Buying Treasury bills - great choice for cash reserves

[disneysteve]

I could build a 10 year bond ladder right now and earn 2.75%. That is more than my 30 year fixed rate mortgage @ 2.25%.

Plus your mortgage interest may be deductible and depending on the bonds you choose that interest may be tax-free. That makes the spread even better.

And actually, 3-yr treasuries are at 2.75%. You don't need to go out 10 years. Even 5 years is at 2.82%.

[LivingAlmostLarge]

Plus your mortgage interest may be deductible and depending on the bonds you choose that interest may be tax-free. That makes the spread even better.

And actually, 3-yr treasuries are at 2.75%. You don't need to go out 10 years. Even 5 years is at 2.82%.

This is probably not a bad idea for corn being in retirement and guaranteeing himself some positive spread on his mortgage

[corn18]

This is probably not a bad idea for corn being in retirement and guaranteeing himself some positive spread on his mortgage

Working on it now. I have all my fixed income in my 401k in a stable value fund earning 1.8%. Not too bad. But I have the brokeragelink option in my 401k so I can use that to buy individual bonds. I'll start building a 10 year ladder. Since it's in my 401k, I won't have to pay taxes until I withdraw the money which I can do now per the rule of 55. I don't need it, but I plan to do Roth conversions between now and social security. I can get it all converted in the 12% tax bracket. Life is good.

[disneysteve]

Working on it now. I have all my fixed income in my 401k in a stable value fund earning 1.8%. Not too bad.

Better than a money market but definitely not as good as bond yields now.

I'm in the process of moving some of our cash into a treasury ladder and tripling or quadrupling our interest rate in the process.

[LivingAlmostLarge]

Working on it now. I have all my fixed income in my 401k in a stable value fund earning 1.8%. Not too bad. But I have the brokeragelink option in my 401k so I can use that to buy individual bonds. I'll start building a 10 year ladder. Since it's in my 401k, I won't have to pay taxes until I withdraw the money which I can do now per the rule of 55. I don't need it, but I plan to do Roth conversions between now and social security. I can get it all converted in the 12% tax bracket. Life is good.

How much are you converting and how much are you leaving? Does it make sense to convert up to 22% or 24%?

[corn18]

How much are you converting and how much are you leaving? Does it make sense to convert up to 22% or 24%?

I am converting about $36k / year in the 12% tax bracket. I will start with less in the beginning so I can tax gain harvest my taxable account @ 0% LTCG. If all goes as planned, I should be able to empty my taxable account @ 0% and convert almost all of my 401k @ 12%.

[rennigade]

I am converting about $36k / year in the 12% tax bracket. I will start with less in the beginning so I can tax gain harvest my taxable account @ 0% LTCG. If all goes as planned, I should be able to empty my taxable account @ 0% and convert almost all of my 401k @ 12%.

Do you not have a lot in your 401k? I always heard the sweet spot for married filing jointly is the 12% bracket and to get as close to the $81k limit as you can. Of course one would need to factor in other income producing investments.

[corn18]

Do you not have a lot in your 401k? I always heard the sweet spot for married filing jointly is the 12% bracket and to get as close to the $81k limit as you can. Of course one would need to factor in other income producing investments.

$670k in 401k. I am 56 so I have 14 years to do conversions. And I will leave about $14k in there for medical expenses and/or QCDs.

[rennigade]

Im a little slow but let me know if this is correct...The standard deduction of a married couple filing jointly is $25,100. If you have taxable income of lets say $50,200...your taxable income would be $25,100.

The tax bracket for married filing jointly of 12% is $81,050.

$81,050 (12% tax bracket max)
- $25,100 (taxable income)
---------------
$55,950

So I could get as close to $55,950 as possible (roth conversions, selling taxable) and still be in the 12% tax bracket, and 0% LTCG? Assuming the standard deduction counts against your taxable income?

[corn18]

Im a little slow but let me know if this is correct...The standard deduction of a married couple filing jointly is $25,100. If you have taxable income of lets say $50,200...your taxable income would be $25,100.

The tax bracket for married filing jointly of 12% is $81,050.

$81,050 (12% tax bracket max)
- $25,100 (taxable income)
---------------
$55,950

So I could get as close to $55,950 as possible (roth conversions, selling taxable) and still be in the 12% tax bracket, and 0% LTCG? Assuming the standard deduction counts against your taxable income?

Correct

[rennigade]

Correct

I never knew about the 0% ltcg. So I hold vtsax, vanguard total stock...so I wouldnt have to pay any tax if I decided to sell all of my shares, assuming we stay under the $80kish LTCG limit?

[corn18]

I never knew about the 0% ltcg. So I hold vtsax, vanguard total stock...so I wouldnt have to pay any tax if I decided to sell all of my shares, assuming we stay under the $80kish LTCG limit?

Yup. The 0% LTCG limit is $80,800 while the 12% tax bracket ends @ $83,550 for MFJ.

[LivingAlmostLarge]

How are you staying under $80k with a pension and harvesting? one mistake and you go over and you get hit with 15%LTCG. How much are you converting a year corn?

[corn18]

How are you staying under $80k with a pension and harvesting? one mistake and you go over and you get hit with 15%LTCG. How much are you converting a year corn?

Right now I am converting $13k/year and tax gain harvesting the rest. And $1 over does not trigger 15% on all LTCG. It’s a marginal rate so you only pay 15% on the $1.

[disneysteve]

And $1 over does not trigger 15% on all LTCG. It’s a marginal rate so you only pay 15% on the $1.

How does that work though? If you income is over the 0% threshold, how is the tax on the LTCGs decided? If that was your sole source of income, they could scale it but if you have multiple sources of income, as most people do, what happens? Let's say your income is $85,000 and $20,000 of it came from LTCG. Do they consider all of the overage to be from the LTCG regardless of other income sources?