2010 AM test Question 1-E

Ill post the question later if I do not get a response but assuming most have taken this by now.

Why would the most effective allocation be to sell all equities in the tax deffered account if you are allowed to keep them there? Even though the tax rate is declining its still 15% comparid to the 0% in the deffered account.

Would you not sell all the bonds to creat the 50K tax credit then sell enough of your equties where you could use the 50K credit and move that postion to the tax deferred account?


reason is the entire current allocation which is 750K in TDA, 750K in Taxable MUST be maintained. (Decide to keep existing allocation).

so since there is a 50K loss on the Bonds - they must be moved to the TDA - so the advantage of the new tax laws and some tax loss harvesting can be performed. if 500K of bonds is moved to TDA - 500K of equities must be moved to the taxable account.

2 reasons to do so:

  1. Tax loss harvesting on the 50K worth of Bonds. Higher taxed Bonds @ 25% are moved to the TDA.

  2. Lower capital gains taxed Equities which have appreciated in value - are now placed in the taxable bucket but this is justifiable since the tax rate is reducing.

ok thanks…i guess it is implied that the amount has to stay the same since there is a contribution limit…overlooked that.