Trad/Roth TSP, 401k, IRAs -- Please Help with Allocations

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Trad/Roth TSP, 401k, IRAs -- Please Help with Allocations

Postby Xonim » Sat May 18, 2013 1:08 am

Emergency funds: 1.5 months, contributing $500/mo until 3 months saved
Debt: $55k total from auto & student loans @ 2.25%-4.5%, $224k mortgage @ 3.75%
Tax Filing Status: MFJ
Tax Rate: 25% Federal, 7.05% State
State of Residence: MN
Age: him 27 / her 34
Desired Asset allocation: 80-85% stocks 15-20% bonds
Desired International allocation: 20-30% of stocks

Current retirement assets: mid five-figures

His Traditional TSP
48% Lifecycle 2050 (ER .027)

His Roth TSP
7% Lifecycle 2050 (ER .027)

His Roth IRA at Vanguard
2% VANG TARGET RETIREMENT 2050 (VFIFX, ER .18)

Her 401(k) at Fidelity
8% PIM TOTAL RT INST (PTTRX, ER .46)
19% SPTN 500 INDEX INST (FXSIX, ER .04)
10% VANG INTL GROWTH ADM (VWILX, ER .36)
4% VANG SM CAP IDX SIG (VSISX, ER .10)

Her Roth IRA at Vanguard
2% VANG TARGET RETIREMENT 2045 (VTIVX, ER .18)

New annual Contributions
$2900 to Roth TSP, all to L2050
$2900 to Trad TSP (full employer match), all to L2050
$4200 to Fidelity 401k including full match, 45% to FXSIX, 11% to VSISX, 24% to VWILX, 20% to PTTRX
No Roth IRA automatic investments setup for now

Funds available in his TSP
*all .027 ER
C, S, I, G, F, Lifecycle

Funds available in her 401(k) at Fidelity
FID GROWTH CO K (FGCKX) 0.77%
FMI LARGE CAP (FMIHX) 0.96%
SPTN 500 INDEX INST (FXSIX) 0.04%
FID LOW PRICED STK K (FLPKX) 0.76%
DFA US TARGET VALUE (DFFVX) 0.38%
ROXBURY SMCAP GRTH I (RSCIX) 1.58%
VANG SM CAP IDX SIG (VSISX) 0.10%
DODGE & COX INTL STK (DODFX 0.64%
VANG INTL GROWTH ADM (VWILX) 0.36%
DODGE & COX BALANCED (DODBX) 0.53%
<Snipped Fidelity Freedom K Funds>
FID FREEDOM K 2045 (FFKGX) 0.63%
FID FREEDOM K INCOME (FFKAX) 0.39%
PIM TOTAL RT INST (PTTRX) 0.46%
VANG INFL PROT INST (VIPIX) 0.07%
VANG PRIME MM INST (VMRXX) 0.09%

Questions:
We just bought our first house last year with an FHA mortgage, so 2012 and 2013 contributions have only been up to the employer match, plus minimum opening deposits in Roth IRAs. We made it through one full round of MN seasons and now have the full arsenal of lawn/garden/snow equipment, and with the one major necessary project with this house nearing completion, we should be able to increase savings and debt repayment within the next few months. Anyway!

1) Looking mainly for help with asset allocation between the TSP and her 401k. Roth IRA balances are too low right now to be in anything other than Target Retirement funds (just opened in February with $1k minimum investments). Tried to do the best I could with her 401k, but not really feeling the international fund (VWILX), and unsure if PTTRX is worth the ER over VIPIX. Past performance doesn't indicate future results and I get that, but PTTRX seems to be a fund Bogleheads like to hate.

2a) Our MAGI for 2012 was barely in the 25% bracket. I do believe that tax rates will be going up by the time we retire. I believe social security benefits will exist then, but at a reduced rate. There is also a FERS pension involved -- currently vested at 5 years of service, age 27. In today's dollars, if everything was factored out ~35 years, estimated income at retirement from SS, FERS pension, and ~45-50k/year from retirement accounts would give us an income equal to or possibly even slightly greater than we earn right now. Should he continue to contribute to Roth TSP or go back to Trad TSP?

2b) Additionally, is it worth it for him to contribute to Roth IRA beyond the company match instead of just continuing with Roth/Trad TSP? Our thought was it would be good for both of us to have Roth IRAs, and they could act as an "extra emergency fund" if absolutely needed.

3) I know the US is a marginal tax system, so only a couple thousand for us was taxed at 25% last year. Should we look at increasing her 401k contributions to stay out of the 25% bracket completely or should we just start some monthly Roth IRA contributions?

4) Which account should be the first place we increase the rate of retirement savings? I'm going to guess either her 401k or her Roth IRA since she is 7 years older. Is that an accurate assumption?

Thanks in advance!
Xonim
 
Posts: 2
Joined: 17 May 2013

Re: Trad/Roth TSP, 401k, IRAs -- Please Help with Allocation

Postby Laura » Sat May 18, 2013 12:20 pm

Hi,

Welcome to the forum. You are lucky to have access to the outstanding TSP plan. That is one of the best plans around and you should take full advantage of the amazingly low costs. In your tax bracket I recommend stopping the roth TSP contributions and focusing regular TSP for now.

You should look at all of your holdings together as one portfolio. This means you have three options - the way you are doing this now with a Target Retirement type option in all of the accounts (you could use the Fidelity Freedom 2045 in the 401k although it is higher cost), continue the way you are now, or blend all these together into on portfolio without using the Lifecycle/Target retirement funds. I do think adding additional funds to either your TSP or her 401k account to get yourself out of the 25% bracket is a good idea if you can.

You might consider using the inflation protected securities option in the 401k since there are no TIPS in any of your other accounts and it has a very low expense ratio.

Laura
Laura
 
Posts: 6949
Joined: 19 Feb 2007

Re: Trad/Roth TSP, 401k, IRAs -- Please Help with Allocation

Postby stan1 » Sat May 18, 2013 1:32 pm

I would leave your asset allocation exactly as it is for now. Once you qualify for Admiral shares in the Roths you'll want to switch out of the Target Retirement funds. 1% here and 1% there in asset allocation doesn't make a difference. It's "close enough", and you are smart enough to figure out how to do the math to get the equivalent of a target retirement fund in Her 401K at a lower cost. Good job! :sharebeer

Going forward I'd shoot to keep at least 30% of your retirement accounts in a Roth with the remainder in Traditional. The current year tax breaks are great and get even better when you get into a higher tax bracket, but since your FERS pension will be taxable in retirement you'll never be in the lowest tax rates (assuming you stay with a federal job until retirement). I think tax diversification is the way to go.
stan1
 
Posts: 3150
Joined: 8 Oct 2007

Re: Trad/Roth TSP, 401k, IRAs -- Please Help with Allocation

Postby Xonim » Sat May 18, 2013 11:11 pm

stan1 wrote:Going forward I'd shoot to keep at least 30% of your retirement accounts in a Roth with the remainder in Traditional. The current year tax breaks are great and get even better when you get into a higher tax bracket, but since your FERS pension will be taxable in retirement you'll never be in the lowest tax rates (assuming you stay with a federal job until retirement). I think tax diversification is the way to go.


I never really looked at it this way. I knew we likely would be pretty close to our current income / bracket at retirement, and it seems we're in a gray area as far as which is definitely better. Diversification would probably be good, we'll probably focus the Roth portions more on the IRAs instead of Roth TSP.

laura wrote:In your tax bracket I recommend stopping the roth TSP contributions and focusing regular TSP for now.

You should look at all of your holdings together as one portfolio. This means you have three options - the way you are doing this now with a Target Retirement type option in all of the accounts (you could use the Fidelity Freedom 2045 in the 401k although it is higher cost), continue the way you are now, or blend all these together into on portfolio without using the Lifecycle/Target retirement funds. I do think adding additional funds to either your TSP or her 401k account to get yourself out of the 25% bracket is a good idea if you can.

You might consider using the inflation protected securities option in the 401k since there are no TIPS in any of your other accounts and it has a very low expense ratio.


I'll get the tsp contributions swapped back over toward the end of June. Going to use that date (pay period 13 of 26) so i can figure out what to increase the percentages to in order to stay out of the 25% bracket.

Her 401k was previously in the target retirement fund, but I finally noticed the ER and tried to get as close of an approximation as I could with the other funds and thus, a lower ER. I may drop the international fund from that 401k and just add some extra "I" fund in the tsp to drop the overall ER even further, while moving more toward an international index instead of growth.

Will also look at swapping PTTRX out for that Vanguard TIPS fund.

Thanks!
Xonim
 
Posts: 2
Joined: 17 May 2013


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