Portfolio Help...EJ to Vanguard

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Portfolio Help...EJ to Vanguard

Postby camoaero » Sat Jan 05, 2013 7:47 am

Hello everyone, I’m new to this forum and hoping to get some much-needed advice on my portfolio. I started investing in early 2010, and ended up turning to Edward Jones on the advice of a family member (a decision I’ve come to regret). Now I’m considering handling it on my own with Vanguard. All of the investment information out there is making my head spin, so any suggestions are much appreciated.


Emergency funds: 1 year (living frugally)
Debt: $0
Tax Filing Status: Single (soon to be married)
Tax Rate: 28% Federal, 0% State
State of Residence: SD
Age: 29
Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 30-40%


Current retirement assets: ~$175,000

Taxable
17% cash ING savings account
8% Amcap Fund CL A (AMCPX) (3.50% frt ld) (0.73% exp ratio)
5% American Balanced Fund CL A (ABALX) (3.50% frt ld) (0.62% exp ratio)
8% American Mutual Fund CL A (AMRMX) (3.50% frt ld) (0.62% exp ratio)
7.5% Capital Income Builder Fund CL A (CAIBX) (3.50% frt ld) (0.61% exp ratio)
7% Capital World Growth & Income Fund CL A (CWGIX) (3.50% frt ld) (0.79% exp ratio)
8% Fundamental Investors Fund CL A (ANCFX) (3.50% frt ld) (0.63% exp ratio)
8% Growth Fund of America CL A (AGTHX) (3.50% frt ld) (0.68% exp ratio)
7% Income Fund of America CL A (AMECX) (3.50% frt ld) (0.58% exp ratio)
4% Investment Company of America Fund CL A (AIVSX) (3.50% frt ld) (0.61% exp ratio)
8% New Perspective Fund CL A (ANWPX) (3.50% frt ld) (0.77% exp ratio)
3% New World Fund CL A (NEWFX) (3.50% frt ld) (1.02% exp ratio)

401(k) – 4% company match
3% Delaware Select Growth R (DFSRX) (1.60% exp ratio)
0.5% Dws Rreef Real Estate Securities Fund R (RRRSX) (1.24% exp ratio)

Rollover IRA at Edward Jones
1.5% American Mutual Fund CL A (AMRMX) (3.50% frt ld) (0.62% exp ratio)
1.5% Capital Income Builder Fund CL A (CAIBX) (3.50% frt ld) (0.61% exp ratio)
1.5% Capital World Growth & Income Fund CL A (CWGIX) (3.50% frt ld) (0.79% exp ratio)
1.5% New Perspective Fund CL A (ANWPX) (3.50% frt ld) (0.77% exp ratio)


Contributions

New annual Contributions
$5500 401k ($4400 employee match)
$30-40K taxable

Available funds

Funds available in 401(k)
Alger Mid Cap Growth Institutional R (AGIRX) (1.74% exp ratio)
American Funds Capital World Bond R1 (RCWAX) (1.66% exp ratio)
American Funds Capital World Growth & Income R1 (RWIAX) (1.56% exp ratio)
American Funds Fundamental Investors R1 (RFNAX) (1.43% exp ratio)
American Funds Money Market R3 (RACXX) (0.50% exp ratio)
American Funds New World R1 (RNWAX) (1.82% exp ratio)
American Funds New Economy R1 (RNGAX) (1.61% exp ratio)
Columbia Marsico Growth R (CMWRX) (1.50% exp ratio)
Delaware Select Growth R (DRSRX) (1.60% exp ratio)
Dws Rreef Real Estate Securities R (RRRSX) (1.24% exp ratio)
Federated Kaufmann R (KAUFX) (1.96% exp ratio)
Franklin Templeton 2015 Retirement Target A (FTRAX) (5.75% frt ld) (1.13% exp ratio)
Franklin Templeton 2025 Retirement Target R (FTTRT) (1.38% exp ratio)
Franklin Templeton 2035 Retirement Target R (FTART) (1.41% exp ratio)
Franklin Templeton 2045 Retirement Target R (FTDRT) (1.41% exp ratio)
Franklin Templeton Conservative Allocation R (FTCRX) (1.35% exp ratio)
Franklin Templeton Growth Allocation R (FGTRX) (1.49% exp ratio)
Franklin Templeton Moderate Allocation R (FTMRX) (1.42% exp ratio)
Goldman Sachs High Quality Floating Rate A (GSAMX) (1.50% frt ld) (0.74% exp ratio)
Goldman Sachs High Quality Floating Rate Ir (GTATX) (0.49% exp ratio)
Goldman Sachs Mid Cap Value R (GCMRX) (1.41% exp ratio)
Hartford Capital Appreciation R3 (ITHRX) (1.40% exp ratio)
Lord Abbet Total Return R2 (LTRQX) (1.23% exp ratio)
Mfs Value R1 (MEIGX) (1.69% exp ratio)



Questions:
1. My main concern is what I should do regarding my American Funds portfolio. After reading up on front load funds, I no longer contribute to these. I’ve just been building cash until I decide which direction to go from here. Should I hold onto my American Funds investments and just put future contributions elsewhere, or should I liquidate them all in search of cheaper funds? Now that the front load is a sunk cost, I’m thinking they may be worth holding onto. They seem to perform well, and if I bail, I’d be looking at having to pay capital gains. Is the cheaper expense ratio of Vanguard funds worth cashing out my AF funds?

2. When it comes to AA, should I go to a “three-fund portfolio” philosophy? Do I need to get into the specific categories of funds or just focus on diversified index funds?

3. Is it possible to transfer my American Funds to Vanguard? Or would I have to liquidate everything and move the cash?


I appreciate any and all comments. Thanks in advance for helping me out.


Christopher
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Re: Portfolio Help...EJ to Vanguard

Postby DaveS » Sat Jan 05, 2013 1:02 pm

Yikes, the expense ratios in the 401 are really high. What I see is an opportunity and need to make a fresh start. That means pay a little bit of capital gains now and save a lot of costs down the road. If you can find it, there is a cost calculator over at Vanguard.com. If you run the extra .5% a year through the calculator, you will be staggered by how much appreciation you will lose to costs over a 30 year period, or just do it in your head. Now tax free is about 10% of your total portfolio. You want tax inefficient assets in tax free tax efficient in taxable. In order of tax efficiency worst to best; taxable bonds, REIT, Small Value, Large Value, Large Blend, International/Emerging due to the foreign tax credit. From the lousy choices in the 401 I would select the 2025 target retirement because of it's relatively low cost, it is going to be mostly taxable bonds. I don't know what the lowest cost fund "floating rate" is or I might have suggested it. Then I would roll the IRA over to Vanguard and pick a low cost bond fund like Total Bond or Intermediate Investment Grade. You might want to add TIPS when you have more money.
I would basically dump everything in taxable and go over to Vanguard, or at least buy low cost etf's. The three fund portfolio is a good place to start so you would limit taxable to two funds, a US Total Stock Market fund or ETF and a Total International fund or ETF in the ratio you are comfortable with, and your there. If you want to tilt a bit to small or REIT you can, but the latter is not very tax efficient, so I would not at this time. I might tilt a bit to small, or int. small, now or in the future. Small cap stocks are about 10% of the total market so a 10% allocation is a significant overweight. Dave
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Re: Portfolio Help...EJ to Vanguard

Postby livesoft » Sat Jan 05, 2013 1:18 pm

If you are automatically re-investing dividends, please stop that.

Instead of contributing $4400 to your 401(k), can you contribute $17,500 or whatever the max will be? You certainly have enough assets to do so.

I think what you do will depend on what your tax situation will be after you are married, but then again maybe not. For example, if your spouse will be working at a low-paying job, they could have all of their income contributed to a 401(k) and thus have no extra tax burden.

I would sell all funds in taxable that have losses and long-term gains. For the positions with short-term gains, I would wait until they went long-term, then I would sell them.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Portfolio Help...EJ to Vanguard

Postby retiredjg » Sat Jan 05, 2013 1:32 pm

Welcome to the forum! No doubt about it, your 401k is ugly. But with a 4% match, they are essentially paying the high costs by giving you the match. You need to use the 401k and you need to fill it up each year. Unless, your soon to be spouse has a better one and you can't fill both (but it appears you could) fill both).

The front loads in your taxable account are indeed sunk costs. That means that money is gone forever and you will never get it back. But this does NOT mean you should keep the funds. It actually means that now the decision is whether to keep the high expense funds for the next 50 or 60 years or replace them with low cost funds. The answer is pretty clear to me - you need to get rid of them and use lower cost funds for the rest of your investing career.

But, the tax cost of selling also comes into play. Even if you should get rid of them all, it does not mean you should get rid of them all in 1 tax year. Unless you are a "yank off the bandaid" type, you might want to take some time to accomplish this.

You have not indicated that you are putting money into an IRA each year. Are you eligible to deduct your contributions to a traditional IRA (I expect the answer is no). Are you eligible to contribute directly to Roth IRA? Do you know if either of the answers will change once married?

You say you are soon to be married. Do you mean this tax year? If so, some of these decisions may involve what your intended is bringing into the marriage. If the wedding in this month, it could mean one thing. If the wedding is in December, some things might need to be decided now without looking at how things will be after marriage.

As for your desired 90/10 stock to bond ratio, I would encourage you to consider at least 80/20 instead. This is partly because you are almost 30 years old and partly because some of us believe that every portfolio needs at least 20% bonds.

I think the place to start fixing this mess (sorry :| )is in your taxable account. The first thing to find out is whether you have gains or losses and whether the gains or losses are long term or short term. This will not be a question of whether you have more money than you put in (although that is a clue). But even if you have what appears to be a gain, it may have already been taxed (yearly dividends). So what you need to find out for each fund in the taxable account is the "unrealized gain or loss". For gains, you need to determine if the gain is long term or short term.

You could also start a rollover of that IRA from EJ to Vanguard. Call VG to get that done. Just put it in money market until you know what you actually want to buy.

Do you think you'll be at your present employer for a lifetime or something shorter?
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Re: Portfolio Help...EJ to Vanguard

Postby retiredjg » Sat Jan 05, 2013 2:20 pm

Is it possible that you will use some or all of the money in the taxable account for a house or some other short term goal?

If that money is for retirement, then the best choice in your 401k is going to be bonds (the Lord Abbot Total Return fund and/or the high quality floating rate thing), at least for the immediate future. If the money in taxable is for something other than retirement, the best choice in your 401k will be something else (likely the Franklin Templeton 2035 Retirement Target R (FTART) (1.41% exp ratio).
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Re: Portfolio Help...EJ to Vanguard

Postby camoaero » Sat Jan 05, 2013 2:22 pm

Gentleman, thank you so much for the advice. I think the consensus is to turn and run from EJ...which is what I was leaning towards. I have read that it is sometimes wise to sell off slowing, but I think that I might be more of a "yank the band-aid" off kind of guy. I really just want to sort this out. And it is indeed a mess. But would it be advisable to sell off slowly just to get a more averaged out price? Or am I thinking too hard on that. I never considered to break out whether the gains/losses where long or short term.....that's new to me, so I'll do some research on that. Although, my funds have done fairly well the last couple years, with the exception of one I believe....or maybe that's just spin from my FA.

As far as and IRA and 401(k) go....the only tax free contributions that I make are to my 401(k), and I only put in enough to get the match. My reasoning (however erroneous) is this....I don't like the idea of tying my money up until I'm 65 (or whatever that number is). Granted, I'm obviously going to need funds at that age...but I prefer to have the option to liquidate if I ever felt like it.

I am planning to get married this summer, and my fiancé makes a decent living....but I don't think it will bump our bracket at all.

A roth isn't an option for me....and I definitely do not plan on being with my current employer for life.

Thanks again for the insight....sorry if I missed any questions.

Christopher
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Re: Portfolio Help...EJ to Vanguard

Postby camoaero » Sat Jan 05, 2013 2:25 pm

retiredjg wrote:Is it possible that you will use some or all of the money in the taxable account for a house or some other short term goal?

If that money is for retirement, then the best choice in your 401k is going to be bonds (the Lord Abbot Total Return fund and/or the high quality floating rate thing), at least for the immediate future. If the money in taxable is for something other than retirement, the best choice in your 401k will be something else (likely the Franklin Templeton 2035 Retirement Target R (FTART) (1.41% exp ratio).



All of my investments are pretty much for retirement....whenever that may be. I don't plan on using any of it for short term goals.
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Re: Portfolio Help...EJ to Vanguard

Postby retiredjg » Sat Jan 05, 2013 2:44 pm

camoaero wrote:I never considered to break out whether the gains/losses where long or short term.....that's new to me, so I'll do some research on that.

The difference is this. A long term gain will be taxed at 15%. A short term gain will be taxed at 28%. Hmmm. Which would you prefer? Even if you are a yank off the bandaid kind of person, you might want to wait a few months for those short term gains to turn into long term gains so you would pay less tax to untangle your mess.


Although, my funds have done fairly well the last couple years, with the exception of one I believe....or maybe that's just spin from my FA.

Even if your funds have done well, your unrealized gains may be less than it appears. That is because some of your gains in the past years may have already been taxed in the form of dividends or some other kind of annual distribution.


Forget to post this the first time. Wiki article link: Paying a tax cost to switch funds


As far as and IRA and 401(k) go....the only tax free contributions that I make are to my 401(k), and I only put in enough to get the match. My reasoning (however erroneous) is this....I don't like the idea of tying my money up until I'm 65 (or whatever that number is). Granted, I'm obviously going to need funds at that age...but I prefer to have the option to liquidate if I ever felt like it.

Yes, this is erroneous for several reasons. Your money is tied up till age 59.5 but if you need the money earlier, there are not-too-difficult ways to work around that. But the money in the 401k from where you retire is available at retirement if you retire in the year you reach age 55 - so that money might be available as early as age 54.

You don't want to be paying 28% now when you could be paying much less later. That is why almost everybody should be filling up his/her 401k.


I am planning to get married this summer, and my fiancé makes a decent living....but I don't think it will bump our bracket at all.

It is very possible that getting married will actually drop your tax bracket. Have you checked yet? Do you know how? Compare your taxable income (line 43 of Form 1040) to this chart to see if your bracket really is 28%. Add in her taxable income and see if your bracket drops to 25%. Be sure you compare your single to you'all married filing jointly. :D


A roth isn't an option for me....

If you filled up your 401k, that might change.


...and I definitely do not plan on being with my current employer for life.

More reason to use the 401k - when you leave, you can rollover that money to a nice IRA or your next 401k where you have better choices.
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Re: Portfolio Help...EJ to Vanguard

Postby BL » Sat Jan 05, 2013 3:04 pm

I urge you to read the Wiki and some of the recommended books, especially on the advantages of tax-deferred funds and also the "Backdoor Roth IRA" for high income folks without IRAs.
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Re: Portfolio Help...EJ to Vanguard

Postby TimDex » Sat Jan 05, 2013 3:13 pm

FWIW, transferring an EJ taxable account to Vanguard is possible -- all the American funds will end up in a brokerage account where you can sell them at your leisure. tim
"All man's miseries derive from not being able to sit quietly in a room alone. " -- Pascal
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Re: Portfolio Help...EJ to Vanguard

Postby camoaero » Sat Jan 05, 2013 5:43 pm

retiredjg wrote:
camoaero wrote:I never considered to break out whether the gains/losses where long or short term.....that's new to me, so I'll do some research on that.

The difference is this. A long term gain will be taxed at 15%. A short term gain will be taxed at 28%. Hmmm. Which would you prefer? Even if you are a yank off the bandaid kind of person, you might want to wait a few months for those short term gains to turn into long term gains so you would pay less tax to untangle your mess.


I will definitely sort that out before selling. It looks like this process will be a lot more involved than I imagined.


retiredjg wrote:
As far as and IRA and 401(k) go....the only tax free contributions that I make are to my 401(k), and I only put in enough to get the match. My reasoning (however erroneous) is this....I don't like the idea of tying my money up until I'm 65 (or whatever that number is). Granted, I'm obviously going to need funds at that age...but I prefer to have the option to liquidate if I ever felt like it.

Yes, this is erroneous for several reasons. Your money is tied up till age 59.5 but if you need the money earlier, there are not-too-difficult ways to work around that. But the money in the 401k from where you retire is available at retirement if you retire in the year you reach age 55 - so that money might be available as early as age 54.

You don't want to be paying 28% now when you could be paying much less later. That is why almost everybody should be filling up his/her 401k.


That's a solid point....I'll look into what the max contribution for my 401(k) is.


retiredjg wrote:
I am planning to get married this summer, and my fiancé makes a decent living....but I don't think it will bump our bracket at all.

It is very possible that getting married will actually drop your tax bracket. Have you checked yet? Do you know how? Compare your taxable income (line 43 of Form 1040) to this chart to see if your bracket really is 28%. Add in her taxable income and see if your bracket drops to 25%. Be sure you compare your single to you'all married filing jointly. :D


I've looked into this. My income is in the middle of my bracket......her's isn't enough to put me over, but I still make more than the max for a joint filing at 25%.
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Re: Portfolio Help...EJ to Vanguard

Postby camoaero » Sat Jan 05, 2013 5:45 pm

BL wrote:I urge you to read the Wiki and some of the recommended books, especially on the advantages of tax-deferred funds and also the "Backdoor Roth IRA" for high income folks without IRAs.


I just received "The Bogleheads' Guide to Investing"...I'm looking forward to digging into it.
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Re: Portfolio Help...EJ to Vanguard

Postby camoaero » Sat Jan 05, 2013 5:46 pm

TimDex wrote:FWIW, transferring an EJ taxable account to Vanguard is possible -- all the American funds will end up in a brokerage account where you can sell them at your leisure. tim


Thanks for the info...that would definitely smooth out the transition.
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Re: Portfolio Help...EJ to Vanguard

Postby camoaero » Sun Jan 06, 2013 8:28 am

retiredjg wrote:
camoaero wrote:I never considered to break out whether the gains/losses where long or short term.....that's new to me, so I'll do some research on that.

The difference is this. A long term gain will be taxed at 15%. A short term gain will be taxed at 28%. Hmmm. Which would you prefer? Even if you are a yank off the bandaid kind of person, you might want to wait a few months for those short term gains to turn into long term gains so you would pay less tax to untangle your mess.


I realized a while ago that I had made a mistake going with EJ and front load funds. So it's been well over a year since I've put any further money (with the exception of dividends) into these funds. So I should be good to sell them now....no?
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Re: Portfolio Help...EJ to Vanguard

Postby retiredjg » Sun Jan 06, 2013 11:24 am

camoaero wrote: So I should be good to sell them now...

That sounds right to me. You may have some short term gains as the result of the reinvested dividends. Not sure I'd wait a year for those to become long.
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Re: Portfolio Help...EJ to Vanguard

Postby retiredjg » Sun Jan 06, 2013 3:31 pm

If you were to sell all the American Funds***, this could be a portfolio idea to consider.

Taxable 90.5%
52.5% Vanguard Total Stock Market Index
28% Vanguard Total International Index
10% Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX)

401(k)
4% Lord Abbet Total Return R2 (LTRQX) (1.23% exp ratio)

Rollover IRA at Vanguard 6%
6% Vanguard Total Bond Market Index

This portfolio idea is 80% stocks, 20% bonds, with 35% of stock (28% of portfolio) in International. For the first year or even a few years, all your contributions in the 401k would probably go to bonds. I don't know what your match would be on a $17,500 contribution, so I can't really be specific. As the percentage of the bond fund in the 401k builds up to 20%, you can sell the muni bond fund in taxable.

After the muni bond fund in taxable is gone, you could start also using either Columbia Marsico Growth R (CMWRX) (1.50% exp ratio) or Delaware Select Growth R (DRSRX) (1.60% exp ratio) in the 401k as a proxy for a large cap US stocks (neither is exactly that since they both contain some international). To accommodate the international in those funds, you could drop the "apparent" international percentage (in taxable) from 35% to 30% if you want.

Whatever your contributions might be, you would send 52% to US stocks, 28% to international stocks, and 20% to bonds. So you might not ever get rid of the muni fund in taxable and you might not ever need anything more than just a bond fund in your 401k.

All of this will change when you get married, so I would not do anything but some basics (just the bond fund in your 401k) until then because it is all going to change anyway.


***Someone has mentioned moving your American Funds to Vanguard and then selling them. This has the benefit of your not being "out of the market" for the 2 to 4 weeks that moving accounts can take. So a lot of people think this is a good idea.

However, once the money is at Vanguard, they will have no records on what your "basis" is - how much has been invested either directly or by reinvesting dividends. So Vanguard will not be able to help you with what your gains and losses are and you won't know how to report anything on your taxes. So you have to get that information from EJ in one way or another. You can sell your stuff there and they will provide the info (I think at the end of the tax year). Or you can gather the info before you move the funds to Vanguard.

Since this is a taxable account, it may not take much time to move cash from taxable at EJ to a taxable account at VG. It may just be the time of a check in the mail from EJ to you to Vanguard. (IRAs can take more time to move). So for a clean record of your gains and losses, you might just want to do that - sell, move cash to Vanguard, and buy what you want. The other benefit this could have is that you won't have to pay Vanguard a fee to sell each of those American Funds.

I don't really know which approach is best. You should investigate each before making this decision. I believe I would sell and go to cash at EJ and move cash to VG - just to keep the records of the gains and losses clean and easy.
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Re: Portfolio Help...EJ to Vanguard

Postby camoaero » Sun Jan 06, 2013 4:07 pm

retiredjg wrote:This portfolio idea is 80% stocks, 20% bonds, with 35% of stock (28% of portfolio) in International. For the first year or even a few years, all your contributions in the 401k would probably go to bonds. I don't know what your match would be on a $17,500 contribution, so I can't really be specific. As the percentage of the bond fund in the 401k builds up to 20%, you can sell the muni bond fund in taxable.


This is pretty much what I've decided to do.....I've already moved my 401(k) into Lord Abbet Total Return R2 and stopped the dividends on my EJ account from being reinvested. My entire EJ account is long-term gains (except dividend reinvestments) so I've started the process of liquidating those in preparation for transfer to Vanguard. I'm about to max out my 401(k) (still with a 4% match) and was doing research on which fund to go with once I reached my desired allocation for bonds (I'm still not sure about 20%....I was thinking 15%)....and I agree that sticking with the Delaware Select Growth is one of the best of the bunch. And because of the lack of low cost funds, I've inquired about the possibility of in-service distribution within my 401(k).....I doubt they offer it, but it's worth a shot. Also, maxing out my 401(k) should make me eligible for a Roth.....so I should be able to fill that up as well.

Thanks so much for the help. I started reading "The Bogleheads guide to Investing" this morning and I'm halfway through....it's providing quite a bit of insight.

Christopher
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Re: Portfolio Help...EJ to Vanguard

Postby camoaero » Sun Jan 06, 2013 4:13 pm

retiredjg wrote:You can sell your stuff there and they will provide the info (I think at the end of the tax year).


When I liquidate the AF funds, I'm looking at having to pay capital gains on just over 20K......will that be collected at through EJ at the time that I sell them or when I do my taxes at the end of the year?
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Re: Portfolio Help...EJ to Vanguard

Postby retiredjg » Sun Jan 06, 2013 4:21 pm

camoaero wrote: My entire EJ account is long-term gains (except dividend reinvestments) so I've started the process of liquidating those in preparation for transfer to Vanguard.

If being "out of the market" is a concern, you could move a percentage at a time. Maybe only sell and move 1/3rd and do it 3 times. If the market starts taking a screaming uphill climb during the transition, only 1/3rd of your money would be out in the cold.


I'm about to max out my 401(k) (still with a 4% match) and was doing research on which fund to go with once I reached my desired allocation for bonds...and I agree that sticking with the Delaware Select Growth is one of the best of the bunch.

You certainly will not need this fund before you get married....at which point, all things will change and you'll need to formulate a new plan. :D


And because of the lack of low cost funds, I've inquired about the possibility of in-service distribution within my 401(k).....I doubt they offer it, but it's worth a shot.

The law does not allow in-service withdrawals of your elective deferrals before age 59.5.
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Re: Portfolio Help...EJ to Vanguard

Postby retiredjg » Sun Jan 06, 2013 4:28 pm

camoaero wrote:When I liquidate the AF funds, I'm looking at having to pay capital gains on just over 20K......will that be collected at through EJ at the time that I sell them or when I do my taxes at the end of the year?

When you pay your taxes a year from now. So you might want to keep a little in cash for the taxes. You could even send in an estimated amount to the IRS after you sell. Or you could increase your withholding on your salary to make up for part.

The IRS does have some rules about not withholding enough. Your taxes are supposed to be paid more or less all along so that you are not paying a big percentage of what is due in April. There is some leeway that they allow, but I don't know exactly what it is.

It's very hard to judge how much tax will actually be due because your filing status will be married filing jointly next time. Your bracket could stay the same or go down. So your tax burden might be very different a year from now than you expect. I'd have a little money available, just in case.

I'm guessing if you grossly underpay this year, they won't pounce on you because your status will have changed and that makes paying the right amount hard to estimate. Notice I said this is a guess.
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Re: Portfolio Help...EJ to Vanguard

Postby camoaero » Sun Jan 06, 2013 4:31 pm

retiredjg wrote:The law does not allow in-service withdrawals of your elective deferrals before age 59.5.


From what I've read, there are circumstances where it's allowed below the age of 59.5....entirely dependent on the rules of your specific plan. My specific plan did not elaborate on this...so I'm trying to elicit further information from them.
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Questions about "The Bogleheads' Guide to Investing"

Postby Taylor Larimore » Sun Jan 06, 2013 4:49 pm

camoaero wrote:
I just received "The Bogleheads' Guide to Investing"...I'm looking forward to digging into it.


Comoaero:

I have been reading your well-presented Opening Post and subsequent replies. I am a co-author of The Bogleheads' Guide to Investing. If you have questions about our book, post them here and I will try to answer.

Best wishes.
Taylor
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Re: Portfolio Help...EJ to Vanguard

Postby camoaero » Sun Jan 06, 2013 4:50 pm

Specifically.....some plans allow you to roll over the employer match and after tax contributions. By law, employee contributions can't be rolled over this way before 59.5. Or have I been ill-advised on this?
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Re: Questions about "The Bogleheads' Guide to Investing"

Postby camoaero » Sun Jan 06, 2013 4:53 pm

Taylor Larimore wrote:
camoaero wrote:
I just received "The Bogleheads' Guide to Investing"...I'm looking forward to digging into it.


Comoaero:

I have been reading your well-presented Opening Post and subsequent replies. I am a co-author of The Bogleheads' Guide to Investing. If you have questions about our book, post them here and I will try to answer.

Best wishes.
Taylor


I've burned through half your book today.......I'll probably owe you a large portion of my portfolio in 20 years....thanks so much for your help.

Christopher
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Uncollectable

Postby Taylor Larimore » Sun Jan 06, 2013 5:33 pm

I've burned through half your book today......I'll probably owe you a large portion of my portfolio in 20 years....thanks so much for your help.

Christopher:

I am 88 years old so it is very unlikely I will be around to collect. :wink:

Best wishes.
Taylor
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Re: Portfolio Help...EJ to Vanguard

Postby retiredjg » Sun Jan 06, 2013 5:48 pm

The more I think about it, I suppose it is possible that EJ will give you the opportunity to have some money withheld for taxes. If they do, you could have a percentage withheld just so you don't come up short next April.

Don't do this in the IRA - that would be an early withdrawal and carry both tax and a penalty.
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Re: Portfolio Help...EJ to Vanguard

Postby retiredjg » Sun Jan 06, 2013 5:55 pm

camoaero wrote:
retiredjg wrote:The law does not allow in-service withdrawals of your elective deferrals before age 59.5.

From what I've read, there are circumstances where it's allowed below the age of 59.5....entirely dependent on the rules of your specific plan. My specific plan did not elaborate on this...so I'm trying to elicit further information from them.

If you are making after-tax contributions to your 401k (not to be confused with Roth 401k as that is something different), those can be rolled out to IRA or Roth IRA before the age of 59.5.

But your elective deferrals (the $17.5k you can put in this year) cannot be withdrawn (that I know of) without an exception such as first time house, medical stuff, and a few other things I can't remember right now.

You might have heard something about a SIMPLE IRA - after 2 years, you can roll your elective deferrals out of a SIMPLE IRA at work to your own IRA and use the funds of your choice.
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Re: Portfolio Help...EJ to Vanguard

Postby retiredjg » Sun Jan 06, 2013 6:01 pm

camoaero wrote:Specifically.....some plans allow you to roll over the employer match and after tax contributions. By law, employee contributions can't be rolled over this way before 59.5. Or have I been ill-advised on this?

Sorry, I didn't see this before I wrote the last reply.

Yes, after tax contributions and employer match can be rolled out (although I've not yet heard of employee match coming out on its own, but that doesn't mean it can't). Your elective deferrals (the thing you called "employee contributions") cannot come out while still working at that employer before 59.5.

The terminology is difficult here because the after tax contributions are technically "employee contributions" and what you think of as "employee contributions" are not - they are "elective deferrals".
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Re: Portfolio Help...EJ to Vanguard

Postby retiredjg » Sun Jan 06, 2013 6:06 pm

Rather than make such large contributions to your taxable account, you could see if your plan allows after-tax contributions ("employee contributions") and if so, if in-service withdrawals are allowed and if so, how many a year.

Your plan has such poor choices, I didn't mention this earlier. But if you can make these after-tax contributions and if you can roll the money out 3 or 4 times a year (directly to Roth IRA), it might be worthwhile to do this because the money would not be tied up in high cost funds for too long before it gains its freedom and flies away to the Roth IRA of your choice. :happy

Of course, all of this might change in the summer....I'm not sure how complicated you want to get before you know what your next plan will be.
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Re: Portfolio Help...EJ to Vanguard

Postby Default User BR » Sun Jan 06, 2013 6:33 pm

retiredjg wrote:Yes, after tax contributions and employer match can be rolled out (although I've not yet heard of employee match coming out on its own, but that doesn't mean it can't).

It definitely can. MyMegaCorp allows it, with the slight caveat that they will suspend matching for six months if you do.


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Re: Portfolio Help...EJ to Vanguard

Postby retiredjg » Sun Jan 06, 2013 6:53 pm

Default User BR wrote:
retiredjg wrote:Yes, after tax contributions and employer match can be rolled out (although I've not yet heard of employee match coming out on its own, but that doesn't mean it can't).

It definitely can. MyMegaCorp allows it, with the slight caveat that they will suspend matching for six months if you do. Brian

That's a little bit of an incentive. I take it that does not happen if you roll out your after-tax money and the match together?
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Re: Portfolio Help...EJ to Vanguard

Postby Default User BR » Sun Jan 06, 2013 8:54 pm

retiredjg wrote:
Default User BR wrote:
retiredjg wrote:Yes, after tax contributions and employer match can be rolled out (although I've not yet heard of employee match coming out on its own, but that doesn't mean it can't).

It definitely can. MyMegaCorp allows it, with the slight caveat that they will suspend matching for six months if you do. Brian

That's a little bit of an incentive. I take it that does not happen if you roll out your after-tax money and the match together?

Why wouldn't it? You have the option to take them separately, so it's your choice to take the distribution from matching funds.


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Re: Portfolio Help...EJ to Vanguard

Postby retiredjg » Sun Jan 06, 2013 9:02 pm

Default User BR wrote:
retiredjg wrote:
Default User BR wrote:
retiredjg wrote:Yes, after tax contributions and employer match can be rolled out (although I've not yet heard of employee match coming out on its own, but that doesn't mean it can't).

It definitely can. MyMegaCorp allows it, with the slight caveat that they will suspend matching for six months if you do. Brian

That's a little bit of an incentive. I take it that does not happen if you roll out your after-tax money and the match together?

Why wouldn't it? You have the option to take them separately, so it's your choice to take the distribution from matching funds. Brian

So if you take your contributions but leave the match, they don't take away the match for 6 months. Sounds like the best of all worlds since you might not want the match to come out anyway. You are one lucky dude, huh?
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Re: Portfolio Help...EJ to Vanguard

Postby Default User BR » Mon Jan 07, 2013 3:23 am

retiredjg wrote:
Default User BR wrote:Why wouldn't it? You have the option to take them separately, so it's your choice to take the distribution from matching funds. Brian

So if you take your contributions but leave the match, they don't take away the match for 6 months. Sounds like the best of all worlds since you might not want the match to come out anyway. You are one lucky dude, huh?

Yes, employee after-tax and employer match are treated differently. I spend some time pondering things in the past when we discussed pro-rata distributions. I think possibly the suspension of match on the employer contribution makes that a restricted distribution and avoids pro-rata. Alan might know.

There are many good things about the MyMegaCorp plan. Some things I would change.


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Re: Portfolio Help...EJ to Vanguard

Postby camoaero » Thu Jan 24, 2013 1:38 pm

For starters I'd like to offer my sincerest thanks to everyone who offered advice on how to deal with my mess of a portfolio. I've enacted most of the changes, and here's where I stand.

Taxable
60% Vanguard Total Stock Market Index Fund
29% Vanguard Total International Stock Index Fund

401(k) – 4% company match
5% Lord Abbet Total Return R2 (LTRQX) (1.23% exp ratio)

Rollover IRA
6% Vanguard Intermediate-Term Investment-Grade Fund Investor Shares (once rollover is paperwork is processed)

In addition to the above changes I have maxed out my 401(k) contribution and I will be maxing out a ROTH this week [upping my 401(k) as well as joint filing will put my income within the limits]. As to my AA, I know most on this forum opt for a higher bond percentage, but I feel comfortable with a 90/10 split at my age. I think I can handle the swings given my time frame for investing.

I do have a couple follow up questions. Currently I'm above my desired AA for bonds, so I'm considering my stock fund options within my 401(k). I was previously using Delaware Select Growth R (DFSRX) (1.60% exp ratio), which seems like one of the best I have to choose from. Given that a low-cost index fund isn't an option in my 401(k), what other main factors should I consider outside of past performance (which ensures nothing) and expense ratio? Secondly, I'm considering if converting my Trad IRA to a ROTH is a wise option for me. With the 20K in capital gains that I accrued this year from switching my accounts to Vanguard, this would likely have to wait until 2014 as it would probably topple me back into the 28% bracket. But it's something that I'm considering.

Again, thanks for all the help...

...christopher
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Re: Portfolio Help...EJ to Vanguard

Postby retiredjg » Thu Jan 24, 2013 2:22 pm

I think it is a toss up between that one and the Columbia Marsico Growth R (CMWRX) (1.50% exp ratio). But I'll make another plug for bonds. If you used 80/20 you wouldn't have this problem and the ER is lower. :D

Conversion of your tIRA to Roth IRA in the 28% bracket is not something I would do. There is a possibility you will drop into the 25% bracket once married. I'd either wait to consider it again (if in the 25% bracket) or not do a conversion at all. Ordinarily, I don't suggest conversions even in the 25% bracket, but since it is a small portion of your portfolio it might be worth it to get it out of the way so you can do back door contribution to Roth IRA. With recent changes in tax law, I suspect the back door may be available for quite awhile.

Did you ever get a definitive answer on whether you can make after-tax employee contributions to your plan? Again, this is not the same thing as Roth 401k.
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Re: Portfolio Help...EJ to Vanguard

Postby camoaero » Thu Jan 24, 2013 4:38 pm

retiredjg wrote:I think it is a toss up between that one and the Columbia Marsico Growth R (CMWRX) (1.50% exp ratio). But I'll make another plug for bonds. If you used 80/20 you wouldn't have this problem and the ER is lower. :D

Conversion of your tIRA to Roth IRA in the 28% bracket is not something I would do. There is a possibility you will drop into the 25% bracket once married. I'd either wait to consider it again (if in the 25% bracket) or not do a conversion at all. Ordinarily, I don't suggest conversions even in the 25% bracket, but since it is a small portion of your portfolio it might be worth it to get it out of the way so you can do back door contribution to Roth IRA. With recent changes in tax law, I suspect the back door may be available for quite awhile.

Did you ever get a definitive answer on whether you can make after-tax employee contributions to your plan? Again, this is not the same thing as Roth 401k.


Everything that I read about AA in relation to bonds is that it's all about your appetite for risk. As quoted by Warren Buffett in an early 2012 article, Shelby Cullom Davis said, "Bonds promoted as offering risk-free returns are now priced to deliver return-free risk." While this very well may be anecdotal evidence, I think that it bears weight. I don't feel as if I need bonds to even out the ups and downs of my portfolio if I'm willing to ride them out. Granted, I've only been investing heavily for 4-5 years, so I haven't been through a tough bear market, but I think I'd keep my head...time will tell I suppose. And if I'm missing an angle on this...please correct me.

I ran the numbers for this year and with a joint filing I should be in the 25% bracket...barely. But converting my tRIA to a ROTH would most likely put me over. Whichever way I decide to go it would have to wait until next year. I'm just having trouble finding hard details on the pros and cons. It seems to come down to which tax bracket I'm currently in vs. which tax bracket I think I might be in down the road.

As for my 401(k), I'm having a pretty difficult time getting any definitive information. I was directed towards an EJ advisor who apparently is the contact for our plan and she was of little help. I know there is a ROTH option on our plan, but with such shoddy options for funds, I'd rather not put any more money into that plan that I have to....given other options. What would be the benefit of any after-tax contributions to my plan?
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Re: Portfolio Help...EJ to Vanguard

Postby kenyan » Thu Jan 24, 2013 5:20 pm

camoaero wrote:What would be the benefit of any after-tax contributions to my plan?


If this an option in your plan, the benefit would be to roll the after-tax contributions out of your plan and into a sensibly invested Roth IRA.
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Re: Portfolio Help...EJ to Vanguard

Postby pingo » Thu Jan 24, 2013 5:41 pm

camoaero wrote:I ran the numbers for this year and with a joint filing I should be in the 25% bracket...barely. But converting my tRIA to a ROTH would most likely put me over.


Well, you never know. Come tax time you might realize you have more wiggle room than you thought and you can begin to make it happen!
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Re: Portfolio Help...EJ to Vanguard

Postby camoaero » Thu Jan 24, 2013 5:46 pm

kenyan wrote:
camoaero wrote:What would be the benefit of any after-tax contributions to my plan?


If this an option in your plan, the benefit would be to roll the after-tax contributions out of your plan and into a sensibly invested Roth IRA.


Ahh...absolutely. But I assume that option is plan specific....as far as rolling out contributions prior to leaving the company (pre or post tax)? And would that go towards the govt allotted $5500 a year contribution towards a ROTH?
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Re: Portfolio Help...EJ to Vanguard

Postby retiredjg » Thu Jan 24, 2013 6:09 pm

camoaero wrote:Ahh...absolutely. But I assume that option is plan specific....as far as rolling out contributions prior to leaving the company (pre or post tax)? And would that go towards the govt allotted $5500 a year contribution towards a ROTH?

We are only talking about "post-tax employee contributions" (not Roth 401k). This is something that is not limited by the $17.5k limit each year. Many plans have this, but most folks don't know it.

If your plan allows these types of contributions it will probably (but not necessarily) let you roll the money out to Roth IRA at least once a year. Maybe several times a year. This would not affect your allotted $5.5k to IRA/Roth IRA because it would not be a contribution, but a rollover.
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Re: Portfolio Help...EJ to Vanguard

Postby pingo » Thu Jan 24, 2013 6:24 pm

camoaero wrote:
kenyan wrote:
camoaero wrote:What would be the benefit of any after-tax contributions to my plan?


If this an option in your plan, the benefit would be to roll the after-tax contributions out of your plan and into a sensibly invested Roth IRA.


Ahh...absolutely. But I assume that option is plan specific....as far as rolling out contributions prior to leaving the company (pre or post tax)? And would that go towards the govt allotted $5500 a year contribution towards a ROTH?


The option is plan specific.

If regular rollovers of 401k after-tax contribution exist in your plan, there is a $51,000 limit of combined contributions. That means:

$17,500 max combined Roth/Traditional 401k personal contributions
+ $--,--- Employer Match
+ $--,--- Catchup contributions (ages 50+)
+ $--.--- After-Tax Contributions
< $51,000 Combined limit

If you can save beyond the personal 401k contributions limits ($17,500/yr combined limit for Traditional and/or Roth 401k), you would hopefully be able make 401k "after-tax contributions" (not the same as 401k Roth contributions).

Traditional 401k contributions are tax-deferred.
Roth 401k contributions are after-tax, but tax-free thereafter.
401k after-tax contributions are after-tax, but not tax-free; earnings are tax as income upon withdrawal.

With 401k after-tax contributions do not affect the combined limit for Traditional and/or Roth 401k contribution limits, and they do not affect IRA contribution limits. If your plan allows regular in-service rollovers of the after-tax amounts (at least annually), those amounts (and only those amounts) can be moved directly into a Roth IRA. Any earnings would be taxed when rolled over, which is why you must be able to perform regular rollovers to avoid large tax hits or the risk of pushing you into another tax bracket. The rollover to a Roth account converts it to Roth tax-free assets forever and it does not affect IRA contributions limits.

Your 401k Tax-Deferred Savings Plan Document would probably have this information. I assume it would first have some sections that are labeled, for example, "Pre-Tax Contributions", then "Roth 401k Contributions", then "Catchup Contributions" and then "After-Tax Contributions". It might say something similar to this:

401k After-Tax Contributions perhaps wrote:In addition to your pre-tax and/or Roth 401(k) contributions, the Plan accepts after-tax contributions...After-tax contributions will be held in a separate after-tax contribution account established on your behalf and will be invested in accordance with your investment directives...


You might have to look deeper for another section concerning "In-Service Withdrawls" or something of the sort. You'll look for text stating something like:

In-Service Withdrawls perhaps wrote:...You may withdraw all or a portion of your after-tax contribution and rollover contributions plus earnings at any time/once per quarter once per year/etc. ...


Please note that I am quoting a random 401k document I found online. I do not personally have this option and your Plan Document will vary. Regular rollovers of 401k after-tax contribution are preferable to putting those amounts in a taxable account. If you cannot make regular rollovers into your Roth IRA, I wouldn't bother with 401k after-tax contributions.
Last edited by pingo on Wed Oct 23, 2013 10:19 am, edited 3 times in total.
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Re: Portfolio Help...EJ to Vanguard

Postby camoaero » Thu Jan 24, 2013 11:50 pm

That would definitely be worth looking into....I'll see what I can find out. Thanks.
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Re: Portfolio Help...EJ to Vanguard

Postby retiredjg » Fri Jan 25, 2013 10:02 am

camoaero wrote:Everything that I read about AA in relation to bonds is that it's all about your appetite for risk... I don't feel as if I need bonds to even out the ups and downs of my portfolio if I'm willing to ride them out.

Smoothing out the ups and downs is only one function of bonds in a portfolio. There are times, sometimes even decades, when bonds simply make more money than stocks. When that happens, it's nice to have more than 10% of your portfolio in the better performer.

So yes, it is about risk. But no, it is not all about risk.
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