investingholder wrote: What else should i be thinking about in making this decision?
investingholder wrote:Thanks for the replies! Great advice. I have edited the post to add more detailed portfolio information.
letsgobobby wrote: Myself, I stopped contributing to taxable accounts last summer and just put everything in 529s, since that is tax free forever and has additional protections from creditors, estate taxes, etc.
Asset Allocation: You are young, you already have over $1 million in savings, and you have a high income. To me that signals a low need for risk. There is also a tone of "don't want to do something stupid and lose this good fortune" in your post.
From these things, it sounds to me like you should invest somewhat conservatively. 70/30, 65/35, and 60/40 are the numbers that come to my mind. Obviously, you'll need to come to your own conclusion on this, but I thought I'd toss this opinion in to show that your 70/30 idea is a least in the right ball park.
Your large number of accounts: I come up with 8 accounts. That can be simplified (probably). What kind of money is in His tIRA and Her tIRA? I'm asking if the contributions were deductible, non-deductible, or a combination. (I'm assuming Her Rollover IRA is all untaxed at this point). It is possible His tIRA can be rolled into either His 401k or His 403b. And that Her tIRA and Her Rollover IRA can be rolled into Her 401k. This would leave you with fewer accounts.
What's the story with His 401k and His 403b? Are they at the same job? Are they both active? What percentage is in His 401k and what percentage is in His 403b?
Mortgages: You didn't mention the amount of either mortgage. Have you considered it might be best to just liquidate some of the taxable account and pay down one or the other mortgage? If you do decide to liquidate some, try not to push yourself into the next higher tax bracket which is fairly narrow. If I recall correctly, if you end up in the highest bracket (39.6%) the capital gains rate jumps from 15% to 20% so you surely want to avoid that.
Maybe something like a target date fund from fidelity? Any suggestions?His 401k/403b: It seems like this could be reduced to 1 or 2 funds if you want.
This is a very interesting idea and I will think about it. Thanks!!In the OP's situation, I would encourage him to think of a 529 as a multigenerational tax free family education fund/mini-foundation. Our traditional 529s are 100% invested in stocks and I don't see that changing anytime soon. The consequences of a shortfall are nil, and the time horizon is indefinite or at least 40 years.
Same thing with the Fidelity Roth and Traditional IRA because the 403b/401 are held at Fidelity.
I have thought about paying down the mortgage for the primary.... Any other suggestions on thinking about that? I like having a lot of liquidity while the kids are young, but would also love to pay off the primary before the first child enters college in about 13 years.
Maybe something like a target date fund from fidelity? Any suggestions?
investingholder wrote:Thanks again for all these suggestions. I edited the original post to show the "his 401/403" fund options. I can do the same for hers if that needs fixing, but I like the target 2045 fund.
investingholder wrote:I am undecided about trying to roll these IRAs into 401ks. I thought you said ROTH might not be a great option at the 33% tax bracket. I agree, which is (partly) why we haven't been doing backdoor ROTH the other reason being the existence of the tIRAs. [EDIT: How hard is it to roll an IRA into a 401k? Are there any disadvantages that I am not thinking of?]
Ok please convince me on changing funds. I am listening. I added the options. Thanks!
How hard is it to roll an IRA into a 401k? Are there any disadvantages that I am not thinking of?
Ok please convince me on changing funds. I am listening. I added the options.
I am ok with a bunch of holdings if the long term result is more money. So that is how I look at the capital gains. If it is going to take me over 10 years to make up for capital gains, then I don't know if i can deal with selling it all now.retiredjg wrote:Do you want to end up with only a handful of holdings or is a bunch of different holdings OK with you?
Would you rather sell things with tiny percentages or sell things that have less capital gain?
Important, but again, if it is going to take me over 10 years to recoup a capital gain, maybe not as important.retiredjg wrote:How important is tax-efficiency to you?
How important is the expense ratio?
retiredjg wrote: Here's what I'm thinking.
For the individual stocks - just keep them (but don't reinvest dividends) if you don't mind holding them and if there is any tax cost to sell. The individual stocks seem to be about 13.5% of your overall portfolio. That's OK. We like to see that at a little lower percentage (5% to 10%) but it is not worth the tax cost to "fix it" and the percentage will drop anyway as the portfolio gets larger.
I'd sell the balanced funds (9% Franklin Income Series Class Advisor FRIAX 0.48% [I think this has about 30k in long term gains] and 2% Hartford Balanced Income Fund Class I (HBLIX) 0.89% [I plan to sell this soon]) because they are not tax-efficient and teasing out the stock and bond portions is an unnecessary pain in the rear. However, the 30k in gains gets my attention, although I'm not sure what that means in the overall scheme of things.
I'd probably keep the 7% Franklin Virginia Tax-Free Income Fund Advisor Class FRVZX 0.54% [I plan to sell this soon] if there is any tax cost to selling it and maybe even if there isn't a tax cost to selling it. It pays you a lot, tax free for both fed and state. The duration is relatively short 5.27 years, so the value won't drop a lot when/if interest rates rise. I don't see a great benefit in dumping this one. Do you mind sharing why this one is on the block?
I'd probably like to sell the 3% T. Rowe Price Mid-Cap Growth Fund RPMGX 0.80% [0 basis so entire sale would be subject to long term cap gains] because it is not tax-efficient and the expense ratio is unnecessarily high. The capital gains part does give pause, though. Maybe you could send this one to charity over a couple of years.
I'd like to sell the 4% T. Rowe Price Growth Stock Fund PRGFX 0.70% [0 basis so entire sale would be subject to long term cap gains]
but oddly enough, it has been very tax-efficient. So even though the expense ratio is .7%, it is probably worth keeping since there would be a tax cost to sell it.
There are a couple of other things I'd sell just because they are too tiny to bother with. And a few things I'm not sure what to do with.
Overall.I calculated your taxable account to be 46% stocks and 54% bonds. Do you want to try to get this one account to 70/30 (or whatever you finally settle on) or do you just want your overall portfolio (all 8 accounts) to average out at 70/30?
Thanks. I am still thinking about this. I think I agree with your suggestions on the IRA and will implement it (if possible I need to check if we can roll into the 401 or 403).Have you given more thought to whether you want to start doing back door contributions to Roth IRA?
In His case, it means you'd need to get the tIRA out of the way by either rolling it into His 401k/403b or simply converting it to Roth at 33%. I know I earlier advised against this, but in this case it could be ok since that is only 1% of the portfolio and there will be a benefit in getting to make future contributions to Roth IRA.
In Her case, it means doing something with both Her Rollover IRA and Her tIRA. Since this totals 7% of the portfolio, I would not suggest converting this to Roth - that' just too much.
I'll put a couple of ideas in another post for you to take a look at.
investingholder wrote:Ok this makes sense. I guess I was thinking the Franklin Virginia Tax-Free Income Fund Advisor Class FRVZX could be replaced with a Vanguard Muni Bond fund, though they don't have one for VA. There would not be much tax cost if any to sell from what I have calculated.
If it is going to take me over 10 years to make up for capital gains, then I don't know if i can deal with selling it all now.
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