New Boglehead needs help with a plan

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New Boglehead needs help with a plan

Postby opjam » Wed Feb 13, 2013 8:08 am

Emergency funds: Three months
One income: $120k, spouse, 3 kids:


Debt:
car loans -14k 1.49%;
mortgage 3.75% $2700 month fixed 30 years

Tax Filing Status: Married Filing Jointly,

Tax Rate: 25% Federal, 10% State
State of Residence: IL
Age: 41
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 30% of stocks

Other: college savings
Bright Start 529 – all aged based portfolios
freshman HS – 5k
, 5th grade – 2k
, and 2nd grade 1.6k

Other: defined benefit pension 4% pay credits cash plan 5% interest


Current retirement assets
The 80k rollover below and 4k in my new employers 401k

Taxable
0% cash (for investing)

Vanguard Rollover 401k
$80k - 100% fund name (VMMXX Vanguard Prime Money Market

New annual Contributions
$17,500 401k (which employer matches 6%)
Company match? 6% vested immediately

Funds available in his 401(k)
Alex Brown Equity Fund — 2161
Franklin Small-Mid Cap Growth Fund Class A FRSGX 1006
Frontegra Netols Small Cap Value Fund Class Y FNSYX 3171
PIMCO Total Return Fund Institutional Class PTTRX 3769
Templeton World Fund Class Advisor TWDAX 2851
Vanguard Target Retirement 2010 Fund VTENX 0681
Vanguard Target Retirement 2015 Fund VTXVX 0303
Vanguard Target Retirement 2020 Fund VTWNX 0682
Vanguard Target Retirement 2025 Fund VTTVX 0304
Vanguard Target Retirement 2030 Fund VTHRX 0695
Vanguard Target Retirement 2040 Fund VFORX 0696
Vanguard Target Retirement 2045 Fund VTIVX 0306
Vanguard Target Retirement 2050 Fund VFIFX 0699
Vanguard Target Retirement 2055 Fund VFFVX 1487
Vanguard Target Retirement 2060 Fund VTTSX 1691
Vanguard Total Bond Market Index Fund Institutional Shares VBTIX 0222
Vanguard Total International Stock Index Fund Investor Shares VGTSX 0113
Vanguard Total Stock Market Index Fund Institutional Shares VITSX 0855
ABC Company Stable Value Fund —


Current Allocation in new 401k
Vanguard Total Bond Market Index Fund Institutional Shares VBTIX .07exp 10% Bond Funds
Vanguard Total International Stock Index Fund Investor Shares VGTSX .22exp 30% International Stock Funds
Vanguard Total Stock Market Index Fund Institutional Shares VITSX .05exp 50% Domestic Stock Funds
ABC Company Stable Value Fund .14exp 10%



Questions:

1. how to allocate my rollover
2. how to allocate my new 401k
3. should I plan to open roth: so same question how to allocate
4. to fund college or not to fund that is the question….my plan was to pay for max two years each kid state university
5. pay extra toward mortgage?
6. philosophical questions: should I allocate my funds a little at a time or should i do it all at once
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Re: New Boglehead needs help with a plan

Postby NYBoglehead » Wed Feb 13, 2013 9:33 am

Welcome to the forum. $125k/yr is a nice income for a family, even if it only comes from one earner, so you're doing well on that end. On to your questions:

1. I would allocated your rollover IRA to achieve your targeted overall AA. Since you've got Vanguard funds in your 401k this should be particularly easy to achieve.

2. I think your current 401k contributions look good, I'd probably ditch the Stable Value Fund but that's just me.

3. I recommend opening a Roth for you and your wife if you've got the extra cash. It'll help you stash another 11k (5.5k for each) in 2013 into tax-advantaged accounts and will provide some tax diversification in retirement. Again, for your AA, the key is to look at your overall portfolio as one large portfolio. So the AA in the Roth should help you achieve your target AA across all of your accounts.

4. I think that college paying plan is awesome. Your kids will take their education more seriously if they are going to be paying for a substantial portion of it. They can get part-time jobs while in school and if they work in the summers and practice some personal responsibility they should be alright. It'll also make them think twice about what they want to do if they are taking on debt in order to get their degrees.

5. I would not pay any extra on the mortgage right now. Since you are already maxing out your 401k you are doing well, I'd max out Roth IRAs for both you and your wife first and increase your emergency fund to 6 months before maxing extra payments on the mortgage.

6. I'd allocate the funds all at once for the rollover IRA and Roth IRAs. You are already achieving dollar-cost-averaging through semi-monthly contributions to your 401k.
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Re: New Boglehead needs help with a plan

Postby bdpb » Wed Feb 13, 2013 9:40 am

opjam wrote:Tax Rate: 25% Federal, 10% State
State of Residence: IL

3. should I plan to open roth: so same question how to allocate


Where did you come up with the tax rate numbers? IL state income tax is 5%. It's also possible you may not be in the federal 25% bracket.

You are also likely (at least partially) eligible for a tax deductible IRA. Since IL allows for the deduction and does not tax IRA withdrawals, you should prefer a tax deductible IRA over a Roth IRA. Convert this deductible IRA to Roth if you still want a Roth.
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Re: New Boglehead needs help with a plan

Postby Grt2bOutdoors » Wed Feb 13, 2013 9:48 am

There is nothing wrong with using the Stable Value fund - particularly if you are structuring your fixed income to have a reduced duration than that of the Total Bond Market Index fund and the yield is probably higher.

Don't prepay the mortgage. Use what ever disposable income is left after expenses to build up your e-fund. Three months is low, ideally would like to see 6 to 12 months unless your job is extremely stable.

I am not familiar with the cost of state college in Illinois, but I would think it's more than $5K per year. If so, after building up the e-fund, you may want to consider boosting that HS Freshman's account a bit more.
"Luck is not a strategy" Asking Portfolio Questions
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Re: New Boglehead needs help with a plan

Postby ShortStop » Wed Feb 13, 2013 11:57 pm

You're asking this in two places. See here for previous thread.
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