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Which Tax-exempt Bond Fund Should We Choose?

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  • Avatar DOF2028 
    Participant
    Status: Dentist
    Posts: 2
    Joined: 05/09/2019

    My wife and I have a classic Boglehead three fund portfolio spread out throughout our Roth IRAs, HSA, and brokerage accounts. We don’t have access to any additional tax-advantaged vehicles. VBTLX is held in our Roth IRAs and HSA accounts. However, in order to maintain our asset allocation, we will need to hold bonds in our brokerage account. We would like to choose a bond fund with Vanguard. As small business owners (I’m a general dentist) our effective tax rate dropped from 29.63% in 2017 to 24.63% in 2018 despite an increase in our AGI. This includes a flat state tax rate of 4.63%.  Our marginal tax rate dropped from 33% in 2017 to 24% in 2018.  I am trying to decide between VTEAX and VWIUX (we would be able to contribute enough for the admiral shares immediately). We live in Colorado, and Vanguard doesn’t offer a Colorado-specific tax-exempt bond fund. Which should we choose and why? Should we choose a different fund? TIA.

    #213384 Reply
    Avatar artemis 
    Participant
    Status: Physician
    Posts: 568
    Joined: 12/02/2016

    I’d choose VTEAX if I only wanted only one bond fund, as it includes a mixture of short-term, intermediate-term, and long-term bonds.

    #213389 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 4229
    Joined: 01/08/2016
    We don’t have access to any additional tax-advantaged vehicles

    Click to expand…

    no 401k, solo 401k, sep, nothing?

    VBTLX is held in our Roth IRAs and HSA accounts.

    Click to expand…

    ugh, less than ideal. id probably put it in taxable before rIRA, but im a Roth snob.

    I am trying to decide between VTEAX and VWIUX

    Click to expand…

    either probably. its an index so pros there.

    i use VWIUX exclusively. im ok with it being actively managed.

    #213394 Reply
    Liked by MaxPower
    Avatar DOF2028 
    Participant
    Status: Dentist
    Posts: 2
    Joined: 05/09/2019
    We don’t have access to any additional tax-advantaged vehicles 

    Click to expand…

    no 401k, solo 401k, sep, nothing?

    We have seven employees (so we aren’t eligible for a solo 401(k)) and my wife and I are the only ones interested in contributing to a retirement account.  We investigated a safe harbor 401(k), but because all of our employees are older than us we felt that the expense didn’t justify the tax-deferred vehicle.  We considered a SIMPLE IRA, but we like maxing our backdoor Roth IRAs each year.

    VBTLX is held in our Roth IRAs and HSA accounts. 

    Click to expand…

    ugh, less than ideal. id probably put it in taxable before rIRA, but im a Roth snob.

    VBTLX is not the only fund we own in our Roth IRAs and HSA.  We need to find a bond fund for our brokerage account because we want to keep our asset allocation without increasing our bond allocation in our tax-advantaged accounts.

    I am trying to decide between VTEAX and VWIUX 

    Click to expand…

    either probably. its an index so pros there.

    i use VWIUX exclusively. im ok with it being actively managed.

    Thanks for the advice and constructive criticism.  Any further thoughts would be appreciated.

    Click to expand…

     

    #213642 Reply
    Avatar ZZZ 
    Participant
    Status: Spouse
    Posts: 665
    Joined: 06/18/2018

    If you’re only in the 24% marginal bracket, are you sure tax exempt bonds will offer you higher real (after tax) yields as compared to non exempt bonds?

    #213648 Reply
    Avatar Tangler 
    Participant
    Status: Physician
    Posts: 345
    Joined: 08/23/2018

    I think you are doing the right thing. I don’t see any problem with either of those funds. I just looked at both on the vanguard website. Love vanguard! You could do some in both?

    It is smart to add some bonds. I need to increase my bond allocation to get closer to 70:30 and I am looking at similar problem (not enough room in my 403b). I have kept bonds out of my Roths.

    Should you have bonds in Roth? No one knows the right answer……the market could do crappy for the next 10 years and those bonds could out perform my stocks, so who knows…..but most here seem to keep the Roth in mostly stocks and the other IRAs are where they try to sneak in the bonds. Good stuff to think about. Good luck!

    #213977 Reply

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