[Douglas]

Quick question, you guys said it’s best to put bonds in a pre-tax vehicle.

Would it be just as good to put them in a Roth, so you can avoid paying the taxes altogether?

Also, if I have 99 shares of a highly-appreciated stock in my brokerage account, can I (and how do I) gift 33 shares each to my 3 kids?

If we all have Schwab brokerage accounts, is it as easy as a transfer from my account to theirs?

Thank you!

[Scott]

As always..it depends.
Where holding bonds in a Roth can make sense is in a scenario where you run out of room in your pre tax IRA to hold your desired bond allocation – think when you retire and you have shifted towards bonds, and you have done a fair bit of Roth conversions to get your tIRA down.

In that case from a tax optimization perspective it could make sense to hold your spill over bonds in the Roth IRA, which I know is counter intuitive to the ‘keep your growth assets in a Roth.

The reason is that on the margin..all else equal you would prefer to have qualified dividends/LTCG in your brokerage account since those are taxed at lower rates than ordinary income so you would prefer equities to bonds in your taxable account.

[Christopher]

If it comes at the expense of stocks in a Roth, it’s usually suboptimal (bonds don’t typically grow enough to justify the sheltering Roth provides).

If not, it’s fine.

I typically prefer bonds to be in fully taxable accounts to leave sheltering space available for stuff that has more growth.

[Tammy]

Contact Schwab for logistics, but if you gift appreciated stock to your kids, they inherit your cost basis.

If they are beneficiaries of your account and inherit appreciated investments, they get a stepped up basis.

You decide if you want them to have access sooner (with a higher tax bill) or later.

[Rick]

For gifting, make sure your cost basis transfers to your kids brokerage accounts. If it does not, you can usually provide it and they/you can have it added after the transfer.

It is far far better to ensure this happens now than years later.

I had the “joy” of doing this after one of my kids was gifted about $5k in Aflac stock accumulated over about 10 years with drip turned on.

[Cody]

1. The Roth is best utilized for long-term, tax-free growth. Keeping the bond portfolio of the overall asset allocation in the pre-tax accounts generally reduces future RMDs and Roth conversions.

If you don’t have enough room for bonds in the pre-tax accounts, Roth is usually prioritized next.

2. It is very easy to transfer shares of stock in-kind to your kids – with a carryover cost basis and holding period.

Each kid needs to open a Schwab taxable brokerage account.

Then, you can either call Schwab or fill out asset transfer forms (to other Schwab account owners).

Do you also give money to qualified charitable organizations?

[Author]

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