Key Takeaways
- A couple, 52 and 54, with $4.14 million in a portfolio that tracks the S&P 500, asked whether to move $300,000 or $500,000 more into bonds.
- Swapping stock funds for bond funds inside a 401(k) or a traditional IRA costs nothing in tax this year.
- If half of it is long-term gain, selling $300,000 of stock in a brokerage account would cost them $28,200 in 2026, between 15% capital gains tax and the 3.8% net investment income tax.
- Making the move inside their 401(k)s and IRAs avoids that bill, and brokerage shares cost far less to sell once their paychecks stop.
On Thursday, Nov. 5, the S&P 500 fell more than 4%. That was its worst day in more than a year and a half. If that has you thinking about moving more of your nest egg into bonds, choose the account carefully: the same trade can cost you nothing in tax, or tens of thousands of dollars.
A $220,000 drop, and the right question
A couple, 52 and 54, laid out their situation in Reddit’s r/ChubbyFIRE forum on Nov. 8. Both work full time, with $450,000 of household income, and they plan to keep working another 5-7 years. Their portfolio peaked at $4.36 million and is now $4.14 million. They say that $220,000 drop matches the S&P 500’s 5% slide from its record. They hold $340,000 in cash and $350,000 in bonds. But a big stake in a Nasdaq-100 fund, plus some bitcoin and gold funds, leaves the whole portfolio moving with the S&P 500.
So they’re weighing whether to move $300,000 or $500,000 more into bonds, and they asked: “Is it in tax deferred accounts where moving from stocks to bonds does not trigger any tax immediately?” They’re right to ask, since getting it wrong could cost them five figures.
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Inside a 401(k), the swap costs nothing
Selling a stock fund and buying a bond fund inside a 401(k) or a traditional IRA doesn’t trigger any tax. Gains inside those accounts aren’t taxed until the money comes out. Withdrawals are then taxed as ordinary income, whatever they were invested in. So the couple could move $300,000, or $500,000, between funds tomorrow and owe nothing for it this year.
A brokerage account is another story. There, the same trade is a sale. A gain on shares held more than a year is taxed at 0%, 15% or 20%, depending on where it falls in taxable income, with the gain itself counted. For a joint return in 2026, the 15% rate applies up to $613,700 of taxable income. On top of that comes the 3.8% net investment income tax. On a joint return, it applies to whichever is smaller: investment income, or the amount by which modified AGI tops $250,000.
In a brokerage account, it’s $28,200
The couple didn’t say how much of their stock is in a brokerage account, or what they paid for it. So let’s say they sell $300,000 there, half of it ($150,000) is long-term gain, and their $450,000 is all of their other income.
Take off 2026’s $32,200 standard deduction for a joint return and add the $150,000 gain, and their taxable income comes to $567,800. That’s under $613,700, so the whole gain is taxed at 15%, or $22,500. Their modified AGI of $600,000 is $350,000 past the $250,000 line. That’s more than the gain, so the 3.8% tax applies to all $150,000 of it: another $5,700.
That’s $28,200 between capital gains tax and the net investment income tax, for a trade that would cost nothing inside a 401(k).
If they moved $500,000 instead, again with half of it gain, the bill climbs to $49,705. Their taxable income would reach $667,800, so $54,100 of the $250,000 gain would land past $613,700 and be taxed at 20%. That’s $29,385 at 15% on the other $195,900, $10,820 at 20% on the $54,100, and $9,500 of net investment income tax on the full $250,000.
Make the move where it’s free
For this couple, the cheapest route is to do as much of the swap as they can inside their 401(k)s and IRAs. If those accounts hold $300,000 of stock funds, they can make the whole move there, and the same goes for $500,000 if they hold that much. Pointing new 401(k) contributions at a bond fund helps too, though it’s slow going against a $300,000 target. In the brokerage account, they can take dividends in cash instead of reinvesting them. If some shares do have to be sold there, the ones with the smallest gains, or the ones at a loss, cost the least to sell. Holding the bonds inside the 401(k)s has one more perk. In a brokerage account, bond interest is taxed as ordinary income every year, while inside a 401(k) it isn’t taxed until it’s withdrawn, like everything else.
Sell in the brokerage after the paychecks stop
If I were in their shoes, I’d leave the brokerage shares out of this entirely, as long as the 401(k)s and IRAs hold enough stock to cover the move. Paying $28,200 for a change they can make for free in a 401(k) doesn’t make sense to me, least of all with 5-7 more years of big paychecks ahead. Once those paychecks stop, they could sell brokerage shares for far less tax. At 2026’s figures, a joint return’s long-term gains are taxed at 0% up to $98,900 of taxable income, and a couple whose modified AGI stays at or under $250,000 owes no net investment income tax. That 0% line is 2026’s, and 2027’s figures will show us where it lands next year.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
