Portfolio review: How can I make this painful rebalancing a little less painful?

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Topic Author
COYB
Posts: 22
Joined: Wed Apr 21, 2021 9:38 am

Portfolio review: How can I make this painful rebalancing a little less painful?

Post by COYB »

Hello Bogleheads,

I have lately come to realize the error of my haphazard investment strategy over the past decade. (There was no “strategy” to it, actually—other than aiming for an 85/15 split of stocks/bonds.) I am still very much a novice, and I’m looking for advice on how best to optimize my investments while limiting my tax burden. Thanks for listening.

Emergency funds: $65,000 (=13 months expenses, but I expect a quarter of this to go to home renovation later this year)

Debt: Two mortgages:
$356,975 at 3.625% (I’m about to rent this home out for slightly more than my mortgage.)
$664,000 at 2.875% (My new home. I am responsible for only half of this.)

Tax Filing Status: Single this year, but getting married next year; I don’t know if we’ll file jointly or separately (looking for advice!)

Tax Rate: 24% Federal, 8.5% State

State of Residence: D.C.

Age: 44

Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 30-40% of stocks

I’m embarrassed to admit that I’m not sure what my desired allocations should be. My total portfolio is between $1-2 million. I don’t expect my salary to increase much at this point in my career, and steady work could become harder to find once I’m over 50. My fiancée, meanwhile, has less savings than I do right now but will surpass me within 5 years or so. She earns double my salary and likely will earn increasingly more over the next two decades. Of course, no marriage is guaranteed to last forever! Anyway, I’ll explain a little more in my questions below...

Current retirement assets

Taxable

16.5% Vanguard International Growth Fund Admiral Shares (VWILX) (0.33%)
1.9% Vanguard European Stock Index Fund Admiral Shares (VEUSX) (0.10%)
9.6% Vanguard U.S. Growth Fund Admiral Shares (VWUAX) (0.28%)
5.3% Vanguard Explorer Fund Admiral Shares (VEXRX) (0.30%)
2.5% Vanguard Value Index Fund Admiral Shares (VVIAX) (0.05%)
3% Vanguard Mid-Cap Index Fund Admiral Shares (VIMAX) (0.05%)
20.8% Vanguard 500 Index Fund Admiral Shares (VFIAX) (0.04%)
9.8% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.04%)

Traditional IRA at Vanguard

0.5% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.04%)

Roth IRA at Vanguard

14.1% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.04%)

401k

16.1% Vanguard 500 Index Fund Investor Shares (VFINX) (0.14%)

Contributions

New annual Contributions

$14,000 to 401k (The company matches half up to 6% and an additional quarter up to 10%. I contribute 10%.)
$6,000 to Traditional IRA (My earnings last year were above the Roth IRA phaseout for the first time.)

Available funds in 401(k)

Vanguard 500 Index Inv (VFINX)
Vanguard Growth Index Inv (VIGRX)
Vanguard Growth and Income Inv (VQNPX)
Vanguard High Dividend Yield Index Adm (VHYAX)
Vanguard Inflation-Protected Sec Inv (VIPSX)
Vanguard Mid-Cap Growth Index Inv (VMGIX)
Vanguard Mid-Cap Index Inv (VIMSX)
Vanguard Mid-Cap Value Index Inv (VMVIX)
Vanguard Real Estate Index Inv (VGSIX)
Vanguard Small-Cap Growth Index Inv (VISGX)
Vanguard Small-Cap Index Inv (NAESX)
Vanguard Small-Cap Value Index Inv (VISVX)
Vanguard Target Retirement 2015 Inv (VTXVX)
Vanguard Target Retirement 2020 Inv (VTWNX)
Vanguard Target Retirement 2025 Inv (VTTVX)
Vanguard Target Retirement 2030 Inv (VTHRX)
Vanguard Target Retirement 2035 Inv (VTTHX)
Vanguard Target Retirement 2040 Inv (VFORX)
Vanguard Target Retirement 2045 Inv (VTIVX)
Vanguard Target Retirement 2050 Inv (VFIFX)
Vanguard Target Retirement 2055 Inv (VFFVX)
Vanguard Target Retirement 2060 Inv (VTTSX)
Vanguard Target Retirement 2065 Inv (VLXVX)
Vanguard Target Retirement Income Inv (VTINX)
Vanguard Total Bond Market Index Inv (VBMFX)
Vanguard Total Intl Stock Index Inv (VGTSX)

Additional Info:

Image
Image

Questions:

1. Years ago I invested heavily in growth funds because I didn’t know what I was doing. I stupidly saw the rate of the return and wasn’t informed enough to weigh that against the expense ratio and the likelihood that I wouldn’t beat the market. I don’t want to try to beat the market, I want to match it: I just want a simple, balanced portfolio of low-cost index funds. I would like VFIAX, VTSAX, and VTIAX to be my taxable funds—unless you think I should consider anything else?

Investing new savings and redirecting dividends into the funds I want to hold onto won’t be enough to meaningfully rebalance my portfolio. I would need to sell some of them, and they have all performed well enough that I would feel the pain at tax time.

A few questions, then: Should I sell them now? I will eventually pay taxes on these gains anyway, of course, but I am definitely in a higher tax bracket now than I will be at retirement. Should I wait for a big market crash so the taxes are reduced? Should I wait until I get laid off and am in the 0% bracket? Should I leave it alone?

2. A related tax question, in the event I become unemployed: Does the IRS definition of “taxable income” include capital gains? For instance, if I had no income this year (hypothetically) but had 50K in capital gains by selling a mutual fund, would I still be in the 0% bracket or 15%?

3. A few people have recommended that on the funds I wish to exit, I should change my cost basis method to specific identification, so I can first sell shares with less gains. I have always done average cost because it’s really simple. I’ll admit I am intimidated to try specific identification because I think that might really complicate my taxes and/or it requires that I do extensive record-keeping. I do my own taxes, and I would like to keep it that way if possible. But is this worth trying to figure out? (I’m also not sure it makes a lot of sense because most of my growth fund shares were bought all at once—I didn’t continually invest in them, other than having the dividends automatically reinvest.)

4. I recently liquidated my bond index funds in my taxable account in order to pay for a down payment on a second home. (I’m going to rent out the first home for more than my mortgage.) I did this knowing that I would then exchange funds within my tax-advantaged accounts to get to my target bond %, because I was advised that I should hold bonds in tax-advantaged accounts. I figure I could shift my 401k into VBMFX. Or I could shift my Roth IRA into something else—one Boglehead recommended a treasury index fund of the duration of my choice (though I’m not sure what duration would be ideal).

The question is, what should my bond % be? I am comfortable with risk, and would not be scared to ride out a few more downturns over the next 20 years. I said above that my desired split is 85/15 stocks/bonds, but I would even be comfortable with 90/10. But I know that the Bogleheads' Guide to Investing recommends doing your age in bonds, in which case I’d be 66/44. That feels too conservative to me, but I do want to follow the data. What is a wise split for someone my age who can handle the risk?

5. An eternal debate, I know, but: Is there any reason to convert any of these Admiral funds into ETFs? The latter has slightly better expense ratios, but I'm not sure how meaningful the difference is.

Thanks for your help!

Best,
Joseph
Last edited by COYB on Wed May 19, 2021 1:15 pm, edited 1 time in total.
tashnewbie
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Joined: Thu Apr 23, 2020 12:44 pm

Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by tashnewbie »

This isn't really a direct response to some of your questions, but some things that jumped out to me:

If your income is too high to make direct Roth contributions, you should be using the Backdoor Roth. Make the non-deductible TIRA contribution and convert SHORTLY thereafter, when the funds are settled and available to trade. You have to file Form 8606 with your taxes each year you make a n-d TIRA contribution or do a Roth conversion. It's easier to fill out this form if you do both the contribution and the conversion (the 2 steps of the backdoor) in the same calendar year for the same tax year.

Max your traditional 401k each year ($19.5k). You can afford to do this.

Add bonds via Vanguard Total Bond Market Index Inv (VBMFX) in your 401k.

I would probably turn off automatic reinvestment of dividends on all of the funds in the taxable account and stop making new contributions to everything, except VTSAX. I wouldn't be worried about selling VFIAX. You can use that as a TLH partner, when opportunities arise in the future.

I don't think I'd be in a big hurry to sell your funds in taxable. You could explore donating them to charity via a DAF.

I think capital gains are considered taxable income.

Do you expect to be unemployed soon or is there a greater than negligible risk that you'll be unemployed sometime?

You should definitely turn your cost basis to specID, regardless of whether you decide to sell funds. SpecID makes selling much easier, in my opinion.
Topic Author
COYB
Posts: 22
Joined: Wed Apr 21, 2021 9:38 am

Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by COYB »

tashnewbie wrote: Wed May 19, 2021 11:52 am If your income is too high to make direct Roth contributions, you should be using the Backdoor Roth. Make the non-deductible TIRA contribution and convert SHORTLY thereafter, when the funds are settled and available to trade. You have to file Form 8606 with your taxes each year you make a n-d TIRA contribution or do a Roth conversion. It's easier to fill out this form if you do both the contribution and the conversion (the 2 steps of the backdoor) in the same calendar year for the same tax year.

I would probably turn off automatic reinvestment of dividends on all of the funds in the taxable account and stop making new contributions to everything, except VTSAX. I wouldn't be worried about selling VFIAX. You can use that as a TLH partner, when opportunities arise in the future.

Do you expect to be unemployed soon or is there a greater than negligible risk that you'll be unemployed sometime?

You should definitely turn your cost basis to specID, regardless of whether you decide to sell funds. SpecID makes selling much easier, in my opinion.
Thanks tashnewbie! Some of this makes a lot of sense, while some of it is over my head.

I find the Backdoor Roth intimidating, admittedly, but I will do more research on it. (I tend to contribute to my IRA the year after, while doing my taxes.)

I also don't know the first thing about how TLH partners work. My understanding of TLH is very basic. I know that if I sell a fund that is below what I originally paid for it, then I can deduct those losses on my taxes. But is there a way to TLH even if the fund is above what I originally paid, if there's been a market dip? This is where I get lost. Is there where SpecID comes into play? I sell more recent shares? What is the advantage of SpecID for a fund that I'm not even selling? Couldn't I just change it to SpecID when it comes time to sell? :confused

I don't expect to be unemployed soon, but it's likely I'll be unemployed within the next 3-5 years. It's just the volatile nature of the industry I work in.
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retired@50
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by retired@50 »

COYB wrote: Wed May 19, 2021 10:45 am Taxable

16.5% Vanguard International Growth Fund Admiral Shares (VWILX) (0.33%)
1.9% Vanguard European Stock Index Fund Admiral Shares (VEUSX) (0.10%)
9.6% Vanguard U.S. Growth Fund Admiral Shares (VWUAX) (0.28%)
5.3% Vanguard Explorer Fund Admiral Shares (VEXRX) (0.30%)
2.5% Vanguard Value Index Fund Admiral Shares (VVIAX) (0.05%)
3% Vanguard Mid-Cap Index Fund Admiral Shares (VIMAX) (0.05%)
20.8% Vanguard 500 Index Fund Admiral Shares (VFIAX) (0.04%)
9.8% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.04%)

Thanks for your help!
The two three highlighted funds above are the least tax-efficient funds you hold in the taxable account.

I've corrected the expense ratio for the International Growth Fund, it's .33%, not .05%. The International Growth fund and the Explorer Fund each distribute what are known as "capital gains distributions" each year which are sometimes referred to as the "December Surprise" because you get tagged with additional income, beyond the dividend yield, that you probably don't need.

If you choose to sell anything in the taxable account, it should be these. If you still want to own them, that's fine, but I'd suggest you tuck them into a Roth IRA so the annual distributions don't create unwanted taxable income.

ETA. See below.
I'd also suggest you conquer your fear of spec-ID. It's not hard, and if you're using Vanguard, their groovy little window that pops up when you're selling shares allows pinpoint control over which shares to sell, and creates a running estimated tabulation of how much the proceeds will be, and how much you'll see in capital gains (or losses). When tax time rolls around, it's the same basic idea. You report the proceeds from the sale, and how much of that amount was your basis.

As a guidepost for bond allocation percentage, you could consider holding the bond percentage that is currently held in an age appropriate target date retirement fund, like 2040 or whatever. Check the details under the "Portfolio & Management" tab to see what percent of the fund is actually in bonds.

Regards,
Last edited by retired@50 on Wed May 19, 2021 1:24 pm, edited 3 times in total.
This is one person's opinion. Nothing more.
Topic Author
COYB
Posts: 22
Joined: Wed Apr 21, 2021 9:38 am

Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by COYB »

retired@50 wrote: Wed May 19, 2021 1:05 pm
The two highlighted funds above are the least tax-efficient funds you hold in the taxable account.

I've corrected the expense ratio for the International Growth Fund, it's .33%, not .05%. The International Growth fund and the Explorer Fund each distribute what are known as "capital gains distributions" each year which are sometimes referred to as the "December Surprise" because you get tagged with additional income, beyond the dividend yield, that you probably don't need.

If you choose to sell anything in the taxable account, it should be these. If you still want to own them, that's fine, but I'd suggest you tuck them into a Roth IRA so the annual distributions don't create unwanted taxable income.

Regards,
Oops—thanks for catching that mistake. I've fixed it now. Yes, those two funds plus VWUAX are the ones I want to sell first. I'm just not sure if it makes sense to do that right now while they're doing so well.
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retired@50
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by retired@50 »

COYB wrote: Wed May 19, 2021 1:17 pm Oops—thanks for catching that mistake. I've fixed it now. Yes, those two funds plus VWUAX are the ones I want to sell first. I'm just not sure if it makes sense to do that right now while they're doing so well.
The sell decision is more of an income tax management issue, at least from my view.

It's not as if you'll be abandoning stock funds, you'll just be exchanging one stock fund for another. Index funds have also performed well this year. If you get drawn into trying to time it perfectly, you'll drag your feet and wind up feeling some regret over not having timed it perfectly, which isn't really possible without a ton of luck.

Regards,
This is one person's opinion. Nothing more.
Topic Author
COYB
Posts: 22
Joined: Wed Apr 21, 2021 9:38 am

Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by COYB »

retired@50 wrote: Wed May 19, 2021 1:24 pm
The sell decision is more of an income tax management issue, at least from my view.

It's not as if you'll be abandoning stock funds, you'll just be exchanging one stock fund for another. Index funds have also performed well this year. If you get drawn into trying to time it perfectly, you'll drag your feet and wind up feeling some regret over not having timed it perfectly, which isn't really possible without a ton of luck.

Regards,
Agreed—this particular question is mostly an income tax management issue. Sorry if this is the wrong place for that. I'm not trying to time the market, at least not in terms of gains. I'd actually rather sell those when the market has gone down, limiting my taxes.

I have a dumb question about SpecID. You wrote that "When tax time rolls around, it's the same basic idea. You report the proceeds from the sale, and how much of that amount was your basis." Will Vanguard do all this work for me via the tax forms it sends me after the year's over? If I have to do anything more than plug the numbers in TaxAct, I may screw things up. (I don't actually know what a "basis" is, embarrassingly.)
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retired@50
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by retired@50 »

COYB wrote: Wed May 19, 2021 1:31 pm
retired@50 wrote: Wed May 19, 2021 1:24 pm
The sell decision is more of an income tax management issue, at least from my view.

It's not as if you'll be abandoning stock funds, you'll just be exchanging one stock fund for another. Index funds have also performed well this year. If you get drawn into trying to time it perfectly, you'll drag your feet and wind up feeling some regret over not having timed it perfectly, which isn't really possible without a ton of luck.

Regards,
Agreed—this particular question is mostly an income tax management issue. Sorry if this is the wrong place for that. I'm not trying to time the market, at least not in terms of gains. I'd actually rather sell those when the market has gone down, limiting my taxes.

I have a dumb question about SpecID. You wrote that "When tax time rolls around, it's the same basic idea. You report the proceeds from the sale, and how much of that amount was your basis." Will Vanguard do all this work for me via the tax forms it sends me after the year's over? If I have to do anything more than plug the numbers in TaxAct, I may screw things up. (I don't actually know what a "basis" is, embarrassingly.)
Yes, Vanguard spells it all out on the 1099-B tax form.

Basis is what you paid. Sometimes referred to as cost basis, or just cost.

Regards,
This is one person's opinion. Nothing more.
tashnewbie
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by tashnewbie »

COYB wrote: Wed May 19, 2021 12:48 pm Thanks tashnewbie! Some of this makes a lot of sense, while some of it is over my head.

I find the Backdoor Roth intimidating, admittedly, but I will do more research on it. (I tend to contribute to my IRA the year after, while doing my taxes.)

I also don't know the first thing about how TLH partners work. My understanding of TLH is very basic. I know that if I sell a fund that is below what I originally paid for it, then I can deduct those losses on my taxes. But is there a way to TLH even if the fund is above what I originally paid, if there's been a market dip? This is where I get lost. Is there where SpecID comes into play? I sell more recent shares? What is the advantage of SpecID for a fund that I'm not even selling? Couldn't I just change it to SpecID when it comes time to sell? :confused

I don't expect to be unemployed soon, but it's likely I'll be unemployed within the next 3-5 years. It's just the volatile nature of the industry I work in.
If you're not interested in bothering with the backdoor Roth, then I'd recommend not making any TIRA contributions (which are non-deductible in your situation, i.e., don't reduce your taxable income). Just do more taxable investing, instead (after maxing your 401k!).

Read the wiki about Backdoor Roth, if you're interested in learning more.

I'm no expert on the different types of taxable fund identifications. You can Google to find more information about the features of each type. SpecID gives you more control when you're selling. You'll know which "lots" (these are the shares of a given fund you bought at a certain point in time) have which basis, so you can choose which ones to sell to meet your needs most tax-efficiently. You can only TLH a fund if the price on the day you choose to sell is less than the price on the day you purchased the lot. If there's not a sufficient market dip to cause the price to go below your original purchase price, there's no loss to harvest. I imagine more recently purchased lots are generally going to be TLH targets.

If you think you'll be unemployed in 3-5 years, you could just wait until then to sell the taxable funds that you don't want to hold long-term. Or, you can donate to charity via DAF. Or, you can just bite the bullet and sell now (just ensure you have sufficient cash to pay taxes next year).
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JonL
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by JonL »

COYB wrote: Wed May 19, 2021 10:45 am

The question is, what should my bond % be? I am comfortable with risk, and would not be scared to ride out a few more downturns over the next 20 years. I said above that my desired split is 85/15 stocks/bonds, but I would even be comfortable with 90/10. But I know that the Bogleheads' Guide to Investing recommends doing your age in bonds, in which case I’d be 66/44. That feels too conservative to me, but I do want to follow the data. What is a wise split for someone my age who can handle the risk?

When working with clients, I encourage them to consider the various things that could influence their risk tolerance:

Age - all else being equal, relatively advanced client ages suggest a lower stock allocation

Distribution Timeline - all else equal being equal, the shorter their investment timeline, the lower a stock allocation. How soon will a client need to access their money?

Risk tolerance - Can they ride out the emotional roller coaster that is investing? If not, hold fewer stocks.

Risk capacity - Do they need to take risk? Are they starring a serious retirement savings shortfall in the face? That may suggest a higher equity allocation. Moreover, can they return to work - or part-time in a future retirement scenario, if need be? If so, taking more risk may make sense. Lastly, is their portfolio simply for legacy or charity? If so, they can take on more risk.

The inverse also applies. Do they have sufficient savings - and is the portfolio their main source of retirement income? If so, it can make sense to take some risk off the table, holding fewer stocks. If you've won the game, stop playing.

In short, there is a lot to consider besides just your age. While the age in bonds isn't a terrible starting place, do-it-yourself investors need to consider these other variables.

Good luck!
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by pkcrafter »

See comments and questions in blue...
COYB wrote: Wed May 19, 2021 10:45 am Hello Bogleheads,

I have lately come to realize the error of my haphazard investment strategy over the past decade. (There was no “strategy” to it, actually—other than aiming for an 85/15 split of stocks/bonds.) I am still very much a novice, and I’m looking for advice on how best to optimize my investments while limiting my tax burden. Thanks for listening.

Emergency funds: $65,000 (=13 months expenses, but I expect a quarter of this to go to home renovation later this year)

Debt: Two mortgages:
$356,975 at 3.625% (I’m about to rent this home out for slightly more than my mortgage.)
$664,000 at 2.875% (My new home. I am responsible for only half of this.)

Tax Filing Status: Single this year, but getting married next year; I don’t know if we’ll file jointly or separately (looking for advice!)

Tax Rate: 24% Federal, 8.5% State

State of Residence: D.C.

Age: 44

Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 30-40% of stocks

I’m embarrassed to admit that I’m not sure what my desired allocations should be.

There are guidelines, but you don't have to follow them if you want to be more aggressive and can stay with market fumbles.



My total portfolio is between $1-2 million. I don’t expect my salary to increase much at this point in my career, and steady work could become harder to find once I’m over 50. My fiancée, meanwhile, has less savings than I do right now but will surpass me within 5 years or so. She earns double my salary and likely will earn increasingly more over the next two decades. Of course, no marriage is guaranteed to last forever! Anyway, I’ll explain a little more in my questions below...

Current retirement assets

Taxable

16.5% Vanguard International Growth Fund Admiral Shares (VWILX) (0.33%)
1.9% Vanguard European Stock Index Fund Admiral Shares (VEUSX) (0.10%)
9.6% Vanguard U.S. Growth Fund Admiral Shares (VWUAX) (0.28%)
5.3% Vanguard Explorer Fund Admiral Shares (VEXRX) (0.30%)
2.5% Vanguard Value Index Fund Admiral Shares (VVIAX) (0.05%)
3% Vanguard Mid-Cap Index Fund Admiral Shares (VIMAX) (0.05%)
20.8% Vanguard 500 Index Fund Admiral Shares (VFIAX) (0.04%)
9.8% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.04%)

Traditional IRA at Vanguard

0.5% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.04%)

Roth IRA at Vanguard

14.1% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.04%)

401k

16.1% Vanguard 500 Index Fund Investor Shares (VFINX) (0.14%)

Contributions

New annual Contributions

$14,000 to 401k (The company matches half up to 6% and an additional quarter up to 10%. I contribute 10%.)
$6,000 to Traditional IRA (My earnings last year were above the Roth IRA phaseout for the first time.)

Available funds in 401(k)

Vanguard 500 Index Inv (VFINX)
Vanguard Growth Index Inv (VIGRX)
Vanguard Growth and Income Inv (VQNPX)
Vanguard High Dividend Yield Index Adm (VHYAX)
Vanguard Inflation-Protected Sec Inv (VIPSX)
Vanguard Mid-Cap Growth Index Inv (VMGIX)
Vanguard Mid-Cap Index Inv (VIMSX)
Vanguard Mid-Cap Value Index Inv (VMVIX)
Vanguard Real Estate Index Inv (VGSIX)
Vanguard Small-Cap Growth Index Inv (VISGX)
Vanguard Small-Cap Index Inv (NAESX)
Vanguard Small-Cap Value Index Inv (VISVX)
Vanguard Target Retirement 2015 Inv (VTXVX)
Vanguard Target Retirement 2020 Inv (VTWNX)
Vanguard Target Retirement 2025 Inv (VTTVX)
Vanguard Target Retirement 2030 Inv (VTHRX)
Vanguard Target Retirement 2035 Inv (VTTHX)
Vanguard Target Retirement 2040 Inv (VFORX)
Vanguard Target Retirement 2045 Inv (VTIVX)
Vanguard Target Retirement 2050 Inv (VFIFX)
Vanguard Target Retirement 2055 Inv (VFFVX)
Vanguard Target Retirement 2060 Inv (VTTSX)
Vanguard Target Retirement 2065 Inv (VLXVX)
Vanguard Target Retirement Income Inv (VTINX)
Vanguard Total Bond Market Index Inv (VBMFX)
Vanguard Total Intl Stock Index Inv (VGTSX)



Questions:

1. Years ago I invested heavily in growth funds because I didn’t know what I was doing. I stupidly saw the rate of the return and wasn’t informed enough to weigh that against the expense ratio and the likelihood that I wouldn’t beat the market. I don’t want to try to beat the market, I want to match it: I just want a simple, balanced portfolio of low-cost index funds. I would like VFIAX, VTSAX, and VTIAX to be my taxable funds—unless you think I should consider anything else?

You are considering S&P 500 and total stock market, but you don't need both. Either one is OK, but most people would choose total market. So VTSAX and VTIX

Investing new savings and redirecting dividends into the funds I want to hold onto won’t be enough to meaningfully rebalance my portfolio.
I would need to sell some of them, and they have all performed well enough that I would feel the pain at tax time.

Information on taxable accounts

https://money.usnews.com/investing/port ... le-account

https://www.adviserinvestments.com/advi ... ity-funds/

A few questions, then: Should I sell them now? I will eventually pay taxes on these gains anyway, of course, but I am definitely in a higher tax bracket now than I will be at retirement. Should I wait for a big market crash so the taxes are reduced? Should I wait until I get laid off and am in the 0% bracket? Should I leave it alone?

Maybe leave it alone. Add bonds to your 401k to get to desired target allocation.

2. A related tax question, in the event I become unemployed: Does the IRS definition of “taxable income” include capital gains? For instance, if I had no income this year (hypothetically) but had 50K in capital gains by selling a mutual fund, would I still be in the 0% bracket or 15%?

15%?

3. A few people have recommended that on the funds I wish to exit, I should change my cost basis method to specific identification, so I can first sell shares with less gains. I have always done average cost because it’s really simple. I’ll admit I am intimidated to try specific identification because I think that might really complicate my taxes and/or it requires that I do extensive record-keeping. I do my own taxes, and I would like to keep it that way if possible. But is this worth trying to figure out? (I’m also not sure it makes a lot of sense because most of my growth fund shares were bought all at once—I didn’t continually invest in them, other than having the dividends automatically reinvest.)

4. I recently liquidated my bond index funds in my taxable account in order to pay for a down payment on a second home.

You should have a retirement account that contains both stocks and bonds that fit your target asset allocation. You should a have separate account for other goals like a second home, and finally you should have an emergency fund.

https://www.bogleheads.org/wiki/Emergency_fund


(I’m going to rent out the first home for more than my mortgage.) I did this knowing that I would then exchange funds within my tax-advantaged accounts to get to my target bond %, because I was advised that I should hold bonds in tax-advantaged accounts. I figure I could shift my 401k into VBMFX. Or I could shift my Roth IRA into something else—one Boglehead recommended a treasury index fund of the duration of my choice (though I’m not sure what duration would be ideal).

Use the 401k for bonds.

The question is, what should my bond % be? I am comfortable with risk, and would not be scared to ride out a few more downturns over the next 20 years. I said above that my desired split is 85/15 stocks/bonds, but I would even be comfortable with 90/10. But I know that the Bogleheads' Guide to Investing recommends doing your age in bonds, in which case I’d be 66/44. That feels too conservative to me, but I do want to follow the data. What is a wise split for someone my age who can handle the risk?

The guide is just a suggestion. Investors can choose whatever allocations they want. If you are comfortable with 85% in stocks, it's OK as long as you can hold through a bad downturn. Some people actually have a risk-taking gene and they don't have the usual problem with potential downturns.

5. An eternal debate, I know, but: Is there any reason to convert any of these Admiral funds into ETFs? The latter has slightly better expense ratios, but I'm not sure how meaningful the difference is.

No, not necessary ,and Vanguard actually has a patent that makes the mutual funds as tax-efficient as the ETFs.

Paul

When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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COYB
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by COYB »

tashnewbie wrote: Wed May 19, 2021 1:49 pm
If you're not interested in bothering with the backdoor Roth, then I'd recommend not making any TIRA contributions (which are non-deductible in your situation, i.e., don't reduce your taxable income). Just do more taxable investing, instead (after maxing your 401k!).
Hi tashnewbie, I have a follow-up question about this. Do you recommend not contributing to a non-deductible TIRA because it's taxed as ordinary income when I eventually withdraw it in retirement, whereas I would only be paying a capital-gains tax if I put the money in a taxable account?

Here's a strange twist, by the way: Around eight years ago, I converted my TIRA to a Roth on the advice of a few people. I was in the 22% bracket at the time and didn't expect to go much higher. I'm now in the upper part of the 24% bracket, but have likely hit a ceiling, income-wise. I think it's plausible, in fact very likely, that my tax bracket in retirement will be lower than it is now—so I may have been foolish to have made the conversion in the first place? I had a hefty, five-figure tax bill that year.

In any case, I just opened my new TIRA this year, and contributed $6,000 for 2020. I have not contributed for 2021. I am wondering if I should just withdraw all of that money now, take the penalty, and put the money in my taxable account. That way, I have an empty TIRA if I decide to do a backdoor Roth later this year.
Last edited by COYB on Fri May 21, 2021 8:00 am, edited 1 time in total.
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by tashnewbie »

COYB wrote: Thu May 20, 2021 10:01 am
tashnewbie wrote: Wed May 19, 2021 1:49 pm
If you're not interested in bothering with the backdoor Roth, then I'd recommend not making any TIRA contributions (which are non-deductible in your situation, i.e., don't reduce your taxable income). Just do more taxable investing, instead (after maxing your 401k!).
Hi tashnewbie, I have a follow-up question about this. Do you recommend not contributing to a non-deductible TIRA because it's taxed as ordinary income when I eventually withdraw it in retirement, whereas I would only be paying a capital-gains tax if I put the money in a taxable account?

Here's a strange twist, by the way: Around eight years ago, I converted my TIRA to a Roth on the advice a few people. I was in the 22% bracket at the time and didn't expect to go much higher. I'm not in the upper part of the 24% bracket, but have likely hit a ceiling, income-wise. I think it's plausible, in fact very likely, that my tax bracket in retirement will be lower than it is now—so I may have been foolish to have made the conversion in the first place? I had a hefty, five-figure tax bill that year.

In any case, I just opened my new TIRA this year, and contributed $6,000 for 2020. I have not contributed for 2021. I am wondering if I should just withdraw all of that money now, take the penalty, and put the money in my taxable account. That way, I have an empty TIRA if I decide to do a backdoor Roth later this year.
See this wiki for information about the features of a n-d TIRA, including when it might be appropriate to use one: https://www.bogleheads.org/wiki/Non-ded ... tional_IRA

If the only money in your TIRA is the $6k 2020 contribution, then you can add $6k for 2021, and then do a conversion of all of that money. Those 2 steps - contribution and conversion - comprise the backdoor Roth. You'd only owe taxes on any growth that's occurred in the TIRA after you made the $6k contribution(s). That's why I said if you're going to do a backdoor, it's best to convert to Roth shortly after you make the contribution (usually within a couple days, the money has settled and is available to trade).

FYI: you need to file a 2020 form 8606 b/c you made a 2020 n-d contribution to TIRA. This form can be filed as a standalone form by October 15, 2021.
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by COYB »

tashnewbie wrote: Wed May 19, 2021 11:52 am
Max your traditional 401k each year ($19.5k). You can afford to do this.

Add bonds via Vanguard Total Bond Market Index Inv (VBMFX) in your 401k.

I would probably turn off automatic reinvestment of dividends on all of the funds in the taxable account
I'm now maxing my 401k contribution. FYI it's a Roth 401k—do you still think that's where I should put my bonds? And what's the theory behind turning off automatic reinvestment of dividends even on an index fund like VTSAX? What should I do with those dividends instead?

Thanks for your help.
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by wetgear »

COYB wrote: Wed May 19, 2021 10:45 am
Debt: Two mortgages:
$356,975 at 3.625% (I’m about to rent this home out for slightly more than my mortgage.)
$664,000 at 2.875% (My new home. I am responsible for only half of this.)
Why not sell the rental? Market is red hot right now and if you hang on to it for much longer you are going to lose the tax exclusion on the first 250k worth of gains on this property (https://www.irs.gov/taxtopics/tc701), it might take decades to overcome this loss if you ever do. Also if you are only making "slightly more than the mortgage" then you are losing money because of taxes, insurance, and upkeep. Losing a large tax exclusion and money each month sounds like a lose/lose situation. If you are going to keep this property and rent it out forever maybe it makes sense because you can possibly break even on those losses sometime in retirement but why not take the guaranteed win now and simplify your life? Having made this mistake personally I won't ever again take on a part time landlord job to lose money.

As others have said max your 401k, backdoor roth ira each year (maybe take the hit to convert your last years trad IRA contributions too), and simplify your portfolio by reducing the number of funds.

Otherwise looking pretty solid and congrats on your engagement!
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by COYB »

wetgear wrote: Fri Jun 11, 2021 4:40 pm
COYB wrote: Wed May 19, 2021 10:45 am
Debt: Two mortgages:
$356,975 at 3.625% (I’m about to rent this home out for slightly more than my mortgage.)
$664,000 at 2.875% (My new home. I am responsible for only half of this.)
Why not sell the rental? Market is red hot right now and if you hang on to it for much longer you are going to lose the tax exclusion on the first 250k worth of gains on this property (https://www.irs.gov/taxtopics/tc701), it might take decades to overcome this loss if you ever do. Also if you are only making "slightly more than the mortgage" then you are losing money because of taxes, insurance, and upkeep. Losing a large tax exclusion and money each month sounds like a lose/lose situation. If you are going to keep this property and rent it out forever maybe it makes sense because you can possibly break even on those losses sometime in retirement but why not take the guaranteed win now and simplify your life? Having made this mistake personally I won't ever again take on a part time landlord job to lose money.

As others have said max your 401k, backdoor roth ira each year (maybe take the hit to convert your last years trad IRA contributions too), and simplify your portfolio by reducing the number of funds.

Otherwise looking pretty solid and congrats on your engagement!
Thanks! I'll look into this tax exclusion. Honestly I am not excited to be a landlord, but D.C. is a bulletproof market so I thought holding onto the house would be a wise retirement plan. Totally agree on the backdoor; I just bit the bullet on a 2020+2021 conversion so that I can do clean backdoors going forward.

EDIT: I have only owned the home for 3 years, so I would definitely make money but well under the $250K exclusion. I'd probably clear around $100K, and no commission due to a certain connection I have. But there may be a case to rent for a couple years and then sell before the exclusion expires. (I'm still living in the home, for another month.)
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by retired@50 »

COYB wrote: Fri Jun 11, 2021 3:54 pm Tax Rate: 24% Federal, 8.5% State
...
I'm now maxing my 401k contribution. FYI it's a Roth 401k—do you still think that's where I should put my bonds?
Have you read the wiki page about using a traditional versus a Roth 401k contribution?
At your tax rate, traditional might make sense. See link for details.

Link: https://www.bogleheads.org/wiki/Traditional_versus_Roth

Regards,
This is one person's opinion. Nothing more.
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by Katietsu »

COYB wrote: Fri Jun 11, 2021 3:54 pm
tashnewbie wrote: Wed May 19, 2021 11:52 am
Max your traditional 401k each year ($19.5k). You can afford to do this.

Add bonds via Vanguard Total Bond Market Index Inv (VBMFX) in your 401k.

I would probably turn off automatic reinvestment of dividends on all of the funds in the taxable account
I'm now maxing my 401k contribution. FYI it's a Roth 401k—do you still think that's where I should put my bonds? And what's the theory behind turning off automatic reinvestment of dividends even on an index fund like VTSAX? What should I do with those dividends instead?

Thanks for your help.
I am trying to put together the various pieces of information. You are near the top of the 24% tax bracket. You are in a volatile industry - so does this mean no large pension? Your retirement tax rate will probably be at or below where you are now. You have nothing in traditional retirement accounts, it is all taxable and Roth.

If all the above is true, I would strongly consider using the traditional 401k. This will be especially true next year as it sounds like you will be in the 32% tax bracket with a 3.8% NIIT tax on top of that after you get married.

I think you might benefit from paying the right financial planner for review/plan on an hourly rate. You are doing well but I believe there are a few tweaks that might help you out.
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by COYB »

Katietsu wrote: Fri Jun 11, 2021 5:07 pm
I am trying to put together the various pieces of information. You are near the top of the 24% tax bracket. You are in a volatile industry - so does this mean no large pension? Your retirement tax rate will probably be at or below where you are now. You have nothing in traditional retirement accounts, it is all taxable and Roth.

If all the above is true, I would strongly consider using the traditional 401k. This will be especially true next year as it sounds like you will be in the 32% tax bracket with a 3.8% NIIT tax on top of that after you get married.

I think you might benefit from paying the right financial planner for review/plan on an hourly rate. You are doing well but I believe there are a few tweaks that might help you out.
Alas, I don't have a choice between a traditional and a Roth 401k. The company only gives us the latter option. Do you mean IRA?

No pension. (I work in media.) I'm nearish to the top of the 24% bracket—before deductions, which this year will include two mortgage interest deductions. I will not be in the 32% bracket next year—and maybe never.
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by retired@50 »

COYB wrote: Sat Jun 12, 2021 8:53 am Alas, I don't have a choice between a traditional and a Roth 401k. The company only gives us the latter option.
This would be a first in my book! :shock:

The tax-deferral of a traditional 401k plan is a huge advantage for many workers. I struggle to understand how the company would justify the decision to make the 401k plan "Roth ONLY".

Regards,
This is one person's opinion. Nothing more.
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by Katietsu »

COYB wrote: Sat Jun 12, 2021 8:53 am
Katietsu wrote: Fri Jun 11, 2021 5:07 pm
I am trying to put together the various pieces of information. You are near the top of the 24% tax bracket. You are in a volatile industry - so does this mean no large pension? Your retirement tax rate will probably be at or below where you are now. You have nothing in traditional retirement accounts, it is all taxable and Roth.

If all the above is true, I would strongly consider using the traditional 401k. This will be especially true next year as it sounds like you will be in the 32% tax bracket with a 3.8% NIIT tax on top of that after you get married.

I think you might benefit from paying the right financial planner for review/plan on an hourly rate. You are doing well but I believe there are a few tweaks that might help you out.
Alas, I don't have a choice between a traditional and a Roth 401k. The company only gives us the latter option. Do you mean IRA?

No pension. (I work in media.) I'm nearish to the top of the 24% bracket—before deductions, which this year will include two mortgage interest deductions. I will not be in the 32% bracket next year—and maybe never.
Are you sure about the 401k? I have never heard of a company that offers a Roth 401k but not a traditional option. Maybe someone else can speak up and say whether that is even possible.

And you stated that you will be married next year to someone with double your salary. It sounds like that change would put you into the 32% bracket.
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by COYB »

retired@50 wrote: Sat Jun 12, 2021 9:01 am
COYB wrote: Sat Jun 12, 2021 8:53 am Alas, I don't have a choice between a traditional and a Roth 401k. The company only gives us the latter option.
This would be a first in my book! :shock:

The tax-deferral of a traditional 401k plan is a huge advantage for many workers. I struggle to understand how the company would justify the decision to make the 401k plan "Roth ONLY".

Regards,
The tax deferral is useful, sure, but I make too much to deduct a traditional IRA contribution so it's not massively useful.
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by retired@50 »

COYB wrote: Sat Jun 12, 2021 9:07 am
retired@50 wrote: Sat Jun 12, 2021 9:01 am
COYB wrote: Sat Jun 12, 2021 8:53 am Alas, I don't have a choice between a traditional and a Roth 401k. The company only gives us the latter option.
This would be a first in my book! :shock:

The tax-deferral of a traditional 401k plan is a huge advantage for many workers. I struggle to understand how the company would justify the decision to make the 401k plan "Roth ONLY".

Regards,
The tax deferral is useful, sure, but I make too much to deduct a traditional IRA contribution so it's not massively useful.
Making too much, such that you're not allowed to deduct a traditional IRA contribution, is a separate and distinct issue from using a tax deferred 401k plan at your employer.

If you are able to use the traditional 401k plan at your workplace, you can put $19,500 per year into the plan, all of which is tax deferred, even if your salary is over the IRS limits to deduct a traditional IRA.

Regards,
This is one person's opinion. Nothing more.
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by COYB »

retired@50 wrote: Sat Jun 12, 2021 9:11 am
COYB wrote: Sat Jun 12, 2021 9:07 am
retired@50 wrote: Sat Jun 12, 2021 9:01 am
COYB wrote: Sat Jun 12, 2021 8:53 am Alas, I don't have a choice between a traditional and a Roth 401k. The company only gives us the latter option.
This would be a first in my book! :shock:

The tax-deferral of a traditional 401k plan is a huge advantage for many workers. I struggle to understand how the company would justify the decision to make the 401k plan "Roth ONLY".

Regards,
The tax deferral is useful, sure, but I make too much to deduct a traditional IRA contribution so it's not massively useful.
Making too much, such that you're not allowed to deduct a traditional IRA contribution, is a separate and distinct issue from using a tax deferred 401k plan at your employer.

If you are able to use the traditional 401k plan at your workplace, you can put $19,500 per year into the plan, all of which is tax deferred, even if your salary is over the IRS limits to deduct a traditional IRA.

Regards,
I'm maxing out my contribution now. It's just that it's a Roth 401k. We were never given an option. And when I check my 401k at my.vanguardplan.com it actually says nothing about Roth or traditional. It's a weirdly barebones site. My HR site says "401k/Roth Combination."
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by retired@50 »

COYB wrote: Sat Jun 12, 2021 9:25 am
retired@50 wrote: Sat Jun 12, 2021 9:11 am
COYB wrote: Sat Jun 12, 2021 9:07 am
retired@50 wrote: Sat Jun 12, 2021 9:01 am
COYB wrote: Sat Jun 12, 2021 8:53 am Alas, I don't have a choice between a traditional and a Roth 401k. The company only gives us the latter option.
This would be a first in my book! :shock:

The tax-deferral of a traditional 401k plan is a huge advantage for many workers. I struggle to understand how the company would justify the decision to make the 401k plan "Roth ONLY".

Regards,
The tax deferral is useful, sure, but I make too much to deduct a traditional IRA contribution so it's not massively useful.
Making too much, such that you're not allowed to deduct a traditional IRA contribution, is a separate and distinct issue from using a tax deferred 401k plan at your employer.

If you are able to use the traditional 401k plan at your workplace, you can put $19,500 per year into the plan, all of which is tax deferred, even if your salary is over the IRS limits to deduct a traditional IRA.

Regards,
I'm maxing out my contribution now. It's just that it's a Roth 401k. We were never given an option. And when I check my 401k at my.vanguardplan.com it actually says nothing about Roth or traditional. It's a weirdly barebones site. My HR site says "401k/Roth Combination."
I would speak to someone where you work.
Maybe Human Resources or Payroll.
I really struggle to imagine that they don't offer a traditional tax-deferred 401k option for their employees.

It may not be simple or intuitive on the website, and I'm not necessarily certain that using the tax-deferred path is right for you. I'd suggest you take a serious look at the Boglehead wiki link I posted up-thread that discusses the considerations in making the Traditional versus Roth decision in your 401k plan.

Regards,
This is one person's opinion. Nothing more.
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by Exchme »

For the desired bond holding, put it in your 401K, limits growth and the transaction is tax free.

For the taxable funds, it's complicated, but at least for the domestic side, I think if you look in Portfolio Visualizer you will find that the sum of all those parts is close to Total Market. I struggle to see the value of paying a bunch of taxes to clean it up. Stop dividend reinvestment and point new contributions into Total Market.

Your International is pretty far from the market holding, if there is cleanup, that's where I would look. If you have some lots with small gains ( but still long term), that might be a good idea to make that more like Total International.
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by COYB »

retired@50 wrote: Sat Jun 12, 2021 9:30 am
I would speak to someone where you work.
Maybe Human Resources or Payroll.
I really struggle to imagine that they don't offer a traditional tax-deferred 401k option for their employees.

It may not be simple or intuitive on the website, and I'm not necessarily certain that using the tax-deferred path is right for you. I'd suggest you take a serious look at the Boglehead wiki link I posted up-thread that discusses the considerations in making the Traditional versus Roth decision in your 401k plan.

Regards,
It turns out the 401k is mislabeled in our HR system. It's a traditional 401k after all. Thanks for nudging me to investigate!
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by retiredjg »

COYB wrote: Mon Jun 14, 2021 9:20 am It turns out the 401k is mislabeled in our HR system. It's a traditional 401k after all. Thanks for nudging me to investigate!
Just so you'll know, it is just a 401k. For what you are talking about, it is the contribution that is "traditional" or "Roth".

Every 401k plan MUST allow tax-deferred contributions (traditional) contributions. This is not optional. Some also choose to offer a Roth option - that option is up to the employer.

You might want to check your contributions so far and find out for sure just where they have been going.
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by retired@50 »

COYB wrote: Mon Jun 14, 2021 9:20 am
retired@50 wrote: Sat Jun 12, 2021 9:30 am
I would speak to someone where you work.
Maybe Human Resources or Payroll.
I really struggle to imagine that they don't offer a traditional tax-deferred 401k option for their employees.

It may not be simple or intuitive on the website, and I'm not necessarily certain that using the tax-deferred path is right for you. I'd suggest you take a serious look at the Boglehead wiki link I posted up-thread that discusses the considerations in making the Traditional versus Roth decision in your 401k plan.

Regards,
It turns out the 401k is mislabeled in our HR system. It's a traditional 401k after all. Thanks for nudging me to investigate!
Glad to help. It's certainly important to know what you own.

Regards,
This is one person's opinion. Nothing more.
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by COYB »

retiredjg wrote: Mon Jun 14, 2021 9:32 am
Just so you'll know, it is just a 401k. For what you are talking about, it is the contribution that is "traditional" or "Roth".

Every 401k plan MUST allow tax-deferred contributions (traditional) contributions. This is not optional. Some also choose to offer a Roth option - that option is up to the employer.

You might want to check your contributions so far and find out for sure just where they have been going.
Thanks. Should I be able to determine this on my W2? I see letter code D in box 12b, which I think means tax-deferred contributions. I think the code would be AA if it were a Roth, right? https://www.irs.gov/retirement-plans/co ... ment-plans
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by retiredjg »

I'm not sure. Code D refers to "elective deferrals" and contributions to a designated Roth account are considered to be elective deferrals. However, the fact that a separate code seems to apply to that might mean you are correct. I would not count on that alone.


Can you tell if the amount reported as taxable income is less than your salary?

For example, if you get paid $100,000 and only $75,000 shows up as income on your W2, then the "missing" $25k would be the $19.5k you put in the 401k plus $5.5 that you paid in employee sponsored health insurance premiums.
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by exodusNH »

COYB wrote: Fri Jun 11, 2021 4:46 pm Thanks! I'll look into this tax exclusion. Honestly I am not excited to be a landlord, but D.C. is a bulletproof market so I thought holding onto the house would be a wise retirement plan. Totally agree on the backdoor; I just bit the bullet on a 2020+2021 conversion so that I can do clean backdoors going forward.

EDIT: I have only owned the home for 3 years, so I would definitely make money but well under the $250K exclusion. I'd probably clear around $100K, and no commission due to a certain connection I have. But there may be a case to rent for a couple years and then sell before the exclusion expires. (I'm still living in the home, for another month.)
Run the numbers on what you could expect for a $100,000 investment in the market to return over 30 years. (I did this recently when arguing with someone that was saying owning is ALWAYS better than renting. Running the numbers, I would have objectively had more wealth had I invested the down payment and rented over the 16 years I've had my house.)

If you rent it, you may lose the $250K exclusion.

Also, if you intend to depreciate the house, be aware of the recapitalization rule when you do sell it.

I bought my house at market peak in 2005. While I was never underwater due to 20% down, it is only in the last 12 months that I could have sold it for more than I bought it for.
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by COYB »

retiredjg wrote: Mon Jun 14, 2021 10:02 am I'm not sure. Code D refers to "elective deferrals" and contributions to a designated Roth account are considered to be elective deferrals. However, the fact that a separate code seems to apply to that might mean you are correct. I would not count on that alone.


Can you tell if the amount reported as taxable income is less than your salary?

For example, if you get paid $100,000 and only $75,000 shows up as income on your W2, then the "missing" $25k would be the $19.5k you put in the 401k plus $5.5 that you paid in employee sponsored health insurance premiums.
Would that be box 1 (Wages, tips, other compensation)? If you add that + 12b (D) + 12c (DD) you get my salary. It's over by several hundred dollars but close.
Last edited by COYB on Mon Jun 14, 2021 2:54 pm, edited 1 time in total.
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by retiredjg »

COYB wrote: Mon Jun 14, 2021 10:50 am
retiredjg wrote: Mon Jun 14, 2021 10:02 am I'm not sure. Code D refers to "elective deferrals" and contributions to a designated Roth account are considered to be elective deferrals. However, the fact that a separate code seems to apply to that might mean you are correct. I would not count on that alone.


Can you tell if the amount reported as taxable income is less than your salary?

For example, if you get paid $100,000 and only $75,000 shows up as income on your W2, then the "missing" $25k would be the $19.5k you put in the 401k plus $5.5 that you paid in employee sponsored health insurance premiums.
Would that be box 1 (Wages, tips, other compensation)? If you add that + 12b (DD) + 12c (DD) you get my salary. It's over by several hundred dollars but close.
Yes, that is the box I meant.

Not sure why there would be several hundred dollars difference though. DD is the code for health insurance - not sure why it would be listed in two boxes.
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COYB
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by COYB »

retiredjg wrote: Mon Jun 14, 2021 1:54 pmYes, that is the box I meant.

Not sure why there would be several hundred dollars difference though. DD is the code for health insurance - not sure why it would be listed in two boxes.
My mistake: I meant + 12b (D) + 12c (DD).
retiredjg
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by retiredjg »

I know little to nothing about payroll, but I think I remember there are some things (like maybe FICA?) that also get subtracted out and not reported in your wages and compensation. Maybe that is why it didn't add up to the exact number.

I have not seen a W2 in many years (retired) but my best guess is that your 401k contributions have been going into the tax-deferred bucket. You can always as your HR people. :D
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COYB
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by COYB »

exodusNH wrote: Mon Jun 14, 2021 10:29 am
Run the numbers on what you could expect for a $100,000 investment in the market to return over 30 years. (I did this recently when arguing with someone that was saying owning is ALWAYS better than renting. Running the numbers, I would have objectively had more wealth had I invested the down payment and rented over the 16 years I've had my house.)

If you rent it, you may lose the $250K exclusion.

Also, if you intend to depreciate the house, be aware of the recapitalization rule when you do sell it.

I bought my house at market peak in 2005. While I was never underwater due to 20% down, it is only in the last 12 months that I could have sold it for more than I bought it for.
Thanks exodusNH. Supposing an average rate of return of 10%, then $100,000 over 28 years (the remaining mortgage) would yield $1.4 million. My home would sell for much more than that (it's worth $720K now, and D.C. homes reliably appreciate at a healthy clip). If I rented it out, I would roughly break even for a few years and then begin making money in around 5 years. It would be nice to have a paid-off mortgage (thanks, renters!) and thus easy rental income in my retirement, or the option to sell and then buy a place in, I dunno, Mexico. And the housing market in D.C. is bulletproof, so it's a good hedge against market crashes. But I can see the case for cashing out now and investing the money. I'm honestly torn.
VanGar+Goyle
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Re: Portfolio review: How can I make this painful rebalancing a little less painful?

Post by VanGar+Goyle »

I think capital gains are considered taxable income.
They can be taxed at 0% to more than 50%
If they are long term capital gains and you are in the two lowest tax brackets, they can be taxed at 0%.
If they are short term capital gains and you are subject the Net Investment Income tax they can be taxed at 37% + 3.8%,
plus some states also tax capital gains. Getting married can affect your taxes.
Well, you pay a little bit, we're a little bit tough. | You pay very much,very much tough. | You pay a too much, we're too much a tough. | How much you pay? ... Well, then we're plenty tough. - Marx
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