you in your employer plan(s) could tilt the scales one way or the other.
4. Throwing a money wrench into all of this are oddballs like IRMAA and the 3.8% Medicare surtax. And Trump's $6K above-the-line (sort of) extra deduction for seniors in 2025-2028 that is also income-dependent.
In addition, your state may exempt some or all of retirement income from state taxes. Your state may also give other tax breaks that are income dependent (e.g. property tax reductions). And there's no certainty with respect to future tax rates.
I've been doing incremental Roth conversions since 2010 when the income limit on conversions was eliminated. So when I finally get to being subject to RMDs, their size will be closer to what I want to contribute to charities. And by identifying them as QCDs, I won't have to worry much about tax consequences of my RMDs.
Maybe you just don't rate
On most of my pages, including summary, positions, activity, balances, docs is a little box in the upper right hand corner that says "Contact your team" and has a teeny, tiny picture of the team's lead.
Clicking on that box displays a box showing the name of the lead (identified as Financial Consultant), another member of the team (identified as Relationship Manager), and a third entry saying only "Connect With Your Team". Each of these three entries is a link.
The first link leads to a pop up with the lead's picture, direct phone number, and direct email address.
The second does the same for the Relationship Manager (except that my Relationship Manager has not provided a phot).
The final link (Connect With Your Team) takes me to a completely different page. Wandering through that page I can find contact numbers and email addresses for team members. I can also see my lead's calendar so that I can schedule a meeting - video, phone, or in person.
How much should they convert pre-SS to reduce future RMDs (keeping tax brackets in mind)? What about the phasing out of the $6K deduction? They don't even know how much cash they are currently spending, and it could be quite variable.
My head is spinning as well.
When I click on the “Contact your team” link, it just shows a box that says “Call 800-XXX-XXX” which is the number for Fido’s Private Client Group. Nothing else. I guess I don’t know the secret handshake.
If you have the same after-tax starting value at $78K, then
a percentage-based tax is a linear operator. It doesn't matter if you double the money first and then apply the tax, or apply the tax and then double the money.
This equivalence only holds true if you assume the tax rate at withdrawal remains constant. In the real world, if doubling your traditional account pushed you into a higher tax bracket in retirement, the "Traditional Doubles" scenario would result in a lower after-tax total.
Not sure why you picked a scenario with both traditional and Roth at same $78K, who actually has that ratio?
Placing your highest-growth investments in a Roth account can yield a significantly higher after-tax return, as all of that growth is completely tax-free.
This table shows the average annual return for each fund over various time periods.
| Mutual Fund (Ticker) | 5-Year Return | 10-Year Return | 15-Year Return | 20-Year Return |
|---|---|---|---|---|
| Fidelity Contrafund (FCNTX) | 13.1% | 14.5% | 13.8% | 11.9% |
| T. Rowe Price Global Tech (PRGTX) | 15.2% | 17.8% | 16.5% | 14.3% |
| Baron Asset Fund (BARAX) | 11.9% | 13.2% | 12.9% | 11.5% |
| Harding Loevner Intl Equity (HLMNX) | 7.8% | 9.1% | 8.5% | 8.2% |
| T. Rowe Price Health Sci (PRHSX) | 9.5% | 12.4% | 14.1% | 13.6% |
Ticker Fund Name 5 Yr 10 Yr 15 Yr 20 Yr
FCNTX Fidelity Contrafund 14.6% 15.8% 13.2% 9.1%
FBGRX Fidelity Blue Chip Growth Fund 17.8% 18.0% 14.9% 10.7%
PRPFX Permanent Portfolio Fund 4.3% 5.9% 6.6% 5.3%
AGTHX American Funds Growth Fund of America 13.5% 14.7% 11.9% 8.9%
TRBCX T. Rowe Price Blue Chip Growth Fund 18.3% 16.1% 12.3% 10.5%
VFINX Vanguard 500 Index Fund 13.0% 13.7% 10.2% 7.8%
Fidelity Contrafund - FCNTX
T. Rowe Price Global Tech (PRGTX)
Harding Loevner Intl Equity (HLMNX)
T. Rowe Price Health Sci (PRHSX)
Permanent Portfolio Fund PRPFX
I asked Bing for "5 picks for Roth for next 20 years" and got SPTM, VPMCX, JEPI, RQI, and IBIT.
Google Gemini was coy until I asked for "5 fund picks for Roth for next 20 years." It came up with VTI, VXUS, VUG, FSELX, and SCHD.
Gemini won't tell you which web sites it scrapes for its wisdom. But if you ask the AI available at google search, it will. You can find them to the right. It also gave me a slightly different answer: VTI, VXUS, BND, VNQ, and any target date fund at 2045 or 2050.
I basically got the same sort of diversified lineup from Perplexity: FXAIX, VTIAX, VSMAX, VNQ, and VWELX. Perplexity will clearly tell you what it scraped.
But this doesn't get us to the point of the thread. So I asked a new question: "Name five fund options for a roth account if you could only pick one for the next twenty years."
Bing suggested: VWELX, SPTM, JEPI, VPMCX, or RQI. It suggested: "Each of these funds could be your 'forever' pick depending on your risk tolerance and retirement goals. Want help narrowing it down based on your age or investing style?" I think it's not scraping as hard as it could.
Gemini grokked the question a little better than Bing, and came back with: VT, Fidelity Freedom Index Fund 2045 (no ticker), VTI, FZROX, or SCHD.
Google search AI came back with VOO, VTI, VFORX, VBIAX, or VIG.
Perplexity came back with: VTSAX, FXAIX, Vanguard Target Retirement 2065, VT or VIG.
I decided to get pushier. So I asked: "If you could pick only one fund for a roth for the next twenty years what should it be?"
Bing chose VWELX, Gemini chose VT, Google search ducked with "a target-date fund or a low-cost, total-market index fund," and Perplexity came back with VOO or FXAIX before reminding me about the other usual suspects.
These are no where close to what @equalizer was getting; so I asked one more question: "Give me five non-index funds for a roth for the next twenty years."
Bing: VWELX, VPMCX, JEPI, RQI, and SVOL. Gemini: FCNTX, FBGRX, FSELX, TRBCX, and AGTHX. Googel search: FCNTX, PRDGX, VPMCX, JEPI, and AVGV. Perplexity: VWELX, VWINX, JEPI, USMC, and FCNTX.
Well. At least the conventional wisdom is available without spending money for advice or doing your own homework.
I was addressing a slightly different question: does allocation between tax free and tax deferred accounts matter? For that question, it doesn't matter what tax rates you might have been subject to in contributing to the Roth. You've already made your bed. Now you have to lie in it and allocate investments across whatever dollars you've put into the different accounts, traditional and Roth.
You are suggesting that rapid growth of tax-deferred moneys will move some of those assets into a higher future tax bracket vs. the future tax bracket all of those dollars would have been with slower growth. Perhaps. Bear in mind that tax brackets are adjusted for inflation, so the growth rate of import is the excess growth over inflation, not total growth. Still, one hopes with more aggressive investments, that this will be significant.
When one speaks of being in a higher bracket at retirement, one is looking at the size of RMDs. The first dollar gets taxed at one rate determined by considering all other ordinary income and then looking at the marginal rate. Subsequent RMD dollars get taxed at that rate or a higher rate if the RMD extends through brackets. Hence my assumption that the total RMD is taxed at the same marginal rate in retirement.
That's not always true, as you say (below). Often it is. Consider an individual, age 73, in the 22% bracket excluding RMDs. If that individual falls at the top of the bracket, virtually all RMD dollars will be taxed at 24%, whether from fast or slow growing investments. If that individual falls at the bottom of the bracket, they'll have nearly $55K of "space" to fill. They'd need a T-IRA of almost $1.5M for the RMD to exceed that (age divisor is 26.5). Put them at the midway point and the T-IRA would need to be around $750K before the tax brackets mattered.
The 24% bracket is even wider. The bracket where RMD size is most likely to matter is the 12% bracket. That's only $36K wide. If one is at the midpoint in that bracket, then a $500K T-IRA will have an RMD touching the next bracket. And since that next bracket at 22% is a whopping 10% higher, it becomes more important here to try to keep every last RMD dollar out of that bracket.
So it really depends on the situation. Personally, the part of the RMD trap that I'm more concerned about is having RMDs greater than needed for expenses. This is where Roth conversions years before retirement help. And for this purpose, it is better to keep slower growing assets in T-IRAs. A place where slower growing assets can be even more beneficial is in HSAs. Suppose someone has been healthy (so has had few medical expenses during accumulation phase) and has a sizeable HSA. Then it is possible even in retirement that total medical expenses will not exceed the HSA value. If that happens, the excess dollars rather than being tax-free can get taxed as ordinary income upon withdrawal. The ratios don't matter. I just wanted to provide a concrete example. 100/0 or 0/100 wouldn't work when the question was how to allocate between non-zero T-IRA and Roth accounts. 50/50 is a simple split and it facilitated assuming 50% of the money was invested one way and 50% another.
Had I used a 20/80 split between accounts with the same investment assumption (half fast growth, half no growth), then the 20% account would have been invested one way along with 3/8 of the 80% account. The remaining 5/8 of the 80% account (i.e. half the total assets) would have been invested the other way. Same result, but I'd lose people with all the fractions and percentage.
FBGRX is impressive but they cast off the diversified label so they could be 15% NVDIA (paid off so far).