30s, Single - Please share your 401k/AA recommendations

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30s, Single - Please share your 401k/AA recommendations

Postby DreamStrong » Fri May 10, 2013 12:33 am

**Edited: answers to new questions added to end of this post**

Hi all and thanks in advance for any/all assistance provided. I'm new to Bogleheads and still somewhat intimidated by investing but I am getting better (Vanguard was on-site last week and I went to EVERY session and stayed late to ask 1 on 1 questions). I read the Wiki and I’m eager to get your perspectives on an my next retirement decisions. I have ~ $100k in a previous employer's 401k that I need to move. About $20k of it is after-tax $. The 401k at my current employer is at Vanguard and I called them yesterday to understand my options. I also met with a financial advisor last year and was thoroughly impressed… with everything but the 1.5% fees (they focus on tax advantage moves which I probably need but I’m just not comfortable paying that much, especially for funds that are already sitting in my accounts).

My questions are:
1) How do you recommend I allocate the $100k from the old 401k? I thought I had it figured out but now I’m really confused given the backdoor roth opportunity and other stuff I read recently.
2) Do you recommend I make changes to my current asset allocations?

Personal Information:
-Single, No Children, 30s
-Emergency Fund: 9 months in MMA. I may take this down to 6-months and put the balance on my mortgage.
-Debt: $158K mortgage @ 2.8% over 15yrs. I just bought the house a few months ago for $235k and even with the low rate my stretch goal is to wipe it out in 2 years (right now I’m on pace to pay it off in 3 so I’ll need more $ to make it happen). I also have another house that is paid for. The 2 rents together are enough to cover all but < $300/month of the total carrying costs (Mortgage, Insurance, Tax, HOA, and Maintenance). The rental income would be double under different circumstances (my choice). My plan is to use these houses to fund my parents’ retirement as they’ll probably need my assistance – my guess is in 5 years. I started caring for my grammy many years ago so, God willing, it should be seamless to absorb my parents, especially if it’s after this house is paid off. Managing properties and deadbeat tenants has not been fun but watching my declining mortgage balance has been a real treat!

Tax Rate: 28% Federal, 6% local
Desired Asset allocation: I don't know but the Vanguard Investor Questionnaire recommended 80% Stocks / 20% Bonds
Desired International allocation: I have no idea how to answer this

Personal financial goals:
1. Short-term: pay for wedding and acquire primary home
2. Debt free living
3. Multiple passive income streams totally $10K/month. I have a long way to go :)
4. Retirement ready at age 45

Current Retirement Assets = $200K
Traditional IRA
Vanguard Target Retirement 2045 Fund
(VTIVX) 0.18% expense ratio
13.9% of portfolio

Pension: I qualify for ~$1,000/month pension from previous employer when I turn ~62

401K
Vanguard PRIMECAP Fund Investor Shares
(VPMCX) 0.45% expense ratio
8.8% of portfolio

Vanguard LifeStrategy Growth Fund
(VASGX) 0.17% expense ratio
20.2% of portfolio

Vanguard Retirement Savings Trust
0.51% expense ratio
4.0% of portfolio

Vanguard Small-Cap Index Fund Investor Shares
(NAESX) 0.24% expense ratio
18.1% of portfolio

Vanguard Total Bond Market Index Fund Investor Shares
(VBMFX) 0.20% expense ratio
6.9% of portfolio

Vanguard Windsor II Fund Investor Shares
(VWNFX) 0.35% expense ratio
8.7% of portfolio

My Company Stock 0.22% expense ratio
Industry: Electronic Components, Sector: Technology, Stock Style: Mid Growth, US
19.5% of portfolio
I’m required to own a minimum amount of company stock and this was initially the best way to get it. I could probably get rid of this now.

Yearly 401k Contributions = Legal Max - $17,500 (+ ~1,500/year company match)
Yearly traditional IRA Contributions = Legal Max - $5,500

Funds Available
For the $100K I guess I can use any Vanguard funds?

For my current 401k I can use:

Fund Symbol Expense ratio
Vanguard Target Retirement Income VTINX 0.16
Vanguard Target Retirement 2010 VTENX 0.16
Vanguard Target Retirement 2015 VTXVX 0.16
Vanguard Target Retirement 2020 VTWNX 0.16
Vanguard Target Retirement 2025 VTTVX 0.17
Vanguard Target Retirement 2030 VTHRX 0.17
Vanguard Target Retirement 2035 VTTHX 0.18
Vanguard Target Retirement 2040 VFORX 0.18
Vanguard Target Retirement 2045 VTIVX 0.18
Vanguard Target Retirement 2050 VFIFX 0.18
Vanguard Target Retirement 2055 VFFVX 0.18
Vanguard Target Retirement 2060 VTTSX 0.18
Vanguard Prime Money Mkt Fund VMMXX 0.16
Vanguard Retirement Savings Trust — 0.51
BlackRock Inflation Protected Bond Inv A BPRAX 0.96
Vanguard Total Bond Mkt Index Inv VBMFX 0.2
Vanguard LifeStrategy Consrv Grwth VSCGX 0.15
Vanguard LifeStrategy Growth Fund VASGX 0.17
Vanguard LifeStrategy Mod Growth VSMGX 0.16
Vanguard Wellington Fund Inv VWELX 0.25
RidgeWorth Small Cap Value Equity I SCETX 1.2
Vanguard 500 Index Fund Inv VFINX 0.17
Vanguard PRIMECAP Fund Investor VPMCX 0.45
Vanguard Small-Cap Index Fund Inv NAESX 0.24
Vanguard Windsor II Fund Inv VWNFX 0.35
Wells Fargo Advantage Discovery Adm WFDDX 1.14
Thornburg International Value R5 TIVRX 1.06
Vanguard Emerging Mkts Stk Idx Inv VEIEX 0.33
Company Stock -- 0.22

PS: I must say, just pulling together all this information makes me feel more empowered! Please let me know if I missed anything and thanks again.

Mariposa

What exactly are the investment choices (fund names, tickers, expense ratios) offered in your old 401k?
I don't know but they're awful. I'm definitely going to move the funds so no need to list here.

What is the dollar size of the old 401k? Part in Roth 401k? Part in trad. 401k?
$100K total, $20k of it is roth 401k

Will your new 401k accept a transfer from your old 401k?
They will if I want, didn't seem like a reasonable way to go after talking to Vanguard. It limits me, yes?

How much in dollars do you now have in the new 401k?
$200k

How much in dollars is now in the IRA?
~$30k

Do you have any other investing accounts other than the IRA and the 2 401ks?
$260K of company stock. Again this is a requirement of my employment.
Last edited by DreamStrong on Fri May 10, 2013 3:48 pm, edited 2 times in total.
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Re: 30s, Single - Please share your 401k/AA recommendations

Postby Mill » Fri May 10, 2013 2:15 am

My questions are:
1) How do you recommend I allocate the $100k from the old 401k? I thought I had it figured out but now I’m really confused given the backdoor roth opportunity and other stuff I read recently.
2) Do you recommend I make changes to my current asset allocations?


Dont let the advisors confuse you. That is their game. Keep it simple. Everything is going just fine, so pick an asset allocation and rebalance.
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Re: 30s, Single - Please share your 401k/AA recommendations

Postby DreamStrong » Fri May 10, 2013 5:01 am

Mill wrote:
Dont let the advisors confuse you. That is their game. Keep it simple. Everything is going just fine, so pick an asset allocation and rebalance.


I haven't been confused by advisors. I read about the backdoor IRA here. "Pick an asset allocation..." that's why made this post, to get guidance on AA and rebalancing.
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Re: 30s, Single - Please share your 401k/AA recommendations

Postby livesoft » Fri May 10, 2013 5:20 am

I'm confused.

1. Does your new 401(k) have access to Vanguard Target Retirmeent accounts?
2. Why must you rollover your old 401(k)?
3. Can you rollover your old 401(k) to your new 401(k) if you wanted to?

If you had all your money at Vanguard in retirement accounts, you could simply use one [the same] Target Retirement fund in every account, right?
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: 30s, Single - Please share your 401k/AA recommendations

Postby ruralavalon » Fri May 10, 2013 8:41 am

EDIT: Deleted suggestion was based on incomplete information provided.
OP has an additional $260k in stock, in another account, beyond that listed.
Last edited by ruralavalon on Sat May 11, 2013 8:09 am, edited 1 time in total.
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Re: 30s, Single - Please share your 401k/AA recommendations

Postby DreamStrong » Fri May 10, 2013 9:52 am

ruralavalon wrote:Welcome to the forum :) .
I see no need to move your old 401k anywhere, unless there is some requirement in the 401k plan that you move it.

Ruralavalon, thank you for your insight. I'm happy to be here learning! To clarify, I need to move it for a couple of reasons 1) it doesn't have very good options of funds to pick (only 8 available, none are good) and it is underperforming compared to my Vanguard funds except that 2) a large percentage of it (too much) is the former company's stock which has done VERY well in the last 2 years. After talking to the Vanguard rep about how I shouldn't have more than 10% in one company's stock and how hard it is psychologically for people to buy low/sell high I want to do that with this account: sell high!

Simplest solution is all Vanguard LifeStrategy Growth Fund (VASGX), er = 0.17%

So you're saying put all $300k in 1 fund? I'm surprised to see that recommendation.

If you sell the company stock, just apply that to your mortgage.

I can't apply the funds to my mortgage, they're in my 401k. I can only reallocate to a different fund.

Its great that you are so adept at handling financial matters at such a young age

It's really stunning that you would say that :mrgreen: In my 20s I had $100k of debt (excluding my mortgage), went through a repossession and a foreclosure, and had credit score in the low 500s. I couldn't answer the phone without caller ID to avoid the bill collectors. I heard Dave Ramsey radio, ultimately took a Crown Financial Ministries course, and made a few changes but I really didn't know what I was doing, was never taught. It wasn't until I had a conversation with a friend at the gym who's marriage I admired did I decide to make a real change. She told me that they NEVER faught, had only done so 3 times in their 8 year marriage and every time it was about money. The idea that my dumb financial decisions could ruin my future really stayed with me. That and the scripture "the borrower is slave to the sender" were all it took for me to go "rice & beans" crazy. Amazingly it only took 2.5 years to get out of $100k debt on $73k salary. Thanks for reminding me that I really have come a long way!
:sharebeer

It's also why I'm on bogleheads. I've realized that Dave Ramsey served me very well but that I need to move to the next level of understanding for this investing phase.
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Re: 30s, Single - Please share your 401k/AA recommendations

Postby DreamStrong » Fri May 10, 2013 10:35 am

Here's what Vanguard says about my current allocations:

Market capitalization
Includes only your U.S. stock and stock mutual fund holdings, which are 75.2% of All Portfolios.

Size Your Stock Portfolio U.S. Stock Market Difference From Market
Large cap 40.6% 65.0% –24.4
Mid cap 33.5% 28.0% 5.5
Small cap 25.9% 7.0% 18.9
Total 100.0% 100.0%
---------------------------------------------------------------------------
Investment style
Includes only your U.S. stock and stock mutual fund holdings, which are 75.2% of All Portfolios.

Style Your Funds Only All Funds & Stocks
Value 15.6% 11.5%
Blend 68.6% 50.8%
Growth 15.8% 37.7%
Total 100.0% 100.0%
------------------------------------------------------------------------
Industry sectors
Includes only your U.S. diversified stock mutual fund holdings, which are 75.3% of All Portfolios.

Sector Your Stock Portfolio U.S. Stock Market Difference From Market
Basic materials 3.6% 3.0% 0.6
Communication services 2.3% 4.0% –1.7
Consumer cyclical 7.4% 11.0% –3.6
Consumer defensive 5.2% 10.0% –4.8
Energy 6.0% 10.0% –4.0
Financial services 10.1% 14.0% –3.9
Health care 10.6% 12.0% –1.4
Industrials 36.7% 12.0% 24.7
Real estate 3.5% 4.0% –0.5
Technology 12.5% 17.0% –4.5
Utilities 2.1% 3.0% –0.9
Total 100.0% 100.0%
------------------------------------------------------------------------------------------------------------
International regions
Includes only your international stock and stock mutual fund holdings, which are 8.4% of All Portfolios.

Developed markets
Market Your Stock Portfolio Stock Markets Outside the U.S. Difference From Market
Europe 43.7% 45.0% –1.3
Pacific 28.9% 23.0% 5.9
Canada 7.7% 8.0% –0.3

Emerging markets
Market Your Stock Portfolio Stock Markets Outside the U.S. Difference From Market
Emerging markets 19.4% 24.0% –4.6

Uncategorized holdings
Market Your Stock Portfolio Stock Markets Outside the U.S. Difference From Market
Uncategorized Holdings 0.3% 0.0% 0.3
Total 100.0% 100.0%
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Re: 30s, Single - Please share your 401k/AA recommendations

Postby gtaylor » Fri May 10, 2013 11:12 am

Oh, gads, a 401(k) with company stock. These are all kinds of awkward if you don't pay attention. Fortunately here you are, paying attention.

I second the motion to consolidate it all into LifeStrategy, either the 60/40 or 80/20 one as you prefer. It's one fund, but it is a fund of funds, with a very appropriate mix of stocks and bonds, both US and international. Set it and forget it.

Doing this consolidation in the new 401(k) would be OK; doing it in a traditional rollover IRA directly with Vanguard might be a teensy bit cheaper depending on how the new 401(k) is set up. You'd have to read the fine print to find any fees beyond the fund expense fees. The 401(k) is probably "safer" from creditor and liability judgements, which I guess are slightly more likely since you are a landlord.

The 'after-tax' $20k in the old 401(k), is that in a Roth 401(k) subaccount or in plain after-tax plan? These are two different things. If it's Roth, roll it into a Roth IRA or 401(k). If it's non-Roth after-tax money, a conversion to Roth might be desirable, but I don't know if your current distribution scenario will allow you to perform this conversion without an awkward tax bill. Hopefully you can at least keep this amount separate and sort it out later.

Moving all pretax retirement assets into the new 401(k) would enable back door Roth IRA contributions. However I don't think your income is high enough to need this complication. Or will it be after the wedding?

One thing to check -- you seem to say that you are charging less than market rate rent on your rental property. There may be awkward tax implications to this, especially if it is a family member. Be sure you fully understand this issue so it won't blow up in your face.

Similarly, financial involvement with retired parents can be very tricky, it warrants getting good advice on that topic.

Is the impending wedding yours? Your plan would need to include your fiancé's situation as well, particularly if you want to keep the early retirement goal. If he's debt-ridden or something it may derail your plan. Is there any notion of kids? If so, they're shockingly expensive and will change your plans considerably.
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Re: 30s, Single - Please share your 401k/AA recommendations

Postby windhog » Fri May 10, 2013 1:29 pm

Hi Mariposa and welcome,

It seems you have made a major transition from a financial ‘slacker’ into a very big dreamer, complete with a (possibly) over-developed sense of responsibility. (I’ve lived with the latter myself, so I don’t consider that a character flaw. I only mention it as a point of self-awareness.) :happy I cannot recall reading a post that included so many commitments: job, contemplated marriage, landlord, early retirement and retirement backstop for parents. I don’t intend to pass any judgment on your goals, but planning occasionally demands some recognition of priorities. I hope you are open to that.

I wanted to spend a little time on your questions, as new posters often struggle with understanding and choosing an A/A. Taking your second question first, I would suggest this is a good time to review your A/A, regardless of whether you make a change or not.

Boglehead investing choices are pretty much driven by an Asset Allocation decision, which many feel is a once- or twice-in-a-lifetime issue. The Wiki offers much on the A/A decision. If you review some A/A threads, you will certainly see the mantra that frames the A/A decision as a matter of ‘need, willingness, and ability to assume risk’. In short, if you need a significant investment return to reach your goals, are willing to assume the risk of losses that may happen at the worst possible time, and are able to stick to your plan (and sleep soundly) when the market tanks, you have made a good A/A decision. It doesn’t take much insight to see that many investors only recognize a poor A/A choice when the market goes south and they cannot sleep. For this reason, many posters seem to gloss over the A/A question and say (correctly) that it’s up to you.

Let me offer some suggestions that amount to nothing more than a starting point for this important decision. One time-honored rule of thumb is ‘age in bonds’, which translates to a 70-30 split for you. Another rule of thumb that should temper this choice is the highly confident prediction that losses for a 70% equity portfolio will (at some unknown point in the future) amount to 35% of your total. The important question is, will seeing 1/3rd of your hard-earned nest egg disappear overnight make you panic and violate your plan? If the answer is anything but a confident “No”, you might want to think about trying 60/40, or even 50/50. The rule of thumb says: anticipated loss = equity %/2. This decision deserves some time and all of the self-awareness you can muster. Good luck.

International equities are a large and increasingly important part of the available investing universe. Again, a simple rule of thumb is something between 15-40% of your stock allocation, with many folks picking 25-30%. Middle of the road is a good place to start.

Once these decisions are made, what to do with new or roll-over funds is easy. It should be invested in one or more funds that reflect you A/A decision. The availability of funds that mirror a stable A/A of your choice really simplifies investing. I’m scratching my head over the post-tax dollars in your 401(k), and wondering how they got there without a specific Roth election on your part. I don’t feel qualified to advise you on where this money should go, but the allocation is still directed by your retirement A/A.

The other point I should make regards the complexity of your goal set. It makes perfect sense to segregate funds to match with short-term goals and choose an appropriate A/A for each, depending on need, willingness and ability to assume risk for each goal. For example, short-term goals, meaning less than 10 years should not be invested in stocks: down or flat markets can last for years. I think you would do well to start with an explicit retirement A/A, applying it to your entire retirement portfolio regardless of where the funds are held. I would defer deciding on your other goals for now and just keep those dollars invested safely.

I would second the suggestions of gtaylor. The post raises many good points for you to consider.

I hope this helps.
Paul
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Re: 30s, Single - Please share your 401k/AA recommendations

Postby ruralavalon » Fri May 10, 2013 2:48 pm

You did a great job getting out from under that debt.

DreamStrong wrote:To clarify, I need to move it [old 401k] for a couple of reasons 1) it doesn't have very good options of funds to pick (only 8 available, none are good) and it is underperforming compared to my Vanguard funds except that 2) a large percentage of it (too much) is the former company's stock which has done VERY well in the last 2 years. After talking to the Vanguard rep about how I shouldn't have more than 10% in one company's stock and how hard it is psychologically for people to buy low/sell high I want to do that with this account: sell high!
. . . . .
I can't apply the funds [from any sale of company stock] to my mortgage, they're in my 401k. I can only reallocate to a different fund.

Sorry :( , I thought you were saying that all Vanguard funds were offered in your old 401k.

What exactly are the investment choices (fund names, tickers, expense ratios) offered in your old 401k?

What is the dollar size of the old 401k? Part in Roth 401k? Part in trad. 401k?

Will your new 401k accept a transfer from your old 401k?

How much in dollars do you now have in the new 401k?

What is your occupation (other than handling your rentals)?

How much in dollars is now in the IRA?

Do you have any other investing accounts other than the IRA and the 2 401ks?

Please add this info to your original post using the "edit" button; It helps a lot to have all of your information in one place.
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Re: 30s, Single - Please share your 401k/AA recommendations

Postby DreamStrong » Fri May 10, 2013 3:13 pm

gtaylor wrote:I second the motion to consolidate it all into LifeStrategy, either the 60/40 or 80/20 one as you prefer. It's one fund, but it is a fund of funds, with a very appropriate mix of stocks and bonds, both US and international. Set it and forget it.

Hmm, makes me wonder why doesn't everyone just have all their $$ in 1 fund. What am I missing?

Doing this consolidation in the new 401(k) would be OK; doing it in a traditional rollover IRA directly with Vanguard might be a teensy bit cheaper

Why would it make since to roll this into the new 401k, then I'm limited to my company's plan vs. all that Vanguard offers? I listed the fees above, there aren't any others. Interesting comment on creditors and liabilities. I don't expect to have creditor issues but liability, that makes me pause.

The 'after-tax' $20k in the old 401(k), is that in a Roth 401(k) subaccount or in plain after-tax plan?

It's a roth 401k. Yes I can keep it separate.

Moving all pretax retirement assets into the new 401(k) would enable back door Roth IRA contributions. However I don't think your income is high enough to need this complication. Or will it be after the wedding?

I'd like to make all these changes now, as soon as I get a game plan. Might be a bad assumption, not sure what you mean by high income, could you define it? Either way I probably qualify.

One thing to check -- you seem to say that you are charging less than market rate rent on your rental property. There may be awkward tax implications to this, especially if it is a family member.

Again, not sure what you mean here. There's nothing to check. I have an elderly person in the home and another family there to assist her.

Similarly, financial involvement with retired parents can be very tricky, it warrants getting good advice on that topic.

I'm way past involvement with them, just didn't go into the details here so that part's covered. The only issue I'll need to decide is whether to keep the second house or not but hopefully I've got 5 full years to decide.

Is the impending wedding yours?

Yes, we have to consider the combined household issues but we're not quite there yet. No he doesn't have debt either.

Thanks GTaylor.
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Re: 30s, Single - Please share your 401k/AA recommendations

Postby DreamStrong » Fri May 10, 2013 3:23 pm

Ruralavalon, I answered your questions above
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Re: 30s, Single - Please share your 401k/AA recommendations

Postby ruralavalon » Fri May 10, 2013 4:20 pm

I'm a bit confused about the old 401k, its size and what it consists of.

You say "I have ~ $100k in a previous employer's 401k that I need to move. About $20k of it is after-tax $. ", also say in the old 401k there is "$100K total, $20k of it is roth 401k", also say "I can't apply the funds [from any sale of company stock] to my mortgage, they're in my 401k. I can only reallocate to a different fund", and also say there is "$260K of company stock".

Before doing anything we need to know what the totals are for each account, and the total for all accounts. Is what follows below correct? Or not? Or is the company stock in some other account?

Old 401 (total in 401k $360k)
Roth $20k
trad $80k
company stock $260k

Current 401k @ Vanguard ($200k)

IRA @ Vanguard ($30k)

Total of all accounts = $590k.
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Re: 30s, Single - Please share your 401k/AA recommendations

Postby DreamStrong » Fri May 10, 2013 4:40 pm

ruralavalon wrote:I'm a bit confused about the old 401k, its size and what it consists of.



Old 401 (total in 401k $360k)
Roth $20k
trad $80k
company stock $260k

Current 401k @ Vanguard ($200k)

IRA @ Vanguard ($30k)

Total of all accounts = $590k.


Your numbers are correct except for the company stock. You are combining different conversations/topics/posts. There's $100k that needs to be moved, period. $20k of it is an after tax. The company stock "in the 401k" is from the NEW company. Because it is in a 401k I can't take it out of a 401k without penalties but of course I can move it to another fund. The $260k is pure stock that is not in a 401k - It has nothing to do with retirement, that's why I didn't include it initially.

The instructions on this forum don't say anything about listing detailed totals in $, just percentages. I tried to follow them :oops: Hopefully this clears things up. Per the original post, I was just looking for thoughts on what to do with the $100k and if any reallocation of the the existing/separate $200k was necessary per the listed percentages. Thanks.

As for someone else's comment on how I got the roth 401k, it was offered at my previous employer.

It seems you have made a major transition from a financial ‘slacker’ into a very big dreamer, complete with a (possibly) over-developed sense of responsibility. (I’ve lived with the latter myself, so I don’t consider that a character flaw. I only mention it as a point of self-awareness.) I cannot recall reading a post that included so many commitments: job, contemplated marriage, landlord, early retirement and retirement backstop for parents. I don’t intend to pass any judgment on your goals, but planning occasionally demands some recognition of priorities. I hope you are open to that.


Great points Paul!!!!! I really appreciate and agree with them completely. Thankfully I am VERY self-aware and yes a very big dreamer - many good things to come. 8-) I'm also well aware of the financial load I've carried and thankfully in the last year I've been able to give up a lot of those responsibilities. It's important that I do some different living now which is exactly why I want to get these accounts squared away, so I can move on to bigger, better, more immediate gratification :) I've spent the last 10 years getting out of debt, traveling the world, and having a blast. Now I want to settle a bit. This is probably TMI but as it turned out my father suffered a massive heart attack a few years ago, was expected to die - technically he did, twice - but ultimately made a miracle recovery. You can watch his story on an episode of "Untold Stories of the ER" on TLC. No joke, it aired earlier this year. He and his doctor have been featured in so many articles, presentations, on-stage, etc. It was an amazing season in life. Anyhow you can imagine he took some time to make a full recovery once he woke from the coma and he needed A LOT of help! He was by far the main breadwinner in the household so everything changed for them after that. After caring for him, 1.5 years later my mother suffered severe health issues of her own, was unable even to walk for some time, in/out of ERs, and ultimately declared disabled. They made the right but tough decisions (just like I did to get out of debt), downsized their life and both are now making a great recovery. I don't agree with everything they do but I'm very proud of both of them. It has been an honor to assist them financially, doesn't bother me at all, and I can say without doubt every dollar I've given has been returned manyfold.

I'm definitely open to priorities. I set 10 every year and just like Jim Rohn says 8 of them get done without me even trying :D I just listed my financial goals here as background information and really do only need help with the retirement piece of this. Honestly, it may seem like a lot or disjointed but all the goals are pretty much on auto-pilot now, not much that I have to do. That's why I wanted to take time to review my allocations, instead of just leaving them on auto-pilot as they've been for some time.

Anyhow, thanks everyone. It seems I'm just getting move everything to one account and leave it alone. I'm pretty sure I'm not going to do that but I did appreciate the commentary/feedback. Have a great weekend all, MP.
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Re: 30s, Single - Please share your 401k/AA recommendations

Postby gtaylor » Fri May 10, 2013 6:23 pm

DreamStrong wrote:
gtaylor wrote:I second the motion to consolidate it all into LifeStrategy, either the 60/40 or 80/20 one as you prefer. It's one fund, but it is a fund of funds, with a very appropriate mix of stocks and bonds, both US and international. Set it and forget it.

Hmm, makes me wonder why doesn't everyone just have all their $$ in 1 fund. What am I missing?


There is nothing wrong with having all your money in one fund if you can find one that invests the way you want to invest. Many people do this; my retired mom, for one. My kids' trust accounts. Etc. It's actually great when it works, makes things very easy to manage.

Some people don't do this, for reasons like:

- It is difficult or impractical to arrange if you have many many distinct accounts and they aren't all Vanguard accounts. Lots of people end up in this boat just due to life events -- employers, kids, marriage, etc.
- It is inadvisable if you have sizable amounts in taxable accouts, the standard advice then becomes to hold capital gain items there and income items in sheltered retirement accounts so as to have the least bad tax treatment overall.
- If you want to invest in things not covered by an all-in-one fund, or not included in the desired proportions.

Doing this consolidation in the new 401(k) would be OK; doing it in a traditional rollover IRA directly with Vanguard might be a teensy bit cheaper

Why would it make since to roll this into the new 401k, then I'm limited to my company's plan vs. all that Vanguard offers? I listed the fees above, there aren't any others. Interesting comment on creditors and liabilities. I don't expect to have creditor issues but liability, that makes me pause.

You'll want to read up on ERISA protections, then. And do carry the proper insurance regardless ;)

Landlords routinely set up LLC or other corporations for liability containment purposes, sometimes one per property. Retitling things to one's spouse is also common.

IRA protection from creditors etc is a function of state law, so you'll need to find a state-specific answer to this one.

Moving all pretax retirement assets into the new 401(k) would enable back door Roth IRA contributions. However I don't think your income is high enough to need this complication. Or will it be after the wedding?

I'd like to make all these changes now, as soon as I get a game plan. Might be a bad assumption, not sure what you mean by high income, could you define it? Either way I probably qualify.


There is a threshold for income above which you cannot make Roth IRA contributions, and a range beneath where you can only make a partial conribution. This is specified in terms of a Modified AGI in the tax form instructions with a little worksheet that walks you through the "Modified" part. For married it's in the 173-183 ballpark. For singles 110-125. There is some special treatment available for passive activity losses, but I don't know what it is from glancing at the instructions. It might apply to you. This will all be in IRS Publication 590.

If you can't make Roth IRA contributions because of the MAGI threshold, you can still make nondeductible traditional IRA contributions, and immediately convert that amount to Roth. These are called "backdoor" Roth IRA contributions. This is only practical if you have no other traditional IRA balance anywhere; otherwise there is an unpleasant tax computation and a potentially large tax due. So all else being equal if you might be a candidate for backdoor Roth IRA contributions it would be best not to have any money in traditional IRA accounts.

Also there is the whole question of if Roth retirement contributions are actually appropriate for you. This really depends on tax brackets and guesses about the future and so on.

One thing to check -- you seem to say that you are charging less than market rate rent on your rental property. There may be awkward tax implications to this, especially if it is a family member.

Again, not sure what you mean here. There's nothing to check. I have an elderly person in the home and another family there to assist her.


Ah, but is it *your* elderly person? If so, you cannot deduct things beyond the rent charged, so typically you don't get the full depreciation deduction. See IRS pub 527.

Similarly, even if it isn't your relative, renting at a loss to be nice to an old lady can run you afoul of the not for profit activity rules that will similarly limit deductions.

In either case, if you treat it as a conventinal rental with a tax loss and try to carry that forward, that's wrong and you may have a very unpleasant audit someday.

Is the impending wedding yours?

Yes, we have to consider the combined household issues but we're not quite there yet. No he doesn't have debt either.


Congratulations!

No debt? That's good; if he's also frugal and on board for an early retirement you may well be financially compatible ;)
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Re: 30s, Single - Please share your 401k/AA recommendations

Postby ruralavalon » Fri May 10, 2013 8:21 pm

DreamStrong wrote:The instructions on this forum don't say anything about listing detailed totals in $, just percentages

I asked for the dollar amounts only because it seemed that something had been omitted, since I couldn't reconcile the percentages with the other info given.


DreamStrong wrote:Your numbers are correct except for the company stock. You are combining different conversations/topics/posts. There's $100k that needs to be moved, period. $20k of it is an after tax. The company stock "in the 401k" is from the NEW company. Because it is in a 401k I can't take it out of a 401k without penalties but of course I can move it to another fund. The $260k is pure stock that is not in a 401k - It has nothing to do with retirement, that's why I didn't include it initially


Is this the correct breakdown and totals?

Old 401 (total in old 401k $100k)
Roth $20k
trad $80k

Current 401k @ Vanguard ($200k)
includes some company stock

Another account (type of account? where?) ($260k)
stocks

IRA @ Vanguard ($30k)

Total of all accounts = $590k.


What is the intended investment goal for the $260k in "pure stock" not in the new 401k? Normally its best to look at all investment accounts as a single unified whole (an exception is if a given account is for as different goal, especially one with a much different time horizon). For example, the asset allocation decision of 80/20, 70/30 or whatever cannot make much sense if there are large amounts of stock elsewhere.

In other words, the best way to allocate the 401k money will depend on what you may have elsewhere.

The best place to start building a portfolio is by making a list of all your current investment accounts and the investments in each account.
viewtopic.php?t=6211 .
Please include all investment and retirement accounts (yourself and spouse or civil partner, if applicable) as it's important to look at the portfolio as a unified whole rather than look at accounts in isolation.
viewtopic.php?t=6212 .

So we need to start with a complete list of accounts and investments (excluding only accounts/investments with short term goals, like: emergency fund; home down payment; vehicle purchase; wedding expenses; or the like)
"Everything should be as simple as it is, but not simpler." - Albert Einstein
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Re: 30s, Single - Please share your 401k/AA recommendations

Postby DreamStrong » Mon May 13, 2013 2:36 pm

I step away for a weekend and surprise surprise... good things come to those who wait!!!

gtaylor Yes, I'm above the MAGI threshold. That's why I don't have any Roth IRAs :( Not that I'm complaining :) Putting all $300K (minus the small company stock portion) into TF 2045 just doesn't seem right. Maybe it's just my ignorance but I'm going to look at how diversified the TF 2045 actually is across geography, sector, growth, etc. You've given me a lot to ponder. I definitely need to take a day to think on all you've shared in detail before I develop my plan. Thank you!

ruralavalon You got it! I have other accounts but those funds are already earmarked for things other than retirement. Thanks for your explanation, I understand it so now I'm not sure how to include/address the $260K of company stock in the AA discussion because I can't touch it, again it's a condition of my employment. Maybe I should ignore it for now and include any future stock in the analysis as I receive it? Or maybe it's better to include it in the analysis knowing it can't be touched and just diversify around it? I say that because now that I've met this initial employment hurdle, in future years I will be able to use any additional stock as personal funds and direct it however I want i.e. hold, selloff, etc (unless the requirement changes which I'm not expecting for a while). Obviously the company stock is more than 10% of my retirement portfolio so I'm guessing you'll tell me I need to sell off any new company stock and invest it somewhere else? Which gets back to the original question of where to put the new funds. I don't know but I guess that it could be maybe $50-$100K worth of stock yearly moving forward... at least I hope :-D This has made me think that I need to check with the broker that's holding the stock to see what, if any fees they're charging me. :oops:

Thanks again.
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Re: 30s, Single - Please share your 401k/AA recommendations

Postby ruralavalon » Mon May 13, 2013 8:42 pm

DreamStrong wrote: . . . so now I'm not sure how to include/address the $260K of company stock in the AA discussion because I can't touch it, again it's a condition of my employment. Maybe I should ignore it for now and include any future stock in the analysis as I receive it? Or maybe it's better to include it in the analysis knowing it can't be touched and just diversify around it? I say that because now that I've met this initial employment hurdle, in future years I will be able to use any additional stock as personal funds and direct it however I want i.e. hold, selloff, etc (unless the requirement changes which I'm not expecting for a while). Obviously the company stock is more than 10% of my retirement portfolio so I'm guessing you'll tell me I need to sell off any new company stock and invest it somewhere else? . . . . .

You second observation is correct. Don't ignore the company stock, "it's better to include it [the $260k company stock] in the analysis knowing it can't be touched and just diversify around it". In other words, count that as part of your equities in the asset allocation, and invest the rest of your money accordingly. And since your company stock is already more than 10% of the total portfolio, sell off some of the company stock in the future when it becomes possible to do so.


DreamStrong wrote:Which gets back to the original question of where to put the new funds. I don't know but I guess that it could be maybe $50-$100K worth of stock yearly moving forward... at least I hope This has made me think that I need to check with the broker that's holding the stock to see what, if any fees they're charging me.
. . . . .
My [original] questions [were]:
1) How do you recommend I allocate the $100k from the old 401k? I thought I had it figured out but now I’m really confused given the backdoor roth opportunity and other stuff I read recently.
2) Do you recommend I make changes to my current asset allocations?

I will express no opinion about moving the old 401k into the new 401k and thereafter using backdoor Roth contributions, Wiki article link: Backdoor Roth IRA . You have covered that with other posters and I am no expert on that. What follows is based on instead using rollover IRAs for the old 401k money.

Asset allocation is as very personal decision, which you must make for yourself based on your ability and willingness to take investing risk. For a stock/bond allocation I will suggest 75/25, which would be fairly typical for your age (30s). Please see -- Wiki article link: Asset Allocation ; and regression viewtopic.php?p=1217243#p1217243 . For an internatonal allocation I will suggest 20% of total equities, please see -- Vanguard paper viewtopic.php?p=1217243#p1217243 ; and poll viewtopic.php?p=98922 . Thats at the low end of the suggested international range, which is in part dictated by the amount of space in the IRAs and in part by the lack of a good broad based international index fund in your current 401k.

Here is a portfolio idea to consider using a 75/25 stock/bond allocation, with 20% of stocks in international, and based on a total long term portfolio of $590k. Although it must start with the company stock (mid cap growth, tech sector?) you must keep, this portfolio tries to mimic a basic Three Fund portfolio, covering nearly all investible stocks and bonds. Please see -- Wiki article link: Three-fund portfolio ; and discussion viewtopic.php?f=10&t=88005&newpost=1506953 . (All percentages and dollar amounts are rounded off, so may not add up exactly.)

Rollover IRA @ Vanguard , ex-old Roth 401k (03%; $20k; no more contributions)
03%, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX), er = 0.16%

Rollover Roth IRA @ Vanguard, ex-old trad 401k (14%; $80k; no more contributions)
14%, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX), er = 0.16%

Current 401k @ Vanguard (34%; $200k; adds $17.5k/yr plus match of $1.5k = 78% of new contributions)
25%, Vanguard Total Bond Mkt Index Inv VBMFX, er = 0.2%
03%, Vanguard Emerging Mkts Stk Idx Inv VEIEX, er = 0.33%
06%, Vanguard 500 Index Fund Inv VFINX, er = 0.17%
00%, Vanguard Small-Cap Index Fund Inv NAESX, er = 0.24%, <= add later, about 5:1 ratio of S&P 500 to small cap approximates total domestic stock market, Wiki article link: Approximating Total Stock Market .

Another account (type of account? where?) (44%; $260k)
44%, company stock (mid cap growth, tech sector?)

IRA @ Vanguard (05%; $30k; adds $5.5k/yr = 22% of new contributions)
05%, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX), er = 0.16%

This gives you a simple, broadly diversified portfolio, with low investing expenses, using just 5 index funds.

As mentioned before, to increase diversification and reduce risk it would be a good idea to sell of some of the company stock as soon as allowed.

You will have to rebalance periodically in order to keep to your desired asset allocation, Wiki article link: Rebalancing . With the accounts set up this way you have all major asset types inside the current 401k, so you can do all or almost all necessary rebalancing inside that account. Its a good idea to do any necessary rebalancing inside a tax protected account in order to avoid creating unnecessary tax liability thru realizing capital gains.

I hope that this helps.
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Re: 30s, Single - Please share your 401k/AA recommendations

Postby DreamStrong » Wed May 15, 2013 9:27 am

ruralavalon wrote:...I hope that this helps.


Ruralavalon you are a rock star! Thank you. I have a lot of reading/research to do... I'll be back :mrgreen:
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