Help with Pre-Tax, Roth allocation percentages

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Help with Pre-Tax, Roth allocation percentages

Postby coachK1 » Sat Jul 27, 2013 7:56 am

Thanks for reading and answering - trying to figure out what best course of action is.

Looking for advice on how I should allocate my contributions for the next 8 months. Employment is ending on 8/31/2013 after which I no longer qualify for company match, but I can still contribute to my retirement plan. I will receive severance until 04/01/2014. I am 56 and hope to be able to get another job.
Current Contributions are in Vanguard Target Retirement 2020 fund where the expense ratio is only 0.0825%.
Pre-Tax 8%
Roth 22%
Roth Catch-up 8%

I’ll probably keep my dollars with my current employer to take advantage of the low expense ratio. Should I continue with the current allocations or should I get rid of the 8% in Pre-Tax and put everything in the Roth?
Not sure if any other information is needed, but if it is, let me know.
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Re: Help with Pre-Tax, Roth allocation percentages

Postby tyler_cracker » Sat Jul 27, 2013 12:53 pm

just follow the template in the sticky. it's hard to understand the whole picture unless you give us the whole picture.

fwiw if you're able to max out your 401k deferrals and therefore max out the company match before you are terminated, i would do that because i like free money.
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Re: Help with Pre-Tax, Roth allocation percentages

Postby coachK1 » Sun Jul 28, 2013 6:31 am

tyler_cracker wrote:just follow the template in the sticky. it's hard to understand the whole picture unless you give us the whole picture.

fwiw if you're able to max out your 401k deferrals and therefore max out the company match before you are terminated, i would do that because i like free money.

Since I'll only be paid until August 31st, no way to max out 401 before leaving. Not really looking for advice on where the money should be allocated, really trying to figure out if the allocation percentages between pre-tax 401k and Roth are Ok or should they be shifted. Because of the low expense ratio in my 401K, I'll probably leave it with my ex-employer for foreseeable future.

Wife and I both 56, Current Portfolio is High 6 figures
Emergency Funds - 1 Year approx $60,000.00
Debt - No
Married Filing Jointly
Tax Rate Fed - 25.00%
Tax Rate State - 3.10%
State - PA

New Annual Contributions
Her 401k (20%) - $12,000 Per Yr, 3% match
Her IRA - $6,500
His 401k
Pre-Tax 8% $4,960
Roth 22% $13,640
Roth Catch-up 8% $4,960

Below is list as asset held, Expense Ratio and % of Portfolio it represents
Wells Fargo Mortgage Back security - % of portfolio - 0.90%
Vanguard Total International Stock Index Fund Admiral Shares VTIAX 0.16% 1.78%

His IRA
Royal Bank Canada Principle Protected Note - % of portfolio 0.91%
Vanguard LifeStrategy Moderate Growth Fund VSMGX 0.16% 6.60%

His 401K
Vanguard Target Retirement 2020 Fund VTWNX 0.08% (Yes, 0.08% is correct) 33.23%

HER IRA
Vanguard LifeStrategy Moderate Growth Fund VSMGX 0.16% 44.33%
HSBC BANK USA NA SER 3 GLBL INDY CD FDIC ZERO CPN - % of portfolio - 0.76%

Her 401K
Vanguard Target Retirement 2020 Fund VTWNX 0.16% 11.49%
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Re: Help with Pre-Tax, Roth allocation percentages

Postby tyler_cracker » Sun Jul 28, 2013 12:34 pm

coachK1 wrote:Since I'll only be paid until August 31st, no way to max out 401 before leaving.


what i meant was: if you are able to increase your 401k deferrals to (let's pretend) 100% of your last two paychecks, you would maximize the amount of tax-advantaged space you're creating this year. depending on how your company match works, this might have the additional benefit of getting a few more dollars from your soon-to-be-former-employer before you leave.

New Annual Contributions
Her 401k (20%) - $12,000 Per Yr, 3% match
Her IRA - $6,500
His 401k
Pre-Tax 8% $4,960
Roth 22% $13,640
Roth Catch-up 8% $4,960


so actually your question is entirely about what to do with His 401k contributions -- specifically, how much of His 401k contributions to direct to traditional 401k vs Roth 401k. is that it?

but you only have one month (~2 more paychecks) to deal with? or have you already contributed the $23k max (as it says in this list of annual contributions)? what percent of the total portfolio do we have left to work with?

idk if it's you or me but this conversation is difficult for me to follow. anyway i'll take a stab:

first, read and understand this: http://www.bogleheads.org/wiki/Traditional_versus_Roth

if you can use pre-tax 401k deferrals to get into a lower tax bracket (or remain in the 25% bracket) for this year, i think that's a slam dunk.

if you are confident that you'll be in a higher tax bracket in retirement than you are today (SS, pension, large inheritance, ...), then i would max out the roth contributions.

failing those two criteria, since your portfolio is mostly tax-deferred rather than tax-free i guess tax diversification would argue for directing more contributions towards roth vehicles.

finally, there is a conspicuous absence of His IRA. i would correct that immediately.

gl!
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Re: Help with Pre-Tax, Roth allocation percentages

Postby tyler_cracker » Sun Jul 28, 2013 12:37 pm

oh and i think keeping your 401k where it's at is fine. i agree that's a nice ER on the vanguard tr fund. however, be on the lookout -- sometimes things change when you're no longer an employee (e.g. you might have to pay fees that your employer used to pay).
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