First post - Financial Checkup & retirement allocations

[Kozmig]

Hello everyone,

after reading this and some other financial forums for a while, I realize it's time for me to seek the advice of those wiser than me when it comes to investing and financial management.

Here is the relevant information. Please let me know if I leave anything out that would be important:

Me: 39
Wife: 38
1 child: 8

Additional info: Wife suffers from fibromyalgia, making employment impossible. Son has autism, although not severe. He attends the special education class in our school district. Moderate medical bills ~ $3500 per year not including insurance premiums.

I just started a new job this year. Salary $125k + decent bonus opportunity. The company offers a 3% 401k match on the first 6% I invest, and potentially another 3% at year end at the discretion of the board (it has been paid out the last 3-4 years) - I think this has something to do with the Safe Harbor provision.

Home: Appraised for $205k a couple of months ago when I refinanced it. Loan amount: $160k. Rate 2.875%, 15 years (payment #2 due Feb 1)
Vehicle 1: Owe $24k at 1.49%
Vehicle 2: Owe $5k at 1.49%
Credit Card: Owe $3.9k at 0% interest until it is paid off (I had a 0% interest, 0% balance transfer fee offer a few years ago - took advantage of offer, and taking my time paying it off since it is 0% interest).

Emergency Fund: $43k (would represent around 9 months of living expenses with some cutting back)

Retirement Accounts: Total around $173k

His roll-over 401k at Vanguard:

Vanguard Total Stock Market Index Fund Admiral Shares VTSAX Large Blend 0.06% ER $31,354.86 18.2% of portfolio
Vanguard FTSE All-World ex-US Index Fund Investor Shares VFWIX International 0.35% $8,506.52 4.9%

Previous Employer 401k at Fidelity #1
Fidelity® Money Market Trust Retirement Government Money Market Portfolio FGMXX Short-Term 0.42% ER $31,766.87 18.4%
(recently moved everything in the MM thinking about rolling over into Vanguard account or current employer's 401k, but would like advice on this too)

Previous Employer 401k at Fidelity #2
T. Rowe Price Equity Income Fund PRFDX Large Cap 0.68% $14,129.13 8.2%
Vanguard Institutional Index Fund Institutional Shares VINIX Large Cap 0.04% $7,413.16 4.3%
Lord Abbett Fundamental Equity Fund Class I LAVYX Large Cap 0.74% $14,070.15 8.2%
Fidelity® Capital Appreciation Fund - Class K FCAKX Large Cap 0.81% $5,545.86 3.2%
Morgan Stanley Institutional Mid Cap Growth Fund Class I MPEGX Mid Cap 0.70% $10,885.96 6.3%
JPMorgan Mid Cap Value Fund Institutional Class FLMVX Mid Cap 0.76% $6,044.47 3.5%
BlackRock Small Cap Growth Equity Portfolio Institutional Shares PSGIX Small Cap 0.80% $21,970.52 12.7%
Royce Opportunity Fund Investment Class RYPNX Small Cap 1.17% $20,689.76 12.0%

Current Employer 401k at Fidelity
nothing invested yet - available to invest in February

Plan for 2013:
Invest $17,500 in 401k on a pre-tax basis
HSA $5450 + $500 contributed by company

Desired Portfolio allocation:
I've been very aggressive so far trying to get back what I lost in 2008. Lately I've been worried about the future economic outlook. I think there will be a recession in the 2nd half of 2013 and through 2014. Not sure what I should do to account for this, but I think I should do something like:

70/30 or 70/35 split stocks/bonds+MM
25-30% international allocation.


Here are the available options in the 3 Fidelity 401k accounts:

Previous Employer 401k at Fidelity #1
Allianz NFJ Dividend Value Fund Institutional Class NFJEX Large Cap 0.71%
Fidelity Contrafund FCNTX Large Cap 0.81%
Spartan 500 Index Fund - Fidelity Advantage Class FUSVX Large Cap 0.05%
Dreyfus Mid Cap Index Fund PESPX Mid Cap 0.50%
Columbia Acorn USA Class Z AUSAX Small Cap 1.05%
Northern Small Cap Value Fund NOSGX Small Cap 1.01%
Vanguard Small-Cap Index Fund Institutional Shares VSCIX Small Cap 0.14%
Dodge & Cox International Stock Fund DODFX International 0.64%
Janus Overseas Fund Class T JAOSX International 0.94%
RS Emerging Markets Fund Class A GBEMX International 1.49%
Spartan® International Index Fund - Institutional Class FSPNX International 0.07%
SSgA Dow Jones Target 2035 IndexSM Non-Lending Series Fund Class C Blended 0.48%
SSgA Dow Jones Target 2045 IndexSM Non-Lending Series Fund Class C Blended 0.48%
SSgA Dow Jones Target Today IndexSM Non-Lending Series Fund Class C Blended 0.48%
JPMorgan Short Duration Bond Fund Select Class HLLVX Bond-Income 0.55%
MainStay High Yield Corporate Bond Fund Class A MHCAX Bond-Income 0.99%
Vanguard Total Bond Market Index Fund Institutional Shares VBTIX Bond-Income 0.07%
Fidelity® Money Market Trust Retirement Government MM Portfolio FGMXX Short-Term 0.42%

Previous Employer 401k at Fidelity #2
T. Rowe Price Equity Income Fund PRFDX Large Cap 0.68%
Vanguard Institutional Index Fund Institutional Shares VINIX Large Cap 0.04%
Lord Abbett Fundamental Equity Fund Class I LAVYX Large Cap 0.74%
Fidelity® Capital Appreciation Fund - Class K FCAKX Large Cap 0.81%
American Funds American Mutual Fund Class R-5 RMFFX Large Cap 0.37%
Fidelity® Contrafund® - Class K FCNKX Large Cap 0.69%
Morgan Stanley Institutional Mid Cap Growth Fund Class I MPEGX Mid Cap 0.70%
JPMorgan Mid Cap Value Fund Institutional Class FLMVX Mid Cap 0.76%
BlackRock Small Cap Growth Equity Portfolio Institutional Shares PSGIX Small Cap 0.80%
Royce Opportunity Fund Investment Class RYPNX Small Cap 1.17%
Fidelity® Diversified International Fund - Class K FDIKX International 0.84%
Fidelity® Worldwide Fund FWWFX International 1.11%
Oppenheimer Developing Markets Fund Class Y ODVYX International 1.03%
Fidelity Freedom K® 2035 Fund FKTHX Blended 0.62%
Fidelity Freedom K® 2040 Fund FFKFX Blended 0.62%
Fidelity Freedom K® 2045 Fund FFKGX Blended 0.63%
Fidelity Freedom K® Income Fund FFKAX Blended 0.39%
Managed Income Portfolio II Class 1 Bond-Stable 0.50%
Fidelity® High Income Fund SPHIX Bond-Income 0.76%
PIMCO Total Return Fund Institutional Class PTTRX Bond-Income 0.46%

Current Employer 401k at Fidelity
American Funds Growth Fund of America Class R-5 RGAFX Large Cap 0.39%
T. Rowe Price Dividend Growth Fund PRDGX Large Cap 0.68%
Vanguard Windsor II Fund Admiral Shares VWNAX Large Cap 0.27%
Vanguard 500 Index Fund Signal Class VIFSX Large Cap 0.05%
Fidelity® Low-Priced Stock Fund FLPSX Mid Cap 0.88%
Morgan Stanley Institutional Mid Cap Growth Fund Class I MPEGX Mid Cap 0.70%
RidgeWorth Mid-Cap Value Equity Fund Class I SMVTX Mid Cap 1.07%
Spartan® Extended Market Index Fund - Fidelity Advantage Class FSEVX Mid Cap 0.07%
BlackRock Small Cap Growth Equity Portfolio Institutional Shares PSGIX Small Cap 0.80%
Gabelli Small Cap Growth Fund Class AAA GABSX Small Cap 1.42%
Heartland Value Plus Fund HRVIX Small Cap 1.16%
American Funds EuroPacific Growth Fund Class R-5 RERFX International 0.55%
American Funds SMALLCAP World Fund Class R-5 RSLFX International 0.78%
Janus Overseas Fund Class I JIGFX International 0.76%
Lazard Emerging Markets Equity Fund Class Institutional LZEMX International 1.12%
ING Global Real Estate Fund Class A IGLAX Intl - Specialty 1.31%
Fidelity Freedom® 2035 Fund FFTHX Blended 0.75%
Fidelity Freedom® 2040 Fund FFFFX Blended 0.75%
Fidelity Freedom® 2045 Fund FFFGX Blended 0.75%
Fidelity Freedom® Income Fund FFFAX Blended 0.44%
MetLife Stable Value Option Bond-Stable 0.97%
Fidelity® High Income Fund SPHIX Bond-Income 0.76%
PIMCO Total Return Fund Administrative Class PTRAX Bond-Income 0.71%
Templeton Global Bond Fund Class A TPINX Bond-Income 0.91%
Vanguard Short-Term Treasury Fund Admiral Shares VFIRX Bond-Income 0.10%

Questions and things I would like advice on:
- I feel like I've done well cutting costs, and refinancing loans to really low rates, but I feel like i am no where near where I need to be in terms of retirement savings. 2008-2011 took a bit hit on my 401k accounts, and it wasn't until 2012 when it came back to 2008 levels. I'd like to create an action plan on how I can maximize retirement/savings opportunities. I know I can contribute to both his and hers Roth IRA accounts for $5500 each in 2013, but not sure if I will be able to save that much due to contributing to the HSA account (I plan on paying cash for medical expenses leaving the HSA for future years if possible).
- Should I move any of the 2 previous employer's 401k accounts into Vanguard or my current employer's 401k?
- Which, from all the options available, should I pick to get to my new portfolio allocation?

Last and not least, thank you to all the great people on this board. Just putting the above information together is quite a handful, so I have to give a lot of respect to those who read through these posts, make sense of all of it, and put the time to think through options and picking the best alternatives available. Thank you all in advance for any advice you can provide, and if I've left anything out, I will be happy to provide the information, or my thought process so far.

Best regards,
Nick.

[Mill]

Hi Nick and welcome to BH. Here are my thoughts.

I would keep it simple and roll your previous 401(k)'s into your current one. You have some reasonable investment options in there. I have found in general that when there are multiple solutions to a question/problem, its usually best to just pick the simpleist one. This is more of a personal decision, and you should consider how long you plan to be at your current employer.

Your main concern is your asset allocation. I can sense that you are somewhat emotional when it comes to investing, and the crash of 08 will do that. So find your risk tolerance, and rebalance to it asap. It will probably be best if you overestimate how devistated you will be if the stock market drops 50% while youre still invested uber-aggressively. Age in bonds (as a percentage of assets) is a good starting point.

That being said, the following funds in your current 401(k) will keep you pretty diversified, while keeping expenses down.
American Funds EuroPacific Growth Fund Class R-5 RERFX International 0.55%
Vanguard Short-Term Treasury Fund Admiral Shares VFIRX Bond-Income 0.10%
Vanguard 500 Index Fund Signal Class VIFSX Large Cap 0.05%

Just keep in mind that your entire portfolio (assets you have in taxable accounts, Roth IRA's, bonds) needs to be considerred when determining your overall asset allocation, not just the assets in your retirement accounts.

Cheers

[BolderBoy]

Should I move any of the 2 previous employer's 401k accounts into Vanguard or my current employer's 401k?

I'm a fan of leaving previous employers completely if possible, including their retirement plans. If your present employer allows you to roll your previous retirement plans into his, and you like the investment options to choose from, then consider doing that. Rolling them over to a Vanguard account means opening a tIRA which for later planning may not be helpful (if you were to want to do "backdoor rIRA" contributions, say.)

[Duckie]

Kozmig, you have a few good options in your old 401k plans, if you want to keep them. I wouldn't roll them to your new 401k. It's not as good. So either keep them or roll them into your existing Rollover IRA at Vanguard. (I am assuming by "Rollover 401k at Vanguard" you mean a former 401k that has been rolled over to an IRA.)

If you keep the old 401k plans:

Rollover IRA at Vanguard -- 23%
Any Vanguard funds.

Old 401k at Fidelity #1 -- 18%
(FUSVX) Spartan 500 Index Fund Advantage Class (0.05%)
(FSPNX) Spartan International Index Fund Institutional Class (0.07%)
***(VBTIX) Vanguard Total Bond Market Index Fund Institutional Shares (0.07%)

Old 401k at Fidelity #2 -- 59%
***(VINIX) Vanguard Institutional Index Fund Institutional Shares (0.04%)
(PTTRX) PIMCO Total Return Fund Institutional Class (0.46%)

Current 401k at Fidelity -- 0%
(VIFSX) Vanguard 500 Index Fund Signal Shares (0.05%)
***(FSEVX) Spartan Extended Market Index Fund Advantage Class (0.07%)
(VFIRX) Vanguard Short-Term Treasury Fund Admiral Shares (0.10%)

With an AA of 70/30 or 49/21/30:

• In the Old 401k at Fidelity #1 you could have all 18% in VBTIX.
• In the Old 401k at Fidelity #2 you could have 49% in VINIX and 10% in PTTRX to start.
• In the Current 401k at Fidelity you could buy 100% FSEVX until its value gets to one-quarter the value of VINIX. (80% large caps [Institutional Index/500 Index] plus 20% mid/small caps [Extended Market] makes up the total US stock market.) Then start buying VIFSX.
• In the Rollover IRA at Vanguard buy 21% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.18%) and the rest (VTSAX) Vanguard Total Stock Market Index Admiral Shares (0.06%).

Or you could roll both old 401k accounts over to Vanguard and just use VIFSX and FSEVX in your current 401k.

Just some possibilities.

[rickmerrill]

Although your asset allocation is obviously important I would advise you spend some more time on the budget side and concentrate on contributing as much as possible as soon as possible. Set a goal to max out both Roths ASAP. Plan on increasing to the max on everything once you hit 50 and can do catch ups. This is where you should focus.

You asked what you should do because you think the markets might _____ (fill in the blank). NO BODY KNOWS! So the first thing you need to do is stop listening to the talking heads, skip the predictions of the financial "experts" and learn that they do that black magic that they do so well to make money - or they are self decieved. All we mere mortals can hope to get is what the market gives us - broken record - we seek low cost and diversified. That's the magic plan.

On asset allocation, I feel that 70/30 is on the upper range for you but this is a very personal decision. Somewhere between there and age in bonds may be more appropriate for now but if 40/60 is right for you that's fine too. If during a market downturn or two you find yourself happily rebalancing you might consider increasing your risk a bit. This is not as much an academic exercise as it is a viseral measurement of your level of risk - your head won't stop your gut from gaining control.

The only other comment I wanted to make is that you need have enough life insurance to protect your family but I'm guessing you already do.

[Bob's not my name]

I plan on paying cash for medical expenses leaving the HSA for future years if possible.

Does this make sense?

Your choice: get the tax deduction on $5,450 HSA contribution (federal income tax, state income tax, payroll taxes) and spend post-tax cash on $3,500 of medical expenses. If you are in the 25% bracket, in the child tax credit phaseout, and have an 8% state tax and you itemize, $3,500 of post-tax money requires about $5,500 of gross income.

Alternative: get the tax deduction on $5,450 HSA contribution, spend $3,500 on medical expenses, and have $2,000 left over, and contribute $5,500 to a deductible spousal TIRA. To be eligible for the spousal TIRA your gross income needs to be under about $205,000.

Your choice is yielding $5,450 of tax-deferred savings, while the alternative would yield $7,500 at no extra cost to you. What am I missing? I'm not familiar with HSA's, so maybe I'm missing something key. I do understand that HSA withdrawals could be tax-free, while TIRA withdrawals aren't necessarily so, but in the event of a major medical expense, TIRA withdrawals can be tax- and penalty-free for expenses above 10% of AGI.

If you are maxing out your retirement accounts, you should treat the HSA as an opportunity for further savings, like an IRA, and not withdraw from it until you retire.

but you're not maxing out your retirement accounts.

[Kozmig]

Thank you all for the comments and suggestions so far. There's definitely a couple of angles I did not see before.

One of the reasons I previously hesitated about closing down some of my old 401ks is that I liked some of the options there, but I think I ended up "covering" my bets within each account. I do like the idea of simplifying everything, and I have been given a few suggestions on how to do that, which I'll look at and pick from.


Bon's not my name - thank you also for the perspective of the HSA. It definitely makes sense. I will add a TIRA for my spouse. We are under the $205k limit, so it should be ok, and I will also look at contributing for 2012 as well, since I haven't filed my taxes yet.

Thank you everyone for the responses. I really appreciate the insight and things to consider.

Nick.

[Bob's not my name]

We are under the $205k limit, so it should be ok, and I will also look at contributing for 2012 as well, since I haven't filed my taxes yet.

The 2013 MAGI phaseout is $178,000 - $188,000. For 2012 it is $173,000 - $183,000. I figured:

$205,000 gross income
- $4,000 pre-tax medical, dental, and disability insurance premiums withheld from your pay
- $5,500 HSA contribution
- $17,500 401k contribution
---------------
$178,000 MAGI --> under the 2013 phaseout

[Kozmig]

We are under the $205k limit, so it should be ok, and I will also look at contributing for 2012 as well, since I haven't filed my taxes yet.

The 2013 MAGI phaseout is $178,000 - $188,000. For 2012 it is $173,000 - $183,000. I figured:

$205,000 gross income
- $4,000 pre-tax medical, dental, and disability insurance premiums withheld from your pay
- $5,500 HSA contribution
- $17,500 401k contribution
---------------
$178,000 MAGI --> under the 2013 phaseout

For 2012 I was no where close to $178k. For 2013, after bonuses paid out for 2012 + signing-on bonus, I will still only be at $150 gross, so still good there.

Thanks again for your help. I will have my wife sign up for a TIRA account this weekend, and fund it ASAP.

[Bob's not my name]

$150,000 gross would make your AGI about $123,000. That puts you in the child tax credit phaseout, so your total marginal rate is 25% federal nominal + 5% due to child tax credit phaseout + x% state. At a 30-37% marginal rate the deductible TIRA avoids a lot of taxes.

[Kozmig]

$150,000 gross would make your AGI about $123,000. That puts you in the child tax credit phaseout, so your total marginal rate is 25% federal nominal + 5% due to child tax credit phaseout + x% state. At a 30-37% marginal rate the deductible TIRA avoids a lot of taxes.

Playing around with my tax software, I figured I would save $200 in taxes for 2012 if I put $5k in a deductable TIRA. The benefit for 2013 would be more by the looks of things, so I will fund 2013 first, and then figure if I can fund $5k for 2012 as well.

Thank you again for your help!

[Bob's not my name]

Playing around with my tax software, I figured I would save $200 in taxes for 2012 if I put $5k in a deductable TIRA.

That would mean your marginal rate is 4%, which isn't possible.

[Kozmig]

Playing around with my tax software, I figured I would save $200 in taxes for 2012 if I put $5k in a deductable TIRA.

That would mean your marginal rate is 4%, which isn't possible.

I'll have to play in the tax software again. I did test out a few scenarios, so maybe I was remembering the amount incorrectly.

Thanks again!