conversation: User (throwaway_finances): "I'm in the slow process of rebalancing my taxable and tax-deferred investments to increase my bond allocation.  I would put all of my bonds into my tax-deferred accounts, but only 15% of my investments are in my IRA and 401k and 85% are in my regular account.  Even if I put 50% of my tax-deferred accounts into bonds, I would still only have a 7.5% allocation to bonds and I have tried to keep my accounts each much more balanced than that.\n\nWhat's the best way to handle bond allocation with this unbalanced situation where my tax-deferred accounts are so small relative to my main account?\n\nIt's also important to mention that I live in California and have a high marginal tax rate.  I think my marginal tax rate will be 55.7% next year (39.6% + 12.3% + 3.8%) although my income varies.  At least qualified dividends will only be taxed at 36.1% (20% + 12.3% + 3.8%).  Incidentally, I'm unlikely to be impacted by AMT.  I have obviously considered municipal bonds including California ones.\n\nI'm currently just invested in total bond index funds, but they don't seem like a great option in my taxable account.  I have considered iShares National AMT-Free Municipal Bond ETF (MUB), iShares S&amp;P California Municipal Bond ETF (CMF), or SPDR Nuveen Barclays Cap California Municipal Bond (CXA).  The other options are Vanguard California Long-Term Tax-Exempt Fund Investor Shares (VCITX) or Vanguard California Intermediate-Term Tax-Exempt Fund Investor Shares (VCAIX).\n\nI would appreciate any thoughts or ideas.\n"
  Self: "I personally would try to split up my bond holdings by holding the taxable bonds in your tax deferred accounts (up to a reasonable amount, don't sacrifice the individual allocation for the overall allocation especially since bonds may have a tough year) and holding only the CA muni funds in the standard accounts. That way the bonds you'd be getting taxed on are wrapped in the deferred accounts, and the Munis, which you are avoiding state and federal tax on, will be in the standard accounts.  Also your bond holdings will be somewhat diversified (since CA munis could be considered higher risk).\n\nAlso you may already know this but the MUB fund is a national Muni fund, meaning you will still get hit with state taxes as it's only exempt from Federal tax."
  