Roth v. 403b allocations

[toromos]

Hi everyone,

I have been funding my 403b at 8%, with my employer putting in 8% as well. (I'm lucky the employer does this regardless of whether I put in anything.)

My wife and I will be opening up Roths soon, and will be fully funding those in addition to our employer plans. Should I invest my Roth funds differently than the 403b funds, or keep them the same? Right now my 403b is allocated about 80% stock index funds and 20% bond index funds.

Any insight would be appreciated!

[bjl584]

how old are you?

[disneysteve]

You can do it either way. Some people like to make each account match their asset allocation, so if you are 80/20, you would have your 403b at 80/20 and your Roth at 80/20 also. Others, like myself, look at all of the accounts together as one big pool of money, so our bond allocation is in my wife's Roth, our large company stock allocation is in my Roth, our commodities allocation is in her 403b, our real estate exposure is in my traditional IRA, etc. That makes it easier, in my opinion, to keep track of everything.

[jIM_Ohio]

You can do it either way. Some people like to make each account match their asset allocation, so if you are 80/20, you would have your 403b at 80/20 and your Roth at 80/20 also. Others, like myself, look at all of the accounts together as one big pool of money, so our bond allocation is in my wife's Roth, our large company stock allocation is in my Roth, our commodities allocation is in her 403b, our real estate exposure is in my traditional IRA, etc. That makes it easier, in my opinion, to keep track of everything.

What Steve said.

I keep all my accounts at same allocation- 401k for me is 95% equity, 5% bond, wife's 401k is 95% equity and 5% bond, my rollover IRA is 95% equity and 5% bonds, and our Roth's are each 100% equity (no bonds for me inside of a Roth because I do not want slow growing assets inside my Roth).

I have my reasons for doing this... one issue is lopsided account balances. We have 200k total invested, about 100k of this is my 401k, and another 30k of this is my rollover and another 30k of this is my 401k... so my wife's accounts are a fraction of my size, its easier for me to manage each account separately. My wife's salary is growing fast, and she will work longer than I will, so it removes that complexity from choosing which asset classes should be in her accounts. We each have good 401ks with good selections. In addition, there was a period where my wife had 4 401ks in 5 years and I had 4 401ks in about 7 years from employers changing, so changing allocation around 8 times in 7 years is too much work. When my 401k at work changed (because we got bought out for 4th time) I just had to evaluate my new choices and my allocation goal of 95-5... I did not have to buy or sell anything in wife's 401k account, my Roth, her Roth... I just had to make 401k choices in my 401k which fit same risk profile we had in every other account.

That being said, when you add up my funds we own about 30 between the 6 accounts which exist. I have no sheet which tracks all 30 funds (I only track account performance at macro level).

Know what you do, know why you do it, when you see a problem, deal with it.

If you did split the positions up, here are some guidelines

1) The Roth is probably the account which lasts the longest, so make sure the choices in the Roth are good.
2) In general, for retirement spending, you will spend taxable monies first, tax deferred second, tax free last. Or tax deferred first, taxable second, and tax free last. The Roth is the tax free account, keep this in mind.
3) Because the Roth is tax free, put the investment which you think will grow to the highest value inside the Roth (probably domestic large cap or domestic small cap). Because the Roth will last the longest, and most portfolio's have domestic large cap as last equity class, put large cap inside Roth if you can.
4) 401ks are temporary- unless you work for SAME employer until the day you die you will have a different 401k a few times in your life. Don't fall in love with a 401k investment choice. If you like the investment that much, put it in your IRA.
5) Re-read #4. If you work for same employer until the day you die, you don't need the 401k or the IRA. LOL.

[jpg7n16]

They are different ways of accomplishing the same goal. For me it's easier to just have the same allocation in each account. If each account is allocated properly, then all my money is allocated properly. If it's easier to manage like Steve and Jim have it, then do it that way. Either way is fine because with asset allocation you are looking to properly allocate all invested assets under your control - both in and out of retirement accounts.

Except for my personal stock account It's nowhere near optimal allocation! hah On that one I do my own fundamental analysis stuff, cause I enjoy it.