Hello! I’m working through a tax comparison of having a Treasury bond ladder in spouse and my joint taxable account vs in our IRAs and swapping with VTSAX liquidated funds from our taxable account annually. Unfortunately I found this wiki after I bought a 6yr Treasury ladder in our taxable account a couple months ago to cover our annual expenses in our early retirement years with no pre-59.5 penalties:

https://www.bogleheads.org/wiki/Placing_cash_needs_in_a_tax-advantaged_account. So now I’m wondering if there would be value in moving our bond ladder (since yields are getting close to when I bought in) into our IRAs by selling VTSAX by selling the bonds and buying an equal amount of VTSAX in our taxable account.

Here’s my comparison so far: Bond ladder in taxable, we’d have roughly $7k in interest and gains a year. Our taxable income is projected to be $22k (with the bond ladder, other dividends and interest, and reductions from HSA and prior year carryover capital losses), so 10% bracket. Therefore, we’d owe $700 each year in taxes just from the bond ladder and this would take the space of being able to do $7k more in Roth conversions each year a rung of the ladder matures. So over the 6 year ladder, we’d be paying $4200 in income taxes on the ladder instead of paying that amount in taxes on being able to do $42k in Roth conversions. However, the benefit is each year, we know what will be maturing and won’t come up short if VTSAX values drop in the taxable account and we won’t have to be bothered to do the annual buying and selling in our taxable and IRA accounts.

If the bond ladder were in the IRAs instead, I’m having trouble figuring the taxes we’d owe on the long-term capital gains of selling the roughly $70k annually of VTSAX in the taxable account, which would cover our projected annual expenses. I’m thinking if I assume I buy the same amount of VTSAX as I bought for the whole 6 year ladder at roughly $360k (about $60k per year) that would mean I’d have about $10k in capital gains if I cashed out $70k per year. But I’m not sure how I’d show the IRS that $10k should be taxed at the 0% bracket and how that links to the taxable income number on line 15 of my 1040 so that our ordinary income isn’t driven up higher than the 10% bracket. And I’m wanting to see if I actually would gain more space for a larger Roth conversion annually.

Any insights you could share on how I would complete the comparison and any problems you see so far would be greatly appreciated!