Need help with portfolio review & tax efficient investments

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Topic Author
bandoba
Posts: 224
Joined: Thu Apr 08, 2010 12:51 am

Need help with portfolio review & tax efficient investments

Post by bandoba »

Hello Everyone,

I am looking for advice on simplifying my portfolio and how to make tax efficient investments going forward.

Emergency funds: 6 months of expenses
Debt: Credit cards paid in full every month, mortgage balance 615K with 3.625%
Tax Filing Status: Married Filing Jointly
Tax Rate: 28% Federal, 9.3% State
State of Residence: California
Age: 39 (both)
Kids: 2, age 8 (both)
Desired Asset allocation: 65% stocks / 35% bonds (Bonds = approx Age - 5)
Desired International allocation: 30% (would like to know if that's too much)
Total Portfolio: Low 7 figures including cash available (see below) for investing

Current Retirement (and Kids' Education) assets

Kids' Education
2% I-Bonds (10K per child)

Taxable - 39%
17% Total Stock Mkt Idx Adm (VTSAX)
1% Emerging Mkts Stk Idx Adm (VEMAX)
2% Small-Cap Val Idx Admiral (VSIAX)
9% Tot Intl Stock Ix Admiral (VTIAX)
2% REIT Index Fund Adm (VGSLX)
4% Cash in Prime Money Market (VMMXX)
4% Cash in CA Int-Term Tax Exempt (VCADX)

His 401k at Fidelity - 14%
Company matches 100% for first 1K, 50% for rest, max unto 3K
12% PIMCO Total Return Inst (PTTRX, 0.46%)
2% SPRTN 500 Index Inst (FXSIX, 0.05%)

His Rollover IRA at Vanguard - 7%
1% Emerging Mkts Stk Idx Adm (VEMAX)
0.5% Mid-Cap Index Fund Inv (VIMSX)
2% Small-Cap Val Idx Admiral (VSIAX)
1% Total Bond Mkt Index Adm (VBTLX)
1% Inflation-Protect Sec Inv (VIPSX)
0.6% S-T Investment-Grade Inv (VFSTX)

Her 401k from pervious employer A at Fidelity - 2%
2% PIMCO Total Return Inst (PTTRX, 0.46%)

Her 401k from pervious employer B at Fidelity - 36%
13% SPRTN TOTAL MKT INDX FID ADVANTAGE CLASS (FSTVX, 0.07%)
0.4% FIDELITY SELECT GOLD (FSAGX, 0.90%)
6% Individual stocks in BrokarageLink
13% PIMCO Total Return Inst (PTTRX, 0.46%)
4% FIDELITY CASH RESEVE (FDRXX)[/color]

Her 401k from current employer at ADP - 0.5%
0.5% SSgA Cash Series U.S. Government Fund - Class L (ADP doesn't list ticket symbol and/or exp ratio)

Other accounts at Matthews Funds
2% Matthews India Fund (MINDX) (1.18%)

Future Contributions
Max allowed amount in his 401k (employer will match unto 3K)
Max allowed amount in her 401k (employer will match 100% unto 4%)

I would also like to add following starting 2014
$5.5K in his (backdoor) Roth IRA
$5.5 in her (backdoor) Roth IRA
10K in I-Bonds for him
10K in I-Bonds for her
TBD% in 529 accounts for 2 kids
Remaining funds go to taxable for retirement

Funds available in his 401(k) at Fidelity
American Funds Fundamental Investors Fund Class R-6 / RFNGX / 0.31%
Spartan® 500 Index Fund - Institutional Class / FXSIX / 0.04%
T. Rowe Price Institutional Large Cap Core Growth Fund / TPLGX / 0.65%
Vanguard Windsor II Fund Admiral Shares / VWNAX / 0.27%
Baron Growth Fund Institutional Shares / BGRIX / 1.06%
Perkins Mid Cap Value Fund Class I / JMVAX / 0.73%
T. Rowe Price Mid-Cap Growth Fund / RPMGX / 0.8%
Royce Low-Priced Stock Fund Institutional Class / RLPIX / 1.19%
Fidelity® Diversified International Fund - Class K / FDIKX / 0.84%
Vanguard International Value Fund Investor Shares / VTRIX / 0.41%
Fidelity® Balanced Fund - Class K / FBAKX / 0.48%
Fidelity Freedom K® 2000 Fund / FFKBX / 0.39%
Fidelity Freedom K® 2005 Fund / FFKVX / 0.46%
Fidelity Freedom K® 2010 Fund / FFKCX / 0.50%
Fidelity Freedom K® 2015 Fund / FKVFX / 0.51%
Fidelity Freedom K® 2020 Fund / FFKDX / 0.54%
Fidelity Freedom K® 2025 Fund / FKTWX / 0.58%
Fidelity Freedom K® 2030 Fund / FFKEX / 0.59%
Fidelity Freedom K® 2035 Fund / FKTHX / 0.62%
Fidelity Freedom K® 2040 Fund / FFKFX / 0.62%
Fidelity Freedom K® 2045 Fund / FFKGX / 0.63%
Fidelity Freedom K® 2050 Fund / FFKHX / 0.64%
Fidelity Freedom K® Income Fund / FFKAX / 0.39%
PIMCO Total Return Fund Institutional Class / PTTRX / 0.46%
Fidelity® Institutional Money Market - Money Market Portfolio - Class I / FMPXX / 0.21%

Funds available in her current employer 401(k) at ADP
SSgA Cash Series U.S. Government Fund - Class L / Unknown / 0.75%
PIMCO Total Return Fund - Class A / PTTAX / 0.85%
T. Rowe Price Retirement Income R / RRTIX / 1.07%
T. Rowe Price Retirement 2010 R / RRTAX / 1.10%
T. Rowe Price Retirement 2020 R / RRTBX / 1.19%
T. Rowe Price Retirement 2030 R / RRTCX / 1.25%
T. Rowe Price Retirement 2040 R / RRTDX / 1.28%
T. Rowe Price Retirement 2050 R / RRTFX / 1.28%
BlackRock Equity Dividend Inv A LW / MDDVX / 1.00%
RS Large Cap Alpha A Load Waived / GPAFX / 0.98%
SSgA S&P 500 Index Securities Lending Series Fund - Class IX / Unknown / 0.71%
Alger Capital Appreciation Instl / ALARX / 1.19%
Victory Established Value A Load Waived / VETAX / 1.06%
SSgA S&P MidCap Index Non-Lending Series Fund - Class J / Unknown / 0.72%
Goldman Sachs Growth Opportunities Fund - Class A Web Report / GGOAX / 1.35%
Victory Small Company Opportunity A LW / SSGSX / 1.34%
SSgA Russell Small Cap Index Securities Lending Series Fund - Class VIII / Unknown / 0.97%
Lord Abbett Developing Growth A LW / LAGWX / 1.11%
MainStay ICAP International R2 / ICEYX / 1.38%
Janus Overseas S / JIGRX / 0.93%
SSgA International Index Securities Lending Series Fund - Class VIII / Unknown / 0.99%


Funds available in her employer A 401(k) at Fidelity
Vanguard Target Retirement 2055 Trust I / 0.0825%
Vanguard Target Retirement 2050 Trust I / 0.0825%
Vanguard Target Retirement 2045 Trust I / 0.0825%
Vanguard Target Retirement 2040 Trust I / 0.0825%
Vanguard Target Retirement 2035 Trust I / 0.0825%
Vanguard Target Retirement 2030 Trust I / 0.0825%
Vanguard Target Retirement 2025 Trust I / 0.0825%
Vanguard Target Retirement 2020 Trust I / 0.0825%
Vanguard Target Retirement 2015 Trust I / 0.0825%
Vanguard Target Retirement 2010 Trust I / 0.0825%
Vanguard Target Retirement Income Trust I / 0.0825%
Vanguard Extended Market Index Fund Institutional Shares / VIEIX / 0.12%
Vanguard Institutional Index Fund Institutional Plus Shares / VIIIX / 0.02%
Vanguard Total International Stock Index Fund Institutional Shares / VTSNX / 0.13%
Vanguard Total Bond Market Index Fund Institutional Plus Shares / VBMPX / 0.05%
Fidelity® Low-Priced Stock Fund - Class K / FLPKX / 0.76%
Dodge & Cox Stock Fund / DODGX / 0.52%
Fidelity® Growth Company Fund - Class K / FGCKX / 0.70%
Fidelity® Contrafund® - Class K / FCNKX / 0.69%
Fidelity® Worldwide Fund / FWWFX / 1.11%
Dodge & Cox International Stock Fund / DODFX / 0.64%
Lazard Emerging Markets Equity Fund Class Institutional / LZEMX / 1.12%
TCM Small-Mid Cap Growth / TCMMX / 0.95%
Artisan International Fund Class Institutional / APHIX / 0.99%
Artisan Small Cap Value Fund Institutional Shares / APHVX / 1.02%
Perkins Mid Cap Value Separate Account / 0.5525%
Fidelity® Balanced Fund - Class K / FBAKX / 0.48%
PIMCO Total Return Fund Institutional Class / PTTRX / 0.46%
Galliard Stable Value Fund / 0.31%
BrokarageLink

Funds available in her employer B 401(k) at Fidelity
Vanguard Institutional Index Fund Institutional Share / VINIX / 0.04%
Vanguard Windsor II Fund Admiral Shares / 0.27%
Spartan® Extended Market Index Fund - Fidelity Advantage Class / FSEVX / 0.07%
Vanguard Small-Cap Growth Index Fund Institutional Shares / VSGIX / 0.08%
AllianzGI NFJ Small-Cap Value Fund Institutional Class / PSVIX / 0.86%
American Funds EuroPacific Growth Fund Class R-6 / RERGX / 0.50%
American Funds American Balanced Fund Class R-6 / RLBGX / 0.30%
Vanguard Target Retirement 2010 Fund Investor Shares / VTENX / 0.16%
Vanguard Target Retirement 2015 Fund Investor Shares / VTXVX / 0.16%
Vanguard Target Retirement 2020 Fund Investor Shares / VTWNX / 0.16%
Vanguard Target Retirement 2025 Fund Investor Shares / VTTVX / 0.17%
Vanguard Target Retirement 2030 Fund Investor Shares / VTHRX / 0.17%
Vanguard Target Retirement 2035 Fund Investor Shares / VTTHX / 0.18%
Vanguard Target Retirement 2040 Fund Investor Shares / VANG TARGET RET 2040 / VFORX / 0.18%
Vanguard Target Retirement 2045 Fund Investor Shares / VANG TARGET RET 2045 / VTIVX / 0.18%
Vanguard Target Retirement 2050 Fund Investor Shares / VANG TARGET RET 2050 / VFIFX / 0.18%
Vanguard Target Retirement 2055 Fund Investor Shares / VANG TARGET RET 2055 / VFFVX / 0.18%
Vanguard Target Retirement Income Fund Investor Shares / VTINX / 0.16%
PIMCO Total Return Fund Institutional Class / PTTRX / 0.46%
Managed Income Portfolio II Class 1 / Unknown / Unknown
BrokerageLink

Questions
  1. I would like to simplify the portfolio and move to 4 fund portfolio. I would have to sell Small Cap, Mid Cap holdings and Emerging Markets funds and wondering if I what's the best way to go about it given the tax implications.
  2. I would like to hold REIT in tax deferred account as recommended. But currently it is in taxable account because originally I started with only taxable account. Since I bought into REIT few years back, I'm wondering whether selling what I have and buying it again at this point makes sense.
  3. Given our high tax brackets, I think it is important to direct future investments in 529 plans, (backdoor) Roth IRAs and I-bonds before I invest it in taxable account. Is that right thinking?
  4. In order to open backdoor Roth IRA for myself, I first have to get rid of my rollover IRA account at Vanguard. I was thinking of rolling over my IRA to my 401K at Fidelity. Since I am already over allocated in Bonds, I need guidance in selecting stock fund for the rolled over funds.
  5. Just to confirm, when I rollover my IRA into 401K at Fidelity, it won't be a taxable event though that requires selling funds in Vanguard and buying funds in Fidelity. Is that right?
  6. I have almost all the Bonds portion invested in PIMCO fund because earlier I didn't have many options in terms of Bonds. Would it be better to exchange at least part of PIMCO with Total Bond Index which is now available in my wife's current 401K?
  7. I started buying Spartan Total Market Index in wife's 401K to adjust equities allocation. Can I consider that fund equivalent to Vanguard TSM?
  8. I am thinking that the new incoming funds in wife's 401K should go to Vanguard Total International fund till I reach desired AAP. Then it can go to TBM + TSIM as per AAP. Does that make sense?
  9. I believe it is recommended to open 2 separate 529 plans for 2 kids. I am planning to open it at Vanguard and funding with 50K each. I read that two of us can gift up to 13*2 = 26K per child per year. Given that shall I postpone remaining 24K funding to following year or is it better to invest it in lumpsum when I open the 529 accounts?
  10. I would like to put our emergency fund in either I-Bonds or in tax exempt funds. Do you guys see any issue with that approach?
  11. My employer offers Roth 401K in addition to traditional 401K. Would it be easier to go for that rather than backdoor Roth IRA?
Thanks!
Last edited by bandoba on Mon Jan 27, 2014 11:24 pm, edited 4 times in total.
User avatar
Duckie
Posts: 9777
Joined: Thu Mar 08, 2007 1:55 pm

Re: Need help with portfolio review & tax efficient investme

Post by Duckie »

bandoba, you want an AA of 65% stocks, 35% bonds, with 30% of stocks in international. That breaks down to 45% US stocks, 20% international stocks, and 35% bonds. Here is a possible retirement portfolio:

Taxable at Treasury Direct -- 0%
0% 
I Savings Bonds

Taxable at Vanguard -- 32%
12% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.06%)
20% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.18%)

His current 401k at Fidelity -- 25% <-- If allowed, move His Rollover IRA here.
25% (FXSIX) Spartan 500 Index Fund Institutional Class (0.04%)

Her current 401k at Fidelity -- 41% <-- If allowed, move Her old 401k here.
6% (VIEIX) Vanguard Extended Market Index Fund Institutional Shares (0.12%) <-- Roughly 80% large caps (500 Index) plus 20% mid/small caps (Extended Market) makes up the total US stock market.
35% (VBMPX) Vanguard Total Bond Market Index Fund Institutional Plus Shares (0.05%)

Other at Matthews Funds -- 2% <-- What kind of account is this? If taxable liquidate and move to Vanguard or use to fund I Savings Bonds. If TIRA move to current 401k (or convert). If Roth IRA move to Vanguard.

His backdoor Roth IRA at Vanguard -- 0%
0% (VGSIX) Vanguard REIT Index Fund Investor Shares (0.24%)

Her backdoor Roth IRA at Vanguard -- 0%
0% (VGSIX) Vanguard REIT Index Fund Investor Shares (0.24%)

My comments:
-- This ignores the tax cost of selling in taxable.
-- This has TISM in taxable to take advantage of the Foreign tax credit.
-- Vanguard has found that between 20% and 40% of stocks in international to be the "sweet spot". See the discussion and the Vanguard paper link. Vanguard splits the difference and uses 30% in their Target Retirement and LifeStrategy funds.
-- You've got a lot of moving parts and it's going to take awhile to get everything into place. Don't rush things.

Your questions:
1. I would like to simplify the portfolio and move to 4 fund portfolio. I would have to sell Small Cap, Mid Cap holdings and Emerging Markets funds and wondering if I what's the best way to go about it given the tax implications.
-- Sell everything with a loss and everything with a gain up to the loss, making it even. Then decide how much in taxes you are willing to pay each year on the rest, selling long-term gains first.

2. I would like to hold REIT in tax deferred account as recommended. But currently it is in taxable account because originally I started with only taxable account. Since I bought into REIT few years back, I'm wondering whether selling what I have and buying it again at this point makes sense.
-- If you want to overweight REITs (it's already contained in TSM at the market weight), then put it in the backdoor Roth IRAs.

3. Given our high tax brackets, I think it is important to direct future investments in 529 plans, (backdoor) Roth IRAs and I-bonds before I invest it in taxable account. Is that right thinking?
-- I agree.

4. In order to open backdoor Roth IRA for myself, I first have to get rid of my rollover IRA account at Vanguard. I was thinking of rolling over my IRA to my 401K at Fidelity. Since I am already over allocated in Bonds, I need guidance in selecting stock fund for the rolled over funds.
-- See above.

5. Just to confirm, when I rollover my IRA into 401K at Fidelity, it won't be a taxable event though that requires selling funds in Vanguard and buying funds in Fidelity. Is that right?
-- Right. You are selling inside the plan and rolling one tax-sheltered plan over to another. You have to list the rollover on Form 1040 but it's not taxable.

6. I have almost all the Bonds portion invested in PIMCO fund because earlier I didn't have many options in terms of Bonds. Would it be better to exchange at least part of PIMCO with Total Bond Index which is now available in my wife's current 401K?
-- Yes, see above.

7. I started buying Spartan Total Market Index in wife's 401K to adjust equities allocation. Can I consider that fund equivalent to Vanguard TSM?
-- Yes, but she should roll that old plan into her current plan if possible.

8. I am thinking that the new incoming funds in wife's 401K should go to Vanguard Total International fund till I reach desired AAP. Then it can go to TBM + TSIM as per AAP. Does that make sense?
-- No, TISM should go in taxable first because of the Foreign Tax Credit.

9. I believe it is recommended to open 2 separate 529 plans for 2 kids. I am planning to open it at Vanguard and funding with 50K each. I read that two of us can gift up to 13*2 = 26K per child per year. Given that shall I postpone remaining 24K funding to following year or is it better to invest it in lumpsum when I open the 529 accounts?
-- Can't help here.

10. I would like to put our emergency fund in either I-Bonds or in tax exempt funds. Do you guys see any issue with that approach?
-- That's fine.

11. My employer offers Roth 401K in addition to traditional 401K. Would it be easier to go for that rather than backdoor Roth IRA?
-- I think you should do the backdoor Roth IRAs because they give you other options. However, read The Case Against Roth 401(k) and Roth 401(k) for People Who Contribute the Max.

Something to think about.
Topic Author
bandoba
Posts: 224
Joined: Thu Apr 08, 2010 12:51 am

Re: Need help with portfolio review & tax efficient investme

Post by bandoba »

Duckie,

Thanks for the review and detailed comments. I am digesting what you have said and will post my follow up questions soon.
Topic Author
bandoba
Posts: 224
Joined: Thu Apr 08, 2010 12:51 am

Re: Need help with portfolio review & tax efficient investme

Post by bandoba »

Duckie, here are my follow up questions. I would appreciate your comments.
Duckie wrote: Taxable at Treasury Direct -- 0%
0% 
I Savings Bonds
What's the reason for 0% in I-Bonds? Or are you just allocation as we start making the changes? Once I start putting 20K in I-Bonds, this will be greater than 0%. BTW, do I consider this amount as part of my bonds allocation?

Taxable at Vanguard -- 32%
12% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.06%)
20% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.18%)
Duckie wrote: His current 401k at Fidelity -- 25% <-- If allowed, move His Rollover IRA here.
25% (FXSIX) Spartan 500 Index Fund Institutional Class (0.04%)
I hope I can rollover my IRA into my 401K. I thought Spartan 500 Index wouldn't be similar to TSM. I guess your recommendation is based on the closet match to TSM?
Duckie wrote: Her current 401k at Fidelity -- 41% <-- If allowed, move Her old 401k here.
6% (VIEIX) Vanguard Extended Market Index Fund Institutional Shares (0.12%) <-- Roughly 80% large caps (500 Index) plus 20% mid/small caps (Extended Market) makes up the total US stock market.
35% (VBMPX) Vanguard Total Bond Market Index Fund Institutional Plus Shares (0.05%)
Couple of questions:
What's the reason to move old 401K into new one? Is it for funds availability or for some other reason? As per Fidelity, we can maintain it w/o any additional fees.
My wife may change jobs soon and then the new 401K itself might need a roll over. Given that, would it make sense to rollover older 401K into new one?
If I decide to actually move old 401K, I will have to sell all the PIMCO. I'm trying to understand reasoning behind selling off the all of it. Is it due to the high ER or it is because of the difference between holdings of TBM v/s PIMCO?
Duckie wrote: Other at Matthews Funds -- 2% <-- What kind of account is this? If taxable liquidate and move to Vanguard or use to fund I Savings Bonds. If TIRA move to current 401k (or convert). If Roth IRA move to Vanguard.
This is taxable and I had opened it because it was expensive to buy MINDX in Vanguard/Fidelity. I will check on that.
Duckie wrote: His backdoor Roth IRA at Vanguard -- 0%
0% (VGSIX) Vanguard REIT Index Fund Investor Shares (0.24%)

Her backdoor Roth IRA at Vanguard -- 0%
0% (VGSIX) Vanguard REIT Index Fund Investor Shares (0.24%)
Yeah, Roth IRA would be good place to put REITs.
Duckie wrote: My comments:
-- This ignores the tax cost of selling in taxable.
-- This has TISM in taxable to take advantage of the Foreign tax credit.
-- Vanguard has found that between 20% and 40% of stocks in international to be the "sweet spot". See the discussion and the Vanguard paper link. Vanguard splits the difference and uses 30% in their Target Retirement and LifeStrategy funds.
-- You've got a lot of moving parts and it's going to take awhile to get everything into place. Don't rush things.
Thanks for the explanation on TISM percentage. BTW, in terms of implementation, do you recommend to do it over the period of months or do it in lumpsum? Guess it is subject to standard lumpsum v/s DCA argument?
Duckie wrote: Your questions:
1. I would like to simplify the portfolio and move to 4 fund portfolio. I would have to sell Small Cap, Mid Cap holdings and Emerging Markets funds and wondering if I what's the best way to go about it given the tax implications.
-- Sell everything with a loss and everything with a gain up to the loss, making it even. Then decide how much in taxes you are willing to pay each year on the rest, selling long-term gains first.

2. I would like to hold REIT in tax deferred account as recommended. But currently it is in taxable account because originally I started with only taxable account. Since I bought into REIT few years back, I'm wondering whether selling what I have and buying it again at this point makes sense.
-- If you want to overweight REITs (it's already contained in TSM at the market weight), then put it in the backdoor Roth IRAs.

3. Given our high tax brackets, I think it is important to direct future investments in 529 plans, (backdoor) Roth IRAs and I-bonds before I invest it in taxable account. Is that right thinking?
-- I agree.
One question on I-Bonds. I believe one can buy only 5K worth of I-Bonds using and another 5K would be paper bonds. So is it recommended to convert paper bonds immediately after purchase in order to simplify the management?
Duckie wrote: 4. In order to open backdoor Roth IRA for myself, I first have to get rid of my rollover IRA account at Vanguard. I was thinking of rolling over my IRA to my 401K at Fidelity. Since I am already over allocated in Bonds, I need guidance in selecting stock fund for the rolled over funds.
-- See above.
Got it!
Duckie wrote: 5. Just to confirm, when I rollover my IRA into 401K at Fidelity, it won't be a taxable event though that requires selling funds in Vanguard and buying funds in Fidelity. Is that right?
-- Right. You are selling inside the plan and rolling one tax-sheltered plan over to another. You have to list the rollover on Form 1040 but it's not taxable.
Thanks for the confirmation.
Duckie wrote: 6. I have almost all the Bonds portion invested in PIMCO fund because earlier I didn't have many options in terms of Bonds. Would it be better to exchange at least part of PIMCO with Total Bond Index which is now available in my wife's current 401K?
-- Yes, see above.
Okay, I think I would do that once I understand the reasoning to sell off all PIMCO.
Duckie wrote: 7. I started buying Spartan Total Market Index in wife's 401K to adjust equities allocation. Can I consider that fund equivalent to Vanguard TSM?
-- Yes, but she should roll that old plan into her current plan if possible.

8. I am thinking that the new incoming funds in wife's 401K should go to Vanguard Total International fund till I reach desired AAP. Then it can go to TBM + TSIM as per AAP. Does that make sense?
-- No, TISM should go in taxable first because of the Foreign Tax Credit.
Okay, makes sense.
Duckie wrote: 9. I believe it is recommended to open 2 separate 529 plans for 2 kids. I am planning to open it at Vanguard and funding with 50K each. I read that two of us can gift up to 13*2 = 26K per child per year. Given that shall I postpone remaining 24K funding to following year or is it better to invest it in lumpsum when I open the 529 accounts?
-- Can't help here.
No worries, I will wait for someone else to reply and/or check other 529 related threads.
Duckie wrote: 10. I would like to put our emergency fund in either I-Bonds or in tax exempt funds. Do you guys see any issue with that approach?
-- That's fine.
Thanks.
Duckie wrote: 11. My employer offers Roth 401K in addition to traditional 401K. Would it be easier to go for that rather than backdoor Roth IRA?
-- I think you should do the backdoor Roth IRAs because they give you other options. However, read The Case Against Roth 401(k) and Roth 401(k) for People Who Contribute the Max.

Something to think about.
Okay. Thanks for the links. I will check those out.
Topic Author
bandoba
Posts: 224
Joined: Thu Apr 08, 2010 12:51 am

Re: Need help with portfolio review & tax efficient investme

Post by bandoba »

Just found a thread discussing PIMCO Total Return (PTTRX) v/s TBM. Good info there.
http://www.bogleheads.org/forum/viewtop ... 1&t=108451

Probably that's the reason you are recommending to move to TBM?
Topic Author
bandoba
Posts: 224
Joined: Thu Apr 08, 2010 12:51 am

Re: Need help with portfolio review & tax efficient investme

Post by bandoba »

More questions about wife's old 401K plan and rolling it over:
The old plan already holds substantial amount in Spartan Total Market Index (FSTVX). Given the low ER and the fund being similar to TSM (I could be wrong here and would love to know otherwise), do you see any issue assuming this as contribution towards TSM?
User avatar
Duckie
Posts: 9777
Joined: Thu Mar 08, 2007 1:55 pm

Re: Need help with portfolio review & tax efficient investme

Post by Duckie »

bandoba wrote:What's the reason for 0% in I-Bonds? Or are you just allocation as we start making the changes? Once I start putting 20K in I-Bonds, this will be greater than 0%. BTW, do I consider this amount as part of my bonds allocation?
At the moment it's 0%. When you buy some that will change the percentages. I listed accounts I thought you should have even though their current balances are zero (like the backdoor Roth IRAs). I Bonds are bonds, so consider them that way unless you have them earmarked only for your emergency fund.
I hope I can rollover my IRA into my 401K. I thought Spartan 500 Index wouldn't be similar to TSM. I guess your recommendation is based on the closet match to TSM?
The Spartan 500 Index is the best/cheapest fund in His 401k by far. It's also a close match to TSM. When Extended Market gets added in Her 401k it completes the Index, i.e. 80% 500 Index (or Institutional Index) plus 20% Extended Market roughly equals Total Stock Market. The two together complete the TSM.
What's the reason to move old 401K into new one? Is it for funds availability or for some other reason? As per Fidelity, we can maintain it w/o any additional fees.
Her current 401k has some outstanding choices and great expense ratios. You only showed a few options in her old 401k and only one, Spartan Total Market, had a good expense ratio. The current plan is better than the old plan.
My wife may change jobs soon and then the new 401K itself might need a roll over. Given that, would it make sense to rollover older 401K into new one?
She may change jobs in the future. Right now the current plan is better than the old plan. It's not that difficult to roll things over.
If I decide to actually move old 401K, I will have to sell all the PIMCO. I'm trying to understand reasoning behind selling off the all of it. Is it due to the high ER or it is because of the difference between holdings of TBM v/s PIMCO?
In Her old 401k PIMCO Total Return has an e.r. of 0.46%. That is the cheapest e.r for that fund. (In some plans it costs more.) Total Return is a good fund, but it is actively managed and not cheap. In Her current 401k Vanguard TBM has an e.r of 0.05%. That beats PIMCO.
This is taxable and I had opened it because it was expensive to buy MINDX in Vanguard/Fidelity. I will check on that.
Why do you want this fund at all? 2% of assets is negligible.
n terms of implementation, do you recommend to do it over the period of months or do it in lumpsum?

This isn't an issue because you're not really changing your AA, you're just moving things around, buying here, selling there. As soon as you shift assets, buy what you want. There's no need to wait.

One question on I-Bonds. I believe one can buy only 5K worth of I-Bonds using and another 5K would be paper bonds. So is it recommended to convert paper bonds immediately after purchase in order to simplify the management?

At this time you can buy $10K per person (per ssn) per year online (non-paper) through Treasury Direct. The only way to get an extra $5K in paper bonds is to pay extra on your taxes and get them as part of your refund. It's complicated and doesn't always work.

Just found a thread discussing PIMCO Total Return (PTTRX) v/s TBM. Good info there. Probably that's the reason you are recommending to move to TBM?

The primary reason is the expense ratio, 0.46% vs 0.05%. The other stuff is a consideration but not the main reason.

More questions about wife's old 401K plan and rolling it over:
The old plan already holds substantial amount in Spartan Total Market Index (FSTVX). Given the low ER and the fund being similar to TSM (I could be wrong here and would love to know otherwise), do you see any issue assuming this as contribution towards TSM?

Spartan Total Market is almost exactly the same as Vanguard Total Stock Market. If you insist on keeping Her old 401k that will mean she won't be able to buy enough of the cheap TBM in Her current 401k, which means the two of you will have to use PIMCO Total Return which is a lot more expensive.

Her current 401k has two really inexpensive funds, Extended Market & TISM (ignoring the Target Retirement funds) and two really, really inexpensive funds, Institutional Index & TBM. She has a great plan. Take advantage of it by rolling over the assets from her old 401k.
Topic Author
bandoba
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Joined: Thu Apr 08, 2010 12:51 am

Re: Need help with portfolio review & tax efficient investme

Post by bandoba »

Thanks for the answers and explanations. It sounds like a good plan and I will start executing it ASAP. Finally, I have couple of general investment questions:
I have seen recommendation for TIPS, Small cap or precious metals in some cases. Can you tell me when would one need such additional exposure? In couple of places, I read that portfolios with high balance might benefit from such investments and I'm wondering what's considered as high balance portfolio?
Topic Author
bandoba
Posts: 224
Joined: Thu Apr 08, 2010 12:51 am

Re: Need help with portfolio review & tax efficient investme

Post by bandoba »

Duckie, hope you are doing well. You helped me with my portfolio last year. I staretd implementing the changes but as you mentioned there were lot of moving parts and it was overwhelming. I'm trying to sort it out now and requesting advice on followup questions. Last year, I switched to buying stocks in my 401K but couldn't rollover the 401Ks due to change mDW's change of jobs. Anyways, I'm back on it now and hope to finish it off as soon as I can.

I have updated original post to reflect latest numbers and changes especially in 401K plans for my wife. The changes are in blue. Here are specific topics where I am looking for help:

401K changes
My wife changed jobs and so her both 401K plans at Fidelity have different restrictions as she is not active employee. Both these plans don't allow rolling over another plan. In addition plan for employer B (with about 33% of total portfolio) now charges fees to maintain the account. Its about 100 per year for now but can change. The new (current) employer offers 401K plan at ADP but the funds are generally expensive as listed above. With all that, I need help on following questions:
  1. Do you recommend keeping her 401K plans at fidelity?
  2. If it is recommended to rollover to let's say IRA, I would loose an opportunity to open new backdoor roth IRA for her. Given high tax bracket I think we should try to keep that option open. Does that make sense?
  3. Finally, if I rollover employer B 401K plan, wouldn't I loose the benefit of buying Spartan Total Market Index funds at low price? Or am I looking at it in a wrong way and instead I should consider it as a good opportunity to harvest the profit?
Rollover of my Vanguard IRA to 401K at Fidelity:
This would mean I have to sell existing funds including Total Bond Index. So in terms of bonds allocation I would be left with only PIMCO funds in 3 different 401Ks. Isn't having all bonds portion in one fund like PIMCO with high expense ratio a concern?

Investing available cash:
I was thinking of following plan but I would like to know if there is better way to go about it.
  1. Purchase 40K in I-Bonds before 31 Jan 2014. This includes buying 10K for both of us and 10K per child in their minor linked account. This would allow me to take advantage of I-Bonds tax deferred account. Though if I continue to buy for each child, this accumulate balance on child's name would be a problem when we have to get loan for education?
  2. I would use total 11K for Roth IRA 2013's contribution and another 11K for Roth IRA 2014 contribution. This is assuming I complete rollover of my existing IRA into 401K.
  3. [*/]
  4. Open 2 new 529 accounts in Vanguard, 3K each.
  5. Invest rest of the amount in Total Internal Index as the current percentage (9%) is much lower than AAP (20%).
  6. Once the cash is used, I continue to use funds in CA Tax Exempt MMA to buy additional Total Internal Index. I had use CA Tax Exempt fund just to park the money.
Future contributions
  1. I guess monthly investments still need to go to Total Internal as till I have 20% in that fund. Question - is this right or do I start splitting the monthly investments in TSM and Total International funds as per AAP?
  2. His 401K contributions go to Spartan 500 fund in Fidelity
  3. Her 401K contributions - for now, I am putting it into SSgA Cash Series U.S. Government Fund but this is real grey area where I need some advice
Would like to know if this makes sense or can be done in any other way.
User avatar
Duckie
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Re: Need help with portfolio review & tax efficient investme

Post by Duckie »

bandoba, it's too bad you didn't make some moves last year before your wife changed jobs. Her small old "A" 401k is better than her large old "B" 401k.

Best options in His 401k at Fidelity:
(FXSIX) Spartan 500 Index Fund Institutional Class (0.04%)
(PTTRX) PIMCO Total Return Fund Institutional Class (0.46%)

Best options in Her current 401k at ADP (you didn't list their expense ratios but I'll bet the SSgA funds are the cheapest):
SSgA S&P 500 Index
SSgA S&P Mid Cap Index
SSgA Russell Small Cap Index
SSgA International Index
SSgA US Government Fund <--best pick for now

Best individual options in Her old "A" 401k at Fidelity:
(VIIIX) Vanguard Institutional Index Fund Institutional Plus Shares (0.02%)
(VIEIX) Vanguard Extended Market Index Fund Institutional Shares (0.12%)
(VTSNX) Vanguard Total International Stock Index Fund Institutional Shares (0.13%)
(VBMPX) Vanguard Total Bond Market Index Fund Institutional Plus Shares (0.05%) <--best pick for now
The Vanguard Target Retirement funds are also an option.

Best individual options in Her old "B" 401k at Fidelity:
(VINIX) Vanguard Institutional Index Fund Institutional Shares (0.04%)
(FSEVX) Spartan Extended Market Index Fund Advantage Class (0.08%)
(RERGX) American Funds EuroPacific Growth Fund R6 Class (0.50%)
(PTTRX) PIMCO Total Return Fund Institutional Class (0.46%)
The Vanguard Target Retirement funds are also an option.

Your revised opening post is confusing. Sometimes you use dollars and sometimes you use percentages. What percentages do you currently have?
  • Cash for investing -- ??% (minus what goes to the kids' accounts)
    Taxable -- ??%
    Taxable at Matthews -- ??%
    His 401k at Fidelity -- ??%
    Her 401k at ADP -- ??%
    Her old "A" 401k at Fidelity -- ??%
    Her old "B" 401k at Fidelity -- ??%
    His Rollover IRA at Vanguard -- ??%
    Total equals 100%
Your questions:
Do you recommend keeping her 401K plans at fidelity?
  • Yes. I don't like paying fees but $100 a year is worth keeping low cost funds and allowing for the backdoor Roth.
If it is recommended to rollover to let's say IRA, I would loose an opportunity to open new backdoor roth IRA for her. Given high tax bracket I think we should try to keep that option open. Does that make sense?
  • Yes.
Finally, if I rollover employer B 401K plan, wouldn't I loose the benefit of buying Spartan Total Market Index funds at low price? Or am I looking at it in a wrong way and instead I should consider it as a good opportunity to harvest the profit?
  • I don't see Spartan Total Market in the B 401k. But the real issue is that it has a few cheap funds that are better than the current 401k. Plus not rolling over allows for the backdoor Roth.
Rollover of my Vanguard IRA to 401K at Fidelity: This would mean I have to sell existing funds including Total Bond Index. So in terms of bonds allocation I would be left with only PIMCO funds in 3 different 401Ks. Isn't having all bonds portion in one fund like PIMCO with high expense ratio a concern?
  • It's not optimum, but you work with what you have. If you want the backdoor Roth you have to move the Rollover IRA (or pay taxes on each conversion).
Purchase 40K in I-Bonds before 31 Jan 2014. This includes buying 10K for both of us and 10K per child in their minor linked account. This would allow me to take advantage of I-Bonds tax deferred account. Though if I continue to buy for each child, this accumulate balance on child's name would be a problem when we have to get loan for education?
  • Assets in a child's name will affect financial aid. I don't know how a linked account works.
I would use total 11K for Roth IRA 2013's contribution and another 11K for Roth IRA 2014 contribution. This is assuming I complete rollover of my existing IRA into 401K.
  • Fine.
Open 2 new 529 accounts in Vanguard, 3K each.
  • Fine.
Invest rest of the amount in Total Internal Index as the current percentage (9%) is much lower than AAP (20%).
  • Fine.
Once the cash is used, I continue to use funds in CA Tax Exempt MMA to buy additional Total Internal Index. I had use CA Tax Exempt fund just to park the money.
  • Offhand that sounds all right.
Future contributions: I guess monthly investments still need to go to Total Internal as till I have 20% in that fund. Question - is this right or do I start splitting the monthly investments in TSM and Total International funds as per AAP?
  • If TISM is below its AA then that gets the money.
His 401K contributions go to Spartan 500 fund in Fidelity
  • Probably.
Her 401K contributions - for now, I am putting it into SSgA Cash Series U.S. Government Fund but this is real grey area where I need some advice
  • This will do for now. She needs to find out the expense ratios for all the SSgA funds.
Would like to know if this makes sense or can be done in any other way.
  • It mostly makes sense. Are you still planning to sell emerging markets, REIT, and small caps in taxable? Are you planning to liquidate the Matthews account?
Laura
Posts: 7975
Joined: Mon Feb 19, 2007 6:40 pm

Re: Need help with portfolio review & tax efficient investme

Post by Laura »

In order to benefit from the tax interest exclusion on savings bonds they must be registered in a particular [url=way.http://www.treasurydirect.gov/forms/savpdp0051.pdf]Treasury direct[/url] information stresses that the bonds cannot be in the name of the child although the child can be the beneficiary. I am not sure if the idea of purchasing bonds was for education or not but you should be aware of the limits. There are also income limits that may affect you.
If I want to start taking advantage of this program now, how do I purchase these bonds
and how should they be registered?

Answer: Electronic Series EE and Series I bonds can be purchased in TreasuryDirect and should be
registered either in the taxpayer's name alone, the taxpayer's name as primary owner with the
taxpayer's spouse as secondary owner, or in the taxpayer's name as primary owner with the
child as beneficiary.


Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
Topic Author
bandoba
Posts: 224
Joined: Thu Apr 08, 2010 12:51 am

Re: Need help with portfolio review & tax efficient investme

Post by bandoba »

My response inline...

bandoba, it's too bad you didn't make some moves last year before your wife changed jobs. Her small old "A" 401k is better than her large old "B" 401k.
Yeah, that was a mistake and I will make sure not to delay such things further.

Best options in His 401k at Fidelity:
(FXSIX) Spartan 500 Index Fund Institutional Class (0.04%)
(PTTRX) PIMCO Total Return Fund Institutional Class (0.46%)

Best options in Her current 401k at ADP (you didn't list their expense ratios but I'll bet the SSgA funds are the cheapest):
The 401K web site doesn't provide expense ratios and symbols and hence I left it as unknown. I will try to find it from documentation provided.
SSgA S&P 500 Index
SSgA S&P Mid Cap Index
SSgA Russell Small Cap Index
SSgA International Index
SSgA US Government Fund <--best pick for now

Best individual options in Her old "A" 401k at Fidelity:
(VIIIX) Vanguard Institutional Index Fund Institutional Plus Shares (0.02%)
(VIEIX) Vanguard Extended Market Index Fund Institutional Shares (0.12%)
(VTSNX) Vanguard Total International Stock Index Fund Institutional Shares (0.13%)
(VBMPX) Vanguard Total Bond Market Index Fund Institutional Plus Shares (0.05%) <--best pick for now
The Vanguard Target Retirement funds are also an option.

Best individual options in Her old "B" 401k at Fidelity:
(VINIX) Vanguard Institutional Index Fund Institutional Shares (0.04%)
(FSEVX) Spartan Extended Market Index Fund Advantage Class (0.08%)
(RERGX) American Funds EuroPacific Growth Fund R6 Class (0.50%)
(PTTRX) PIMCO Total Return Fund Institutional Class (0.46%)
The Vanguard Target Retirement funds are also an option.
I have BrokerageLink option in this account, which allows me to buy other funds. I missed posting this earlier.

Your revised opening post is confusing. Sometimes you use dollars and sometimes you use percentages. What percentages do you currently have?
Sorry for the confusion. That was a calculation error. I have updated original post again with all the revised numbers. I'm also listing it here...
  • The cash below is already included in taxable account as it is parked in two funds. I had missed this earlier and hence posted actual amounts for cash.
    Cash for investing -- 8% (4% VCADX and 4% in VMMXX at Vanguard taxable

    I don't understand what you mean by (minus what goes to the kids' accounts). The funds earmarked for Kids' education (2%) are in I-Bonds as of now.

    Taxable -- 39% (already includes cash portion above)
    Taxable at Matthews -- 2%
    His 401k at Fidelity -- 14%
    Her 401k at ADP -- 0.5%
    Her old "A" 401k at Fidelity -- 2%
    Her old "B" 401k at Fidelity -- 36%
    His Rollover IRA at Vanguard -- 7%
    Total equals 100%
Your questions:
Do you recommend keeping her 401K plans at fidelity?
  • Yes. I don't like paying fees but $100 a year is worth keeping low cost funds and allowing for the backdoor Roth.
Makes sense.

If it is recommended to rollover to let's say IRA, I would loose an opportunity to open new backdoor roth IRA for her. Given high tax bracket I think we should try to keep that option open. Does that make sense?
  • Yes.
Finally, if I rollover employer B 401K plan, wouldn't I loose the benefit of buying Spartan Total Market Index funds at low price? Or am I looking at it in a wrong way and instead I should consider it as a good opportunity to harvest the profit?
  • I don't see Spartan Total Market in the B 401k. But the real issue is that it has a few cheap funds that are better than the current 401k. Plus not rolling over allows for the backdoor Roth.
I understand it now. Sorry about the confusion related to Spartan Total Market. That fund doesn't show up in the list because it is bought in BrokerageLink account. I forgot to mentioned that earlier.

Rollover of my Vanguard IRA to 401K at Fidelity: This would mean I have to sell existing funds including Total Bond Index. So in terms of bonds allocation I would be left with only PIMCO funds in 3 different 401Ks. Isn't having all bonds portion in one fund like PIMCO with high expense ratio a concern?
  • It's not optimum, but you work with what you have. If you want the backdoor Roth you have to move the Rollover IRA (or pay taxes on each conversion).
Got it. Would you recommend exchanging PIMCO with other suggested fund in his and her 401Ks?

Purchase 40K in I-Bonds before 31 Jan 2014. This includes buying 10K for both of us and 10K per child in their minor linked account. This would allow me to take advantage of I-Bonds tax deferred account. Though if I continue to buy for each child, this accumulate balance on child's name would be a problem when we have to get loan for education?
  • Assets in a child's name will affect financial aid. I don't know how a linked account works.
Okay, so I will put only 20K for both of us in I-Bonds every year going forward.

I would use total 11K for Roth IRA 2013's contribution and another 11K for Roth IRA 2014 contribution. This is assuming I complete rollover of my existing IRA into 401K.
  • Fine.
Open 2 new 529 accounts in Vanguard, 3K each.
  • Fine.
Instead of using new funds to start 529s, I am thinking of moving 20K currently invested in I-Bonds. Do you see any problem with that approach?

Invest rest of the amount in Total Internal Index as the current percentage (9%) is much lower than AAP (20%).
  • Fine.
Once the cash is used, I continue to use funds in CA Tax Exempt MMA to buy additional Total Internal Index. I had use CA Tax Exempt fund just to park the money.
  • Offhand that sounds all right.
Please let me know if there is any other/better option.

Future contributions: I guess monthly investments still need to go to Total Internal as till I have 20% in that fund. Question - is this right or do I start splitting the monthly investments in TSM and Total International funds as per AAP?
  • If TISM is below its AA then that gets the money.
Okay.

His 401K contributions go to Spartan 500 fund in Fidelity
  • Probably.
Her 401K contributions - for now, I am putting it into SSgA Cash Series U.S. Government Fund but this is real grey area where I need some advice
  • This will do for now. She needs to find out the expense ratios for all the SSgA funds.
I'll post expense ratios as soon as I can find it.

Would like to know if this makes sense or can be done in any other way.
  • It mostly makes sense. Are you still planning to sell emerging markets, REIT, and small caps in taxable? Are you planning to liquidate the Matthews account?
[/quote]
Yes, I plan to sell all those existing funds and liquidate Matthews. And even if I decide to keep REIT, it should be go to Roth IRA.Is that right?

Thanks for patiently working with me on these changes. Once we finalize 401K funds, can you also tell me how to direct new funds to various accounts?
Topic Author
bandoba
Posts: 224
Joined: Thu Apr 08, 2010 12:51 am

Re: Need help with portfolio review & tax efficient investme

Post by bandoba »

Laura wrote:In order to benefit from the tax interest exclusion on savings bonds they must be registered in a particular [url=way.http://www.treasurydirect.gov/forms/savpdp0051.pdf]Treasury direct[/url] information stresses that the bonds cannot be in the name of the child although the child can be the beneficiary. I am not sure if the idea of purchasing bonds was for education or not but you should be aware of the limits. There are also income limits that may affect you.

Laura
Thanks for your help Laura. I bought the I-Bonds for education expenses in future. But I didn't realize that it has to be on parent's name. As I replied to Duckie's post, I am thinking of selling it and using that amount to start new 529 account for each child. Hope that makes sense. Regarding new 529 accounts, what is the general recommendation for selecting funds? Our kids are about 10 yr old and I will start with at least 10K each. Given that, is it recommended to go for Target date funds or mix of individual funds?
Laura
Posts: 7975
Joined: Mon Feb 19, 2007 6:40 pm

Re: Need help with portfolio review & tax efficient investme

Post by Laura »

Is there a cost for using BrokerageLink? If yes, you might actually be better off with the normal fund options. Please list the costs here.

For the 529 account I actually prefer age-based portfolios that automatically become more conservative over time. It is easier to let the plan manager keep all of this in balance. Remember that for a 529 you don't need to use your own state plan so look around and compare the benefits of any possible tax deduction with low cost options from a variety of states.

Finally, if the savings bonds are in your children's name then you need to open a UTMA/UGMA 529 account. If you open a 529 account with your own money that is a slighly different structure. Just check with the 529 plan administrator. If you don't want to have two different types per child I believe you can use their money to cover legitimate expenses for the child while using your own money to open the account. Pay attention to details.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
User avatar
Duckie
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Joined: Thu Mar 08, 2007 1:55 pm

Re: Need help with portfolio review & tax efficient investme

Post by Duckie »

bandoba, assuming you have the same AA of 65% stocks, 35% bonds, with 30% of stocks in international that will still break down to 45% US stocks, 20% international stocks, and 35% bonds. Here is another possible portfolio:

His & Her Taxable at Treasury Direct -- 1% <-- This is guessing on the number because I don't what percentage $20K is in your portfolio.
1% 
I savings bonds

Taxable at Vanguard -- 39% <-- Includes liquidated Matthews account.
19% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)
20% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.16%)

His 401k at Fidelity -- 21% <-- Includes rollover from His Rollover IRA at Vanguard.
21% (FXSIX) Spartan 500 Index Fund Institutional Class (0.04%)
0% (PTTRX) PIMCO Total Return Fund Institutional Class (0.46%) <-- If needed in the future.

Her 401k at ADP -- 1%
1% (N/A) SSgA S&P 500 Securities Lending Series Fund Class IX (??%)

Her old "A" 401k at Fidelity -- 2%
2% (VBMPX) Vanguard Total Bond Market Index Fund Institutional Plus Shares (0.05%)

Her old "B" 401k at Fidelity -- 36%
5% (FSEVX) Spartan Extended Market Index Fund Advantage Class (0.07%) <-- Roughly 80% large caps (both 500 Index funds) plus 20% mid/small caps (Extended Market) makes up the total US stock market.
31% (FSITX) Spartan U.S. Bond Index Fund Advantage Class (0.10% ??) <-- Accessed through BrokerageLink if possible.
0% (PTTRX) PIMCO Total Return Fund Institutional Class (0.46%) <-- If you can't access the Spartan bond fund or if it costs too much.

His backdoor Roth IRA at Vanguard -- 0%
0
% (VGSIX) Vanguard REIT Index Fund Investor Shares (0.24%)

Her backdoor Roth IRA at Vanguard -- 0%
0
% (VGSIX) Vanguard REIT Index Fund Investor Shares (0.24%)

There is some guesswork here and the numbers aren't exact but it'll give you an idea of what could be. (You could skip the REITs and use the Roths for Extended Market and/or bonds.)
Topic Author
bandoba
Posts: 224
Joined: Thu Apr 08, 2010 12:51 am

Re: Need help with portfolio review & tax efficient investme

Post by bandoba »

This looks great. I have few questions to confirm:

His & Her Taxable at Treasury Direct -- 1% <-- This is guessing on the number because I don't what percentage $20K is in your portfolio.
1% 
I savings bonds
I have 2% of I-Bonds and I had bought this on Kids's names. I was hoping to move it from there into newly opened 529. But looks like it is not straight forward. Worst case, I can leave that on Kids's name and not add to it.

Taxable at Vanguard -- 39% <-- Includes liquidated Matthews account.
19% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)
20% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.16%)
Yes, this is set.

His 401k at Fidelity -- 21% <-- Includes rollover from His Rollover IRA at Vanguard.
21% (FXSIX) Spartan 500 Index Fund Institutional Class (0.04%)
0% (PTTRX) PIMCO Total Return Fund Institutional Class (0.46%) <-- If needed in the future.
Currently I have only 2% in Spartan 500 Index fund in this account. I will add 7% of his IRA to it. But what about rest 12% which is currently in PIMCO? Shall I just exchange it with FXSIX?

Her old "B" 401k at Fidelity -- 36%
5% (FSEVX) Spartan Extended Market Index Fund Advantage Class (0.07%) <-- Roughly 80% large caps (both 500 Index funds) plus 20% mid/small caps (Extended Market) makes up the total US stock market.
31% (FSITX) Spartan U.S. Bond Index Fund Advantage Class (0.10% ??) <-- Accessed through BrokerageLink if possible.
0% (PTTRX) PIMCO Total Return Fund Institutional Class (0.46%) <-- If you can't access the Spartan bond fund or if it costs too much.
Just to confirm this requires selling/exchanging existing 13% Spartan Total Market index.

One more question related to existing 13% Spartan index - so if I decide to keep it, I can adjust rest of the numbers as long as I pick the best low cost funds and keep the S:B ratio, is that right?


There is some guesswork here and the numbers aren't exact but it'll give you an idea of what could be. (You could skip the REITs and use the Roths for Extended Market and/or bonds.)
Sounds good!

Finally, as mentioned before, most of the new funds will go to TISM for at least next few months. But after that, given different percentages at different accounts, how do I direct new funds? Specially, to keep Bonds percentage as per AAP, do I start buying Bonds in her current 401K and/or his 401K (using PIMCO)? Can you clarify?
Topic Author
bandoba
Posts: 224
Joined: Thu Apr 08, 2010 12:51 am

Re: Need help with portfolio review & tax efficient investme

Post by bandoba »

Laura wrote:Is there a cost for using BrokerageLink? If yes, you might actually be better off with the normal fund options. Please list the costs here.
That's good point. I will confirm with Fidelity but IIRC, total annual charges include keeping current BrokerageLink.

For the 529 account I actually prefer age-based portfolios that automatically become more conservative over time. It is easier to let the plan manager keep all of this in balance. Remember that for a 529 you don't need to use your own state plan so look around and compare the benefits of any possible tax deduction with low cost options from a variety of states.
Makes sense. Thanks.

Finally, if the savings bonds are in your children's name then you need to open a UTMA/UGMA 529 account. If you open a 529 account with your own money that is a slighly different structure. Just check with the 529 plan administrator. If you don't want to have two different types per child I believe you can use their money to cover legitimate expenses for the child while using your own money to open the account. Pay attention to details.
Oh, I didn't know about UTMA/UGMA 529. I will check on that. To keep things simple, I guess its easier to keep existing 20K in kids' I-Bonds account as it is and open 529 accounts with my own money.

Another question about funding 529 accounts. Assuming one has 50K available to fund 529, is it good idea to start with 50K lumpsum or start with minimum amount and then invest regularly? Is this same argument as investing lumpsum v/s DCA in taxable account or is this any different?
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Duckie
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Re: Need help with portfolio review & tax efficient investme

Post by Duckie »

bandoba wrote:His & Her Taxable at Treasury Direct -- 1% <-- This is guessing on the number because I don't what percentage $20K is in your portfolio.
1% 
I savings bonds
I have 2% of I-Bonds and I had bought this on Kids's names. I was hoping to move it from there into newly opened 529. But looks like it is not straight forward. Worst case, I can leave that on Kids's name and not add to it.
If this is not for your retirement remove it from the portfolio.
His 401k at Fidelity -- 21% <-- Includes rollover from His Rollover IRA at Vanguard.
21% (FXSIX) Spartan 500 Index Fund Institutional Class (0.04%)
0% (PTTRX) PIMCO Total Return Fund Institutional Class (0.46%) <-- If needed in the future.
Currently I have only 2% in Spartan 500 Index fund in this account. I will add 7% of his IRA to it. But what about rest 12% which is currently in PIMCO? Shall I just exchange it with FXSIX?
Yes, avoid PIMCO until you have to use it because you run out of room elsewhere.
Her old "B" 401k at Fidelity -- 36%
5% (FSEVX) Spartan Extended Market Index Fund Advantage Class (0.07%) <-- Roughly 80% large caps (both 500 Index funds) plus 20% mid/small caps (Extended Market) makes up the total US stock market.
31% (FSITX) Spartan U.S. Bond Index Fund Advantage Class (0.10% ??) <-- Accessed through BrokerageLink if possible.
0% (PTTRX) PIMCO Total Return Fund Institutional Class (0.46%) <-- If you can't access the Spartan bond fund or if it costs too much.
Just to confirm this requires selling/exchanging existing 13% Spartan Total Market index.
Yes. In His 401k the 500 Index fund is much better/cheaper than the PIMCO fund so put the bonds here.
One more question related to existing 13% Spartan index - so if I decide to keep it, I can adjust rest of the numbers as long as I pick the best low cost funds and keep the S:B ratio, is that right?
That will work. But it will mean using a lot of the more expensive (and riskier) PIMCO fund.
Finally, as mentioned before, most of the new funds will go to TISM for at least next few months. But after that, given different percentages at different accounts, how do I direct new funds? Specially, to keep Bonds percentage as per AAP, do I start buying Bonds in her current 401K and/or his 401K (using PIMCO)? Can you clarify?
When you need to start adding bonds to the current 401k plans (because the AA is under 35%) put them in his plan because his PIMCO costs 0.46% while hers costs 0.85%. Are the "new funds" taxable? If so they go to either TSM, TISM, I-Bonds, or maybe a tax-exempt muni fund.
Topic Author
bandoba
Posts: 224
Joined: Thu Apr 08, 2010 12:51 am

Re: Need help with portfolio review & tax efficient investme

Post by bandoba »

Thanks Duckie. Sincerely appreciate all your help on this.
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bandoba
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Re: Need help with portfolio review & tax efficient investme

Post by bandoba »

bandoba wrote:Finally, as mentioned before, most of the new funds will go to TISM for at least next few months. But after that, given different percentages at different accounts, how do I direct new funds? Specially, to keep Bonds percentage as per AAP, do I start buying Bonds in her current 401K and/or his 401K (using PIMCO)? Can you clarify?
Duckie wrote:When you need to start adding bonds to the current 401k plans (because the AA is under 35%) put them in his plan because his PIMCO costs 0.46% while hers costs 0.85%. Are the "new funds" taxable? If so they go to either TSM, TISM, I-Bonds, or maybe a tax-exempt muni fund.
Thinking more about it, I am still not clear about how to direct new funds in his 401K. I assume that they would go to Spartan 500 or PIMCO depending on which component (stock/bonds) is short compared to AAP percentage. If I end up putting new funds in Spartan 500, I have to also add funds to Extended Market index. Since I can't add more funds in her employer B 401K, what's your recommendation for buying additional Extended Market Index?

Since Extended Market index is stock component of AAP, I believe it is not best fit for his/her Roth IRA. But would it make sense to buy it in his/her Roth IRA? Buying it in Roth IRA would also mean buying it only once a year when I convert from TIRA to Roth IRA, isn't it?

Now if I have to add bonds, instead of buying more PIMCO in his 401K, wouldn't it be good idea to buy TBM in his/her Roth IRA instead?
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Duckie
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Re: Need help with portfolio review & tax efficient investme

Post by Duckie »

bandoba wrote:I guess I am still not clear about your statement above. So when I add more funds to his 401K, do they go to Spartan 500 or PIMCO? Or does that depend on which component is short compared to AAP percentage?
For now they go in the Spartan 500 fund. But yes it does depend on the total AA and which is short.
Assume, I put it in Spartan 500 because %stocks < AAP. In that case I will also need to add to Extended Market Index. I can't add more funds in her employer B 401K, so what's your recommendation for buying additional Extended Market Index? Given that its a stock component, I believe it is not good fit for his/her Roth IRA but in my case, is that where I buy it?
Extended Market would be fine in the Roth IRAs but it's a lot cheaper in Her old "B" 401k so leave it there. As you add to ExM in the 401k reduce the Spartan bond fund there. If you want REITs they need to be in the Roth IRAs but you could leave them out. (REITs are already contained in the Total Market and 500 Index/Extended Market funds at their market weight. The purpose of the separate REIT funds was to overweight them, but you don't have to.) You could put TBM in the Roth IRAs. It's a drop in the bucket but it's something. You could also buy I bonds in taxable. Eventually though, you're going to need to buy PIMCO in His 401k. It's not a bad bond fund, it's just a little expensive.

Let's say you contribute to the Roth IRAs in January and also perhaps add to your I bonds then. That would be a perfect time to rebalance and then figure your upcoming contribution AA to His 401k -- perhaps 90% of the contribution will go toward Spartan 500 and 10% toward PIMCO. Six months later rebalance again and see if the 90/10 is still reasonable. Then do it again the next January.
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bandoba
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Re: Need help with portfolio review & tax efficient investme

Post by bandoba »

Duckie wrote:
bandoba wrote:I guess I am still not clear about your statement above. So when I add more funds to his 401K, do they go to Spartan 500 or PIMCO? Or does that depend on which component is short compared to AAP percentage?
For now they go in the Spartan 500 fund. But yes it does depend on the total AA and which is short.
Assume, I put it in Spartan 500 because %stocks < AAP. In that case I will also need to add to Extended Market Index. I can't add more funds in her employer B 401K, so what's your recommendation for buying additional Extended Market Index? Given that its a stock component, I believe it is not good fit for his/her Roth IRA but in my case, is that where I buy it?
Extended Market would be fine in the Roth IRAs but it's a lot cheaper in Her old "B" 401k so leave it there. As you add to ExM in the 401k reduce the Spartan bond fund there. If you want REITs they need to be in the Roth IRAs but you could leave them out. (REITs are already contained in the Total Market and 500 Index/Extended Market funds at their market weight. The purpose of the separate REIT funds was to overweight them, but you don't have to.) You could put TBM in the Roth IRAs. It's a drop in the bucket but it's something. You could also buy I bonds in taxable. Eventually though, you're going to need to buy PIMCO in His 401k. It's not a bad bond fund, it's just a little expensive.

Let's say you contribute to the Roth IRAs in January and also perhaps add to your I bonds then. That would be a perfect time to rebalance and then figure your upcoming contribution AA to His 401k -- perhaps 90% of the contribution will go toward Spartan 500 and 10% toward PIMCO. Six months later rebalance again and see if the 90/10 is still reasonable. Then do it again the next January.
Thank you. Really appreciate your detailed explanation. It helps a lot.
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bandoba
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Re: Need help with portfolio review & tax efficient investme

Post by bandoba »

I got the expense ratios for her current 401K SSgA funds. They look expensive. For example, ER for recommended fund SSgA S&P 500 Index Securities Lending Series Fund - Class IX is 0.71%. Even the SSgA Cash Series US Government Fund is 0.75. Does that change anything?
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Duckie
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Re: Need help with portfolio review & tax efficient investme

Post by Duckie »

bandoba wrote:I got the expense ratios for her current 401K SSgA funds. They look expensive. For example, ER for recommended fund SSgA S&P 500 Index Securities Lending Series Fund - Class IX is 0.71%. Even the SSgA Cash Series US Government Fund is 0.75. Does that change anything?
No. Expensive though they are, they're still cheaper than the rest of the options. Unfortunately, your wife has a high-cost plan. The only alternative is not to contribute at all and that is a bad choice. 0.71% is ridiculous for a 500 Index fund but it's not a deal-breaker.
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bandoba
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Re: Need help with portfolio review & tax efficient investme

Post by bandoba »

Alright! I will proceed with setting it up now. Thanks once again.
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