1. In the unlikely event that your income, which includes interest income and non-qualified dividends such as those from a money market fund, is less than the standard deduction (or your itemized deductions), then you're taxed at a zero rate, which negates much of the benefit of keeping cash in tax advantaged accounts.1. At what marginal tax rate does this strategy make sense?Depending on your marginal income tax rate, you might consider holding your emergency funds in a tax-deferred account. This can be much more tax-efficient.
https://www.bogleheads.org/wiki/Placing ... ed_account
2. My wife has access to VMRXX in her 401k (0.1% ER). I have access to a stable value fund but it has an ER of 0.27% so it would not make sense to use this I feel. Implementing this strategy, do I invest my EF in taxable and then sell a portion of stocks/bonds in 401k?
3. Could bonds in 401k serve the same purpose? (sell stock in taxable, sell bonds in 401k to buy stock)?
2. Yes. Invest the taxable account's EF in a stock index fund, and in a tax-advantaged account move a comparable amount of a similar stock index fund into "cash" to maintain your chosen asset allocation.
3. Although you could use bonds for your emergency fund, they are more volatile than cash so there is some risk that you'd have to sell low if you need the money in an emergency. In your parenthetical remark, I assume you're asking about how you raise the cash in your taxable account in the event that you need to access your emergency fund. If so, yes, you'd sell stock in taxable to raise the cash, then use the cash in your tax-deferred account to buy a comparable amount of stock, as described in the wiki.
Statistics: Posted by Rocinante Rider — Mon Sep 02, 2024 8:30 am