27 - Need help on getting started on the right foot

[saelen]

I am 27 years old and have finally started taking investing seriously. I have always been decent at saving but cared very little about asset allocation, expense ratios and instead focused mainly on putting money away figuring it would all work out in the end. Through this I have made some poor decisions and stumbled into some lucky ones as well but now have learned from my mistakes and am ready to be a more active participant in my retirement.

Emergency funds: 12 months
Debt: None (House paid off current value 175k)
Tax Filing Status: Single
Tax Rate: 33% Federal, 6.84% Nebraska
State of Residence: Nebraska
Age: 27
Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: ??% of stocks

Total Portfolio: ~70k + 80k in cash (excluding emergency fund)

Rollover IRA at Vanguard
VFIFX - 32k

401k - Vanguard
VFIFX - 36k

Taxable (all sold except these two which have large unrealized gains)
AAPL - 3k
BAC - 1k

10k - IBonds

80k Cash

New Annual Contributions
40k - 401k
60k-80k - Taxable

Other Information
I am the only employee in my S Corp. Current income after expenses is 275k.

Questions:
1) Would you recommend I increase my salary in the S Corp to hit the maximum contribution amount of 49k but pay the increase medicaid and other expenses associated taxes with that?
2) Besides the yearly 3k limit on tax loss harvesting and 401k deductions am I missing any other tax savings I should be looking into?
3) Currently all my investments are in the target retirement vanguard fund. Since the stock matches my desired stock to bond ratio I don't see it as a bad fit but I anticipate changing to potentially a 3 fund portfolio as I increase my taxable investments.
4) Any other recommended investing opportunities besides the 10k yearly in I Bonds
5) Any other advice on where I should go from here? I spent the past six months researching on this website and reading some of the recommended reading books but still feel like I have so much more to learn.


Thanks for all your help!

[Johm221122]

If you are doing so much taxable investing this may help
http://www.bogleheads.org/wiki/Principl ... _Placement
Welcome to forum, hope this bumps you up
John

[covertfantom]

You might be a good candidate for a high deductible health plan which would give you an additional 3k a year of pretax money to invest through an HSA account.

[jbran99]

First off, welcome to the forum and congratulations on putting yourself in a great position to save for your retirement! Your savings rate ($100k - $120k annually) is tremendous!

I don't know enough about S Corps to chime in on that question, but I'll take a shot at the others.

2) Besides the yearly 3k limit on tax loss harvesting and 401k deductions am I missing any other tax savings I should be looking into?

What do you have for Health Insurance? I would consider a High Deductible Health Plan (HDHP Wiki Article). Having an HDHP would allow you to contribute to a Health Savings Account (HSA Wiki Article) which allows you to tax-shelter $3250 as an individual for 2013. Many folks here continue to pay for medical expenses out-of-pocket, but save their receipts and view the HSA as a pseudo-Roth IRA.

How large are the unrealized gains in AAPL and BAC? If you make charitable contributions, you may want to consider donating some of those shares. This allows you to avoid being taxed on the capital gain for those shares.

3) Currently all my investments are in the target retirement vanguard fund. Since the stock matches my desired stock to bond ratio I don't see it as a bad fit but I anticipate changing to potentially a 3 fund portfolio as I increase my taxable investments.

I echo John and suggest you check out that Wiki Article. You have more than enough saved to justify going down the 3-fund (or in your case 3-fund + I Bonds) route. By viewing your IRA, 401k, and taxable accounts as a single portfolio (not 3 individual ones), it makes it easy to see the benefits of putting certain funds in certain places. You will get access to Admiral shares at Vanguard which will lower your expenses slightly.

4) Any other recommended investing opportunities besides the 10k yearly in I Bonds

Is your rollover IRA traditional, or has is been converted to a Roth? If traditional, I would suggest rolling it into your current 401k. That opens up the option of doing a Backdoor Roth IRA. (NOTE: This option technically exists anyway, but doing a Backdoor Roth with an existing traditional IRA opens up those contributions to become taxed. It's much more efficient to move the IRA into the 401k first.) While a Backdoor Roth IRA won't save you on taxes now, it will save on those taxes when it comes times to withdraw the funds. Give the size of contributions going forward, the Roth will likely be a drop in the bucket, but I would still recommend it. You could make a $5,000 non-deductible IRA for 2012 (anytime between now and April 15, 2013) and a $5,500 non-deductible IRA for 2013. Once both are done, convert the whole lot (~$10,500k) to a Roth IRA. You will have to pay tax on any gains, but if you make those contributions within a couple days of each other and convert shortly after, that wouldn't be very much.

You can search the forum for *lots* of threads on the mechanics of how to accomplish this.

5) Any other advice on where I should go from here? I spent the past six months researching on this website and reading some of the recommended reading books but still feel like I have so much more to learn.

Having a 90/10 AA is a bit on the aggressive side, even for someone at 27. I'd suggest a move toward 80/20 between now and when you turn 30.

EDIT: Forgot to increase 2013 IRA Contribution number