2013 Annual Financial Review

[robocop]

Hi,

I am about 4 years into my career, and I did a financial review here last year (see viewtopic.php?f=2&t=89731). I got some awesome tips that I hadn't thought of and am very appreciative- thanks everyone! I try to post the helpful tips I received for others here on BH. Since I have great respect for the advice given on this forum, I am back here to get more eyes to check my plan again.

I am super excited to share that my student loans have gone down quite a bit, thanks to a bonus and my ability to be more frugal than my budget anticipated. Yay for having a positive net worth!

Emergency Funds: 3 months of expenses

Debt:
Student Loan 5: ~16k at 2.36%
Student Loan 6: ~16k at 2.11%
Car Loan: ~12.5k at 1.99%

Tax Filing Status: Single
Tax Rate: 28% Federal, 9.3% State
State of Residence: CA
Age: 29
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 35% of stocks

I currently have ~41k in my 401k, ~38k of which is fully vested. The rest vests at 20% a year, and will be fully vested in 3 years. About 7.5k, or 20%, of my 401k is a Roth 401k (because I didn't know better before I started reading this forum).
In my 401k I have:
- 24% ABA Retirement 2050 Retirement Date Fund (0.894%)
- 12% ABA Retirement Mid-Cap Index Equity Fund (0.800%)
- 38% ABA Retirement Small-Cap Index Equity Fund (0.800%)
- 26% ABA Retirement International Index Equity Fund (0.910%)

I plan to rebalance this asap so that I have 20% in ABA Retirement Bond Index (0.800%), 28% in ABA Retirement International Index Equity Fund (0.910%), and 62% in ABA Retirement All-Caps Index Equity Fund (0.800%).

I also have:
- ~6k in a Backdoor Roth IRA (Vanguard 2050 Retirement)
- ~6.35k in my HSA (already contributed to this for 2013, do not plan on touching my HSA until retirement)
- ~3.3k in individual stocks (I know this was a mistake, and will never purchase individual stocks again, but I do not plan on selling these stocks)

New Contributions:
- 17.5k Traditional 401k (20% ABA Retirement Bond Index (0.800%), 28% ABA Retirement International Index Equity Fund (0.910%), 62% ABA Retirement All-Caps Index Equity Fund (0.800%))
- 5k Backdoor Roth IRA for 2012 (Vanguard Target 2050 Retirement)
- 5.35k to debt repayment (make only minimum payments)
- 15k to boost my Emergency Fund to 10 months expenses
- 55k to taxable and/or savings (see questions)

Questions:
1. How should I view my HSA if I plan to keep it and pay out of pocket for health care so that I have all of this for retirement? It is sitting in a savings account earning nothing, but I won't have enough to transfer to a brokerage account until next year because the fees are too high to make this a good move for the current amount of the account. Should I just ignore this, or consider it part of my bonds portfolio?
2. If you were me, how would you allocate the extra money I have (55k) this year to put into savings or taxable? I don't plan on purchasing a home until at least 2-3 years from now, and I don't plan on having kids until at least 3-5 years. Maybe later on those fronts, depending on the cost of living where I'm working, the stability in my job, etc. I can't decide whether it is better to save the money or invest it, or how to split the difference if I do both. I would guess that within 10 years I will have both purchased a home and had at least one child, but I can't predict much more than that.
3. Is there an advantage for me to fill up certain contributions earlier than others? For example, should I fill 401k before I contribute to taxable/savings? Before I contribute to my 2013 Roth?

Thanks in advance for your opinions!

[Grt2bOutdoors]

Fill the Roth first and defer into 401k each paycheck
Monies needed in 2-3 years should not be in the equities markets. Consider using the Limited Term Tax-Exempt and/or Intermediate Tax-Exempt funds while accumulating down payment monies. If you do purchase a home, you will likely have higher expenses and may need a bigger e-fund.

Great job on the savings!

[robocop]

Thanks Grt2bOutdoors.

Can you explain why you recommend contributing to the Roth first, and contributing into the 401k each paycheck?

With respect to the bond funds- isn't putting any potential downpayment money into a bond fund risky? It was my understanding that bond funds can go down, and that many people are predicting that they will go down in the next few years...

[LadyGeek]

This thread is now in the Investing - Help with Personal Investments forum.

[Default User BR]

Fill the Roth first and defer into 401k each paycheck

At a 37% aggregate tax rate, I would defer as much as possible.


Brian

[retiredjg]

I think you are doing a great job at getting rid of debt! But I don't understand your portfolio at all. Well, maybe I do since you plan to change away from what you have (which is a little odd) to something else that does make some sense....except that 62% needs to be 52%.

But why would you continue to use the wrong target fund in your Roth IRA? That should be TR 2030, shouldn't it?

Roth IRA is $5.5k this year.

1. How should I view my HSA if I plan to keep it and pay out of pocket for health care so that I have all of this for retirement? It is sitting in a savings account earning nothing, but I won't have enough to transfer to a brokerage account until next year because the fees are too high to make this a good move for the current amount of the account. Should I just ignore this, or consider it part of my bonds portfolio?

I think using an HSA as part of your portfolio is a fine idea as long as you have a very good buffer. For example, the first $10k in an HSA could be cash, money market, or short term bonds, and considered an extension of your emergency fund instead of part of your retirement portfolio. But once you have a good buffer there, why not call everything over the butter part of your portfolio? Works for me (in theory - I don't have one).

2. If you were me, how would you allocate the extra money I have (55k) this year to put into savings or taxable? I don't plan on purchasing a home until at least 2-3 years from now, and I don't plan on having kids until at least 3-5 years. Maybe later on those fronts, depending on the cost of living where I'm working, the stability in my job, etc. I can't decide whether it is better to save the money or invest it, or how to split the difference if I do both. I would guess that within 10 years I will have both purchased a home and had at least one child, but I can't predict much more than that.

Save more now for retirement or save more now for a home. If you put that money into retirement, you'll have to decrease your retirement savings later to save for the house, right? Hmmm. I'm not sure it matters. It is the savings part that matters. However, since you are already filling both a 401k and an IRA, I'd probably put it away in something pretty safe for a house/marriage/kid (but don't spend it all on the wedding!)

3. Is there an advantage for me to fill up certain contributions earlier than others? For example, should I fill 401k before I contribute to taxable/savings? Before I contribute to my 2013 Roth?

I don't think so. But your 401k may have rules about how they distribute the match (but it appears you don't get one).