Have I made smart fund choices?401k&after tax. Please advise

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darthvader747
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Have I made smart fund choices?401k&after tax. Please advise

Post by darthvader747 » Sun Feb 17, 2013 9:29 pm

Age 32
Target Allocation - 70% stock & 30% bond (Doesn't need to be exactly 70/30. I am okay with close to 80% stock)
1 Years savings in cash

Proposed Selections:

401k Selections based on funds offered (Intend to contribute IRS max each year. Company matches 6%):

SSGA R2000 INDX - (Stock Small cap) - US - 19%
SSGA FLAG 500 INDX- (Stock Large Cap)- US - 21%
SSGA EAFE INDX - (Stock Europe Developed Markets)- 13%
SSGA AGG Bond INDX - (Bonds) - 18%
American Funds EuroPacific Growth Fund Class R-6 -28% (RERGX)(International stocks) - 20%
Fidelity Target retirement fund 2045 (60% stocks - 40% bonds)- 9%

Roth IRA:
Vanguard life strategy Growth Fund (VASGX)

After Tax Investment - $1k / month
Vanguard total stock market Index (VTSMX)

Question:
What do you think of my strategy and choices?
What changes would you recommend?
Any red flags in my portfolio?


PS:

Funds offered in 401k plan with expense ratios

EUROPAC GROWTH R6 0.50%
ACRNX COLUMBIA ACORN Z 0.77%
FDIKX FID DIVERSIFD INTL K 0.73%
- FIMM MONEY MKT INST 0.18%
JENNISON US SMCP EQ 0.86%
PIM TOTAL RT INST 0.46%
SSGA AGG BOND INDX 0.06%
SSGA EAFE INDX 0.09%
SSGA FLAG 500 INDX 0.02%
SSGA R2000 INDX 0.06%
TRP LARGE CAP GROWTH

2045 RETIREMENT PF 0.25%
- 2050 RETIREMENT PF 0.24%
- 2055 RETIREMENT PF 0.25%

livesoft
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Post by livesoft » Sun Feb 17, 2013 9:55 pm

Instead of that EuroPacific Growth fund in 401(k), why not have international fund in after-tax or Roth instead?
Also that EuroPacific Growth RERGX is pretty much exactly the same as SSgA EAFE index except RERGX has a higher expense ratio.

I see no need for that Fidelity freedom fund if the SSgA index funds get you the same thing.
This signature message sponsored by sscritic: Learn to fish.

pascalwager
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Post by pascalwager » Sun Feb 17, 2013 10:02 pm

SSGA R2000 INDX - (Stock Small cap) - US - 19%
SSGA FLAG 500 INDX- (Stock Large Cap)- US - 21%
SSGA EAFE INDX - (Stock Europe Developed Markets)- 13%
SSGA AGG Bond INDX - (Bonds) - 18%
American Funds EuroPacific Growth Fund Class R-6 -28% (RERGX)(International stocks) - 20%
Fidelity Target retirement fund 2045 (60% stocks - 40% bonds)- 9%


You could just use the four index funds. The 21:19 is a heavy small tilt, but you may like that. Also, you could simulate the total US stock market using about a 6:1 ratio of 500/R2000 (check BH Wiki for recommended ratio).

The Target 2045 is intended to be used by itself. It's large growth, low credit, intermediate term, but the fixed income becomes more conservative with time.

darthvader747
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Post by darthvader747 » Sun Feb 17, 2013 11:17 pm

pascalwager wrote:
You could just use the four index funds. The 21:19 is a heavy small tilt, but you may like that. Also, you could simulate the total US stock market using about a 6:1 ratio of 500/R2000 (check BH Wiki for recommended ratio).

The Target 2045 is intended to be used by itself. It's large growth, low credit, intermediate term, but the fixed income becomes more conservative with time.


Okay. It probably makes sense to stick with just the index funds. Would you recommend investing 19% in small cap (R2000 INDX)?
Given the options available to me which funds would you recommend and what percentages? How would you do it if you wanted a ~70-30 ratio?

pascalwager
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Post by pascalwager » Mon Feb 18, 2013 12:29 am

Okay. It probably makes sense to stick with just the index funds. Would you recommend investing 19% in small cap (R2000 INDX)?
Given the options available to me which funds would you recommend and what percentages? How would you do it if you wanted a ~70-30 ratio?


Consider 42:7:21:30, S&P500:R2000:EAFE:agg bonds. This is 70:30, US/Int'l, and 6:1, US large:US small (I checked the Wiki). So you have US total market approximation and int'l large market. I don't overweight small blend anymore as the risk premium is in doubt. This is a solid index fund portfolio.

pingo
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Post by pingo » Mon Feb 18, 2013 1:03 am

darthvader747 wrote:SSGA R2000 INDX - (Stock Small cap) - US - 19%
SSGA FLAG 500 INDX- (Stock Large Cap)- US - 21%
SSGA EAFE INDX - (Stock Europe Developed Markets)- 13% <--No need for both Int'l funds.
SSGA AGG Bond INDX - (Bonds) - 18%
American Funds EuroPacific Growth Fund Class R-6 -28% (RERGX)(International stocks) - 20% <--No need for both Int'l funds.
Fidelity Target retirement fund 2045 (60% stocks - 40% bonds)- 9% <--No need for target funds and individual funds. Either/or is simpler.


Here you treated all 401k funds as if they = 100%, but your 401k is only a part of the portfolio. It is better if we can see what each account/fund represents within the whole portfolio (all accounts combined). Would mind editing the original post to add percents to your non-401k accounts to reflect the following?

401k
+ Roth
+ Taxable
= 100%.

darthvader747 wrote:Funds offered in 401k plan with expense ratios

EUROPAC GROWTH R6 0.50% <--Contains Emerging Markets. Behaves like VG Total Int'l Stock Idx Fund.
ACRNX COLUMBIA ACORN Z 0.77%
FDIKX FID DIVERSIFD INTL K 0.73%
- FIMM MONEY MKT INST 0.18%
JENNISON US SMCP EQ 0.86%

PIM TOTAL RT INST 0.46%
SSGA AGG BOND INDX 0.06%
SSGA EAFE INDX 0.09% <--No Emerging Markets, but a fine choice if you prefer.
SSGA FLAG 500 INDX 0.02%
SSGA R2000 INDX 0.06%
TRP LARGE CAP GROWTH

2045 RETIREMENT PF 0.25% <--Are these Fidelity Freedom Index Funds? (Please check.)
- 2050 RETIREMENT PF 0.24%
- 2055 RETIREMENT PF 0.25%



livesoft wrote:Instead of that EuroPacific Growth fund in 401(k), why not have international fund in after-tax or Roth instead?


Agree.

livesoft wrote:Also that EuroPacific Growth RERGX is pretty much exactly the same as SSgA EAFE index except RERGX has a higher expense ratio.


Disagree.

EuroPacific Growth holds ample Emerging Markets at an attractive enough expense ratio in this plan (it's usually higher). It performs enough like VG Total Int'l that if I had to hold international in this 401k, I'd probably go with RERGX, but that's just me.

Target funds would have been a good option if it weren't for the taxable account.


pascalwager wrote:Consider 42:7:21:30, S&P500:R2000:EAFE:agg bonds. This is 70:30, US/Int'l, and 6:1, US large:US small (I checked the Wiki). So you have US total market approximation and int'l large market. I don't overweight small blend anymore as the risk premium is in doubt. This is a solid index fund portfolio.


This is great plan. Just remember that all accounts can and probably should be treated as part of one portfolio. If you edit your original post as suggested, we can help you see how the whole portfolio looks and how to implement the plan when taking new contributions and rebalancing into consideration.

moneytobless
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Post by moneytobless » Mon Feb 18, 2013 1:18 am

Hi darthvader747,

If you want to simplify and follow the 3 fund portfolio with 70% stocks, 30% bonds, and international stocks making up 20% of your stock allocation, this is what your allocation would look like:

48% SSGA FLAG 500 INDX
8% SSGA R2000 INDX

14% Vanguard Total International Stock Index Fund Investor Shares (VGTSX)

30% SSGA AGG BOND INDX

As livesoft mentioned, since you’re going to invest in an after-tax account, I’d put the international fund there.

darthvader747
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Post by darthvader747 » Mon Feb 18, 2013 1:49 am

pascalwager wrote:Consider 42:7:21:30, S&P500:R2000:EAFE:agg bonds. This is 70:30, US/Int'l, and 6:1, US large:US small (I checked the Wiki). So you have US total market approximation and int'l large market. I don't overweight small blend anymore as the risk premium is in doubt. This is a solid index fund portfolio.


This is great plan. Just remember that all accounts can and probably should be treated as part of one portfolio. If you edit your original post as suggested, we can help you see how the whole portfolio looks and how to implement the plan when taking new contributions and rebalancing into consideration.[/quote]


Thank You! Thank You! Thank You!

I haven't purchased any of these funds. I am trying to develop a plan. So please feel free to suggest changes.

How does this look based on your recommendation (80% stock & 20% Bonds)

Roth: Vanguard Life Strategy growth fund [80% stocks & 20% Bonds] (VASGX) ....Vanguard life strategy funds did not have the 70-30 split. It was either 60-40 (LS moderate growth) or 80-20 (LS growth)
After Tax: Vanguard Life Strategy growth fund [80% stocks & 20% Bonds] (VASGX) -- same fund for simplicity

401k:

S&P 500 - 52%
R2000 - 7%
American Funds EuroPacific Growth Fund Class R-6 RERGX - 21% [ Selected this instead of EAFE due to interest in emerging markets]
Agg Bonds - 20%

I was thinking of going with the 70-30 allocation in the 401k as suggested by pascalwager and 80-20 allocation in the Roth & After Tax (Vanguard Life strategy funds).


I picked the life strategy funds for simplicity. Would you recommend?
I replaced EAFE with RERGX. Is this okay in your opinion?
In order to make the allocation 80-20 I increased S&P to 52% instead of 42% that was recommended. Any concerns with doing this?
I could stick to the 70-30 in the 401k and use the allocations pascalwager suggested. But then I will need to have a 80-20 allocation in my Roth & after Tax. I am okay with that. What does that make my overall allocation?
Thoughts please!

Thanks again pascalwager & pingo!! I feel like I am almost there :)

pascalwager
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Post by pascalwager » Mon Feb 18, 2013 2:43 am

Just go with the 80:20 for the ROTH. Later, when you have sufficient amounts ($3k minimum/fund), you can sell and convert to a three-fund portfolio with 30% bonds.

For taxable, TSM is fine until you can afford a three-fund portfolio.

darthvader747
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Post by darthvader747 » Mon Feb 18, 2013 9:55 am

pascalwager wrote:Just go with the 80:20 for the ROTH. Later, when you have sufficient amounts ($3k minimum/fund), you can sell and convert to a three-fund portfolio with 30% bonds.

For taxable, TSM is fine until you can afford a three-fund portfolio.


Okay Thanks!

I have 60k currently in a 2045 target fund. I am thinking of moving money over to the funds discussed above.
Is there a downside to moving money from the target 2045 fund to these newer funds?
I am wondering cause I probably benefited from dollar cost averaging on the 2045.
Should I buy $60k shares of these other funds we talked about at once?
Or would it be better to just start buying future shares in the funds discussed above?

pingo
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Post by pingo » Mon Feb 18, 2013 12:35 pm

moneytobless wrote:If you want to simplify and follow the 3 fund portfolio with 70% stocks, 30% bonds, and international stocks making up 20% of your stock allocation, this is what your allocation would look like:

48% SSGA FLAG 500 INDX
8% SSGA R2000 INDX

14% Vanguard Total International Stock Index Fund Investor Shares (VGTSX)

30% SSGA AGG BOND INDX


darthvader747,

Please note that moneytobless's excellent suggestion differs from pascalwager's by having International equities represent 30% of all equities (not including bonds) to 20% of equities, but is otherwise the same. You originally had a lot more International proposed (in the 401k) with your use of RERGX and the EAFE Index and the target fund.

How about this? Before going further into fund selection, please answer the following, which may have a huge impact on fund selection and fund location:

1. Look at your 401k plan document to see if it allows for 401k after-tax contributions as well as in-service withdrawals* of those after-tax contributions. (Do not confuse this feature with Roth 401k contributions.) You might be able to save $17,500 (401k Traditional/Roth max) + employer match + after tax in the 401k up to $51k combined per year. Each quarter or year (if allowed) you'd direct an in-service withdrawal of the after tax portion over to your Roth IRA (paying small taxes, if any) for it to be tax-free and RMD-free forever. They do not affect your Roth IRA contribution limits. Here are 4 links talking about after-tax contributions: here, here, here and here.

It's a long shot, but worth looking into because having this option might allow you to house all or most contribution inside of tax-advantaged accounts. This has a big impact on fund location and plan execution.

(*If in-service withdrawals are not allowed, don't bother with 401k after-tax contributions.)

2. Would you mind editing the original post to add percents to your non-401k accounts to reflect the following?

xx% 401k
xx% Roth
xx% Taxable
= 100%

3. What is your tax bracket? I will assume it's in the 25+% range because of your level of savings. In such a bracket, it is usually not adviseable to use balanced funds like LifeStrategy funds in a taxable account because they tend have their growth compromised more than holding all equities in a taxable account. Depending on how you answer question (1), your taxable savings (and the issue of tax-efficiency) may become irrelevant.

4. What are the complete names and ticker symbols (if available) of the Fidelity target funds in your 401k? They are inexpensive enough that I suspect they are Fidelity's excellent index series, and depending on what you find to answer question (1), may provide a way to keep things super simple while remaining very cost effective while you gain a little more experience.
Last edited by pingo on Tue Feb 19, 2013 2:14 am, edited 13 times in total.

pingo
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Post by pingo » Mon Feb 18, 2013 12:37 pm

I know it may seem like your burning questions are not being answered, but it will all make sense once we get some more information and doing it this way is often provides greater clarity than responding to each detail of your evolving proposal.

pingo
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Post by pingo » Mon Feb 18, 2013 1:55 pm

Okay, I have a minute more, so I'll try to address some of the issues with your last post. Please keep in mind that I'm not trying to shoot you down. There are far worse things an investor can do, so for now, it's not so bad, it's just that we could really make the portfolio shine!

darthvader747 wrote:Roth: Vanguard Life Strategy growth fund [80% stocks & 20% Bonds] (VASGX) ....Vanguard life strategy funds did not have the 70-30 split. It was either 60-40 (LS moderate growth) or 80-20 (LS growth)
After Tax: Vanguard Life Strategy growth fund [80% stocks & 20% Bonds] (VASGX) -- same fund for simplicity


All of this is part of why we need to know how much the Roth, etc. represent of the portfolio. I doubt this is the case for you, but there are times when a person can hold something like LifeStrategy Growth (80/20) in one account and LifeStrategy Moderate (60/40) in another account, resulting in a weighted portfolio of 70/30, as desired.

darthvader747 wrote:401k:

S&P 500 - 52%
R2000 - 7%
American Funds EuroPacific Growth Fund Class R-6 RERGX - 21% [ Selected this instead of EAFE due to interest in emerging markets]
Agg Bonds - 20%

I was thinking of going with the 70-30 allocation in the 401k as suggested by pascalwager and 80-20 allocation in the Roth & After Tax (Vanguard Life strategy funds).


The Vanguard Target Retirement 2025 Fund (VTTVX) is identical to the LifeStrategy funds, but hold 70% Stocks / 30% Bonds (still has 30% of equities in International). The only difference is that a target fund slowly adds more bonds as you approach retirement. Again, none of this may matter once we have a more precise understanding of your portfolio percents and your available options (after-tax wise).

darthvader747 wrote:I picked the life strategy funds for simplicity. Would you recommend?


There are worse choices, but it has little to do with fund selection at this point, rather fund location and tax consequences (which can eat away at returns).

darthvader747 wrote:I replaced EAFE with RERGX. Is this okay in your opinion?


There is no wrong choice here, per se, but answering the above-posted questions is likely to proffer a solution that might even make this either/or proposal irrelevant.

darthvader747 wrote:I replaced EAFE with RERGX. Is this okay in your opinion?
In order to make the allocation 80-20 I increased S&P to 52% instead of 42% that was recommended. Any concerns with doing this?[/quote]

This is the see-saw, tricky rebalancing that usually (not always) results when mixing asset allocation funds with individual asset funds, which is why the "simplicity" you propose might not be the simplicity you bargained for.

I could stick to the 70-30 in the 401k and use the allocations pascalwager suggested. But then I will need to have a 80-20 allocation in my Roth & after Tax. I am okay with that. What does that make my overall allocation?[/quote]

See-saw.

darthvader747 wrote:I feel like I am almost there :)


You are closer than I'm making it look, but we...just...need...the right...information. :D

pingo
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Post by pingo » Mon Feb 18, 2013 2:01 pm

5. What is the amount of your employer match in dollars ($). We know your personal contributions because you're maxing out the IRA and 401k + $1000 more. However, 6% match of an undisclosed salary = $x,xxx and we should know how much $x,xxx is because this influences where new contributions will be directed in order to hold funds in balance throughout the year. This also influences fund placement as we try to create simplicity for account maintenance.

6. Are you also aware of the 2013 increases to 401k and IRA contributions? ($17,500 and $5,500, respectively.)

darthvader747
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Post by darthvader747 » Mon Feb 18, 2013 2:17 pm

pingo wrote:5. What is the amount of your employer match in dollars ($). We know your personal contributions because you're maxing out the IRA and 401k + $1000 more. However, 6% match of an undisclosed salary = $x,xxx and we should know how much $x,xxx is because this influences where new contributions will be directed in order to hold funds in balance throughout the year. This also influences fund placement as we try to create simplicity for account maintenance.

6. Are you also aware of the 2013 increases to 401k and IRA contributions? ($17,500 and $5,500, respectively.)


Pingo - Thanks for being patient with me!

The employer match works out to be $4k annually.
I am aware of the current Roth & 401k contributions - Thanks!
Please give your final recommendations with a 80-20 ratio in mind. I couldn't make up my mind before around whether to go with 70-30 or 80-20.

pingo
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Post by pingo » Mon Feb 18, 2013 9:05 pm

^ Thanks for the update. I actually made 3 different posts this morning (my 3 year old would only allow piecemeal commentary) and you've responded to the 3rd. I'll await your response to the first 2, which begin here.

darthvader747
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Post by darthvader747 » Mon Feb 18, 2013 11:36 pm

pingo wrote:^ Thanks for the update. I actually made 3 different posts this morning (my 3 year old would only allow piecemeal commentary) and you've responded to the 3rd. I'll await your response to the first 2, which begin here.


1. My Tax Bracket is 25%
2. Plan definitely allows after tax contributions. Not sure about ' in service withdrawals'. I will have to call fidelity to find out. I will get back to you on this.
3. My plan is managed by fidelity but there is no ticker symbol for the 'Target 2045 PF'. I will ask them if this is a specific fidelity fund

I looked at the 2045 funds portfolio and it looks fairly diversified (90-10 ratio). Just what I am trying to do. Another option would be to stick to the target fund and then invest in the Roth IRA and after tax. This option seems simple.Please see 401k 2045 target fund composition below. Thoughts? I am okay with 90-10.

The benefit of the 'in service contribution' option is that I can invest a lot more in the Roth IRA than $5.5k. This will negate the need for an after tax account. Did I understand this right?

I will call fidelity and get answers 1 & 3. Do you have the info you need or did I miss something? Please bear with me on this. This is the first time I am paying attention to AA and things like that. This is a learning experience.


Target 2045 Composition:

SSgaA S&P 500 - 43.22%
SSgA Russell 200ldx - 15.17%
American Funds Euro Pacific Gr R5 - 13.45%
SSgA International Equity Index - 13.43%
SSGA US Bond Inex NL Series fund CL A - 4.93%
PIMCO total Return Instl - 4.93%
DFA Emerging Markets Value i- 2.44%
Wellington Trust Value 2.42%

darthvader747
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Post by darthvader747 » Tue Feb 19, 2013 12:10 am

darthvader747 wrote:
pingo wrote:^ Thanks for the update. I actually made 3 different posts this morning (my 3 year old would only allow piecemeal commentary) and you've responded to the 3rd. I'll await your response to the first 2, which begin here.


1. My Tax Bracket is 25%
2. Plan definitely allows after tax contributions. Not sure about ' in service withdrawals'. I will have to call fidelity to find out. I will get back to you on this.
3. My plan is managed by fidelity but there is no ticker symbol for the 'Target 2045 PF'. I will ask them if this is a specific fidelity fund

I looked at the 2045 funds portfolio and it looks fairly diversified (90-10 ratio). Just what I am trying to do. Another option would be to stick to the target fund and then invest in the Roth IRA and after tax. This option seems simple.Please see 401k 2045 target fund composition below. Thoughts? I am okay with 90-10.

The benefit of the 'in service contribution' option is that I can invest a lot more in the Roth IRA than $5.5k. This will negate the need for an after tax account. Did I understand this right?

I will call fidelity and get answers 1 & 3. Do you have the info you need or did I miss something? Please bear with me on this. This is the first time I am paying attention to AA and things like that. This is a learning experience.


Target 2045 Composition ( managed by Alliance Bernstein):

SSgaA S&P 500 - 43.22%
SSgA Russell 200ldx - 15.17%
American Funds Euro Pacific Gr R5 - 13.45%
SSgA International Equity Index - 13.43%
SSGA US Bond Inex NL Series fund CL A - 4.93%
PIMCO total Return Instl - 4.93%
DFA Emerging Markets Value i- 2.44%
Wellington Trust Value 2.42%


I checked my 401k plan documents. In service withdrawals are allowed once per quarter. What would be your recommendation now?
For the sake of simplicity & diversification the Target 2045 fund looks tempting. If I keep the fund then I don't need to move any investments.
I just need a plan for the roth & after tax.

I do plan to use the money saved in the after tax & Roth to save for down-payment for a house. Does investing solely in the backdoor Roth (no after tax) put me at a disadvantage with this potential plan?
Please note I don't have a timeline for when I need to buy a house. I am willing to depend on the market. No issues waiting for 7-10 years or more.

PS:
Penalty for early withdrawal (backdoor Roth). Each conversion apparently has 5 year limit. This might complicate things for me.
Source: http://online.wsj.com/article/SB1000142 ... 26954.html
Ouote: "What if a taxpayer needs money from a Roth account? Withdrawals from backdoor Roths within five years of conversion are usually subject to a 10% penalty unless the owner is 59½ or older. Each conversion carries a five-year limit".

Pingo, I couldn't thank you enough!!

pingo
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Post by pingo » Tue Feb 19, 2013 3:36 am

^ Now we're talkin'!

darthvader747 wrote:I do plan to use the money saved in the after tax & Roth to save for down-payment for a house. Does investing solely in the backdoor Roth (not after tax) put me at a disadvantage with this potential plan?


Back up the truck!

Savings for a house should probably either be saved/invested separately, or you should choose an overall asset allocation that would basically be the equivalent of a riskier retirement portfolio + a whole bunch more bonds in case you purchase a house. I need to think about it, but what you are doing, if it is even advisable, may be above my ability to give you advisable advice. It may be worth starting a new thread altogether, but let's keep working here for a bit so that when you initiate another thread, you can give viewers all the necessary information right up front.

darthvader747 wrote:Plan definitely allows after tax contributions. Not sure about ' in service withdrawals'. I will have to call fidelity to find out. I will get back to you on this. [...] I will call fidelity and get answers 1 & 3.


Regardless of what they say, it is a good idea to examine the 401k Plan Document, just in case what they say is inconsistent with what the plan actually allows. My first link explaining after-tax contributions includes sample language from a 401k Plan Document. In-service withdrawal information might not be in the same part of the document as the after-tax instructions. Fidelity, the Plan Document and Vanguard help you with the rest. BTW the after-tax contributions would be sent directly into your Roth at Vanguard. (No need for Traditional-to-Roth conversions per se.)

darthvader747 wrote:I checked my 401k plan documents. In service withdrawals are allowed once per quarter. What would be your recommendation now?


I had one until I found out you want to use the money to save for a house! I can't post a plan tonight anyway, but I'll try to have something for you tomorrow or the next day.

darthvader747 wrote:The benefit of the 'in service contribution' option is that I can invest a lot more in the Roth IRA than $5.5k. This will negate the need for an after tax account. Did I understand this right?


Bingo.

And if you won't need to invest via a regular taxable account, tax-efficiency won't matter (read the link), which means it won't matter nearly as much if you allocate to separate asset class funds (choosing which stock and bond funds) or if you merely put 100% of each account into a target fund (which are not the best choice for a taxable account in your tax bracket) and since your 401k target funds are better than average on costs.

darthvader747 wrote:Penalty for early withdrawal (backdoor Roth). Each conversion apparently has 5 year limit. This might complicate things for me.
Source: http://online.wsj.com/article/SB1000142 ... 26954.html
Ouote: "What if a taxpayer needs money from a Roth account? Withdrawals from backdoor Roths within five years of conversion are usually subject to a 10% penalty unless the owner is 59½ or older. Each conversion carries a five-year limit".


This may make another thread even more important. I do know that Roth IRA contributions may be withdrawn penalty free at any time (sans earnings), but that is only so helpful. 401k after-tax contributions + earnings can be withdrawn for whatever purpose without penalty. The earnings get taxed as income, which is why we want the money put in a Roth IRA sooner, rather than later. Personally, I probably wouldn't use 401k after-tax contributions/conversions as part of a house saving plan, or I'd incorporate it into the plan with the understanding that I may have to wait a while before withdrawing the converted money.

darthvader747 wrote:Please note I don't have a timeline for when I need to buy a house. I am willing to depend on the market. No issues waiting for 7-10 years or more.


I'm not sure what a 5-year-wait per conversion will matter if you're investing in highly risky assets with the idea that you may have to wait 7-10 years for them to recover before using to purchase a house? Let's sleep on this one. I'll probably be back tomorrow with more input.

darthvader747 wrote:Target 2045 Composition ( managed by Alliance Bernstein):


"Managed by Alliance Berstein" would normally be a red flag. In the words of Morningstar concerning at least one of AB's proprietary target retirement funds: "Avoid this fund."

However...

darthvader747 wrote:SSgaA S&P 500 - 43.22%
SSgA Russell 200ldx - 15.17%
American Funds Euro Pacific Gr R5 - 13.45%
SSgA International Equity Index - 13.43%
SSGA US Bond Inex NL Series fund CL A - 4.93%
PIMCO total Return Instl - 4.93%
DFA Emerging Markets Value i- 2.44%
Wellington Trust Value 2.42%


...it appears that this is not an Alliance Bernstein fund, rather a custom target fund that has been designed for your employer (and perhaps by your employer) around it's core fund options for the most part, and AB may only be providing the service of wrapping them in a box for you, under the direction of your Plan Administrative Committee's. It's rare, but my employer does something similar.

darthvader747 wrote:For the sake of simplicity & diversification the Target 2045 fund looks tempting.


The 401k Target funds does appear to be a great option for simplicity. As a minor point of correction, it is not more diversified (and hardly less diversified) than building a portfolio yourself from the available options. In other words, just right!

darthvader747 wrote:If I keep the fund then I don't need to move any investments.


Even more reason to use them.

darthvader747 wrote:I just need a plan for the roth & after tax.


That's coming, but I'll have to straighten out one or two more things in my head...

darthvader747 wrote:Do you have the info you need or did I miss something?


I still need the information requested in Question Number 2 (Edited): You need to look at your amount of total assets (401k + Roth + taxable = $xx,xxx) and then divide the dollar amount of each account by the total:
All 401k dollars ÷ total $xx,xxx = 0.xx or xx%
All 2013-intended Roth dollars ($5,500) ÷ $xx,xxx (portfolio total) = 0.xx or xx%
All Taxable dollars ready for immediate investment ($10,000) ÷ $xx,xxx (portfolio total) = 0.xx or xx%
Last edited by pingo on Wed Feb 20, 2013 6:54 pm, edited 3 times in total.

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Re: Have I made smart fund choices?401k&after tax. Please ad

Post by darthvader747 » Tue Feb 19, 2013 6:29 am

Target Annual Contribution
401k - 60%
Roth - 20%
After Tax - 20%

Current Allocation:

401k - 100%
I do not have a Roth or after tax account
I do have around 10k to invest immediately apart from the monthly contributions

"...it appears that this is not an Alliance Bernstein fund, rather a custom target fund that has been designed for your employer (and perhaps by your employer) around it's core fund options for the most part, and AB may only be providing the service of wrapping them in a box for you, under the direction of your Plan Administrative Committee's. It's rare, but my employer does something similar" [Pingo]. -- You are right about this.

Back up the truck!

Savings for a house should probably either be saved/invested separately, or you should choose an overall asset allocation that would basically be the equivalent of a riskier retirement portfolio + a whole bunch more bonds in case you purchase a house. I need to think about it, but what you are doing, if it is even advisable, may be above my ability to give you advisable advice. It may be worth starting a new thread altogether, but let's keep working here for a bit so that when you initiate another thread, you can give viewers all the necessary information right up front.[Pingo] - Please note that buying a house is optional. I will do that if and when my investments (outside of 401k is what I thought) give me good returns.I am willing to wait but not inclined to lower my growth potential by being conservative.

Personally, I probably wouldn't use 401k after-tax contributions/conversions as part of a house saving plan [Pingo] -- I agree. I would prefer to have the flexibility. The in-service deductions are making me a bit nervous. Can we exclude this from the plan?

This is what I would do if I didn't have help from you (If you recommend this as well then I will feel a lot more confident. Either way you are a great help!) :

2045 Retirement in the 401k (90-10 ratio)
Vanguard life strategy growth fund in both Roth & After Tax [VASGX] (80-20 ratio)

What would you recommend? Thanks!!!

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Post by pingo » Wed Feb 20, 2013 6:56 pm

Argh. I thought I had pretty much what I need, but then I took a closer look and saw that your last post didn't quite give me what I'm looking. This is all new for you, so the billions of details we ask for don't really make sense, yet, so it's easy to miss something here or there. You still get an "A" for effort, though. :wink:

darthvader747 wrote:Current Allocation:

401k - 100%
I do not have a Roth or after tax account <--However, you have $5,500 that will be here!
I do have around 10k to invest immediately apart from the monthly contributions <-- So, your 401k can't be 100%.


You mentioned that $60k is in a 401k target fund, but I don't know if that is your whole 401k or if there are other funds, too.

I sound like a broken record, but I need to know the amount each account will represents in the proposed portfolio. If you confirm that you have a total of $60k in the 401k, I'll do the math myself. (If you just want to send me the total 401k dollars in a private message, that's fine, too.)

Keep in mind we also want you to learn self-sufficiency in these matters (gradually of course). Therefore, I'll re-post:

pingo wrote:You need to look at your amount of total assets (401k + Roth + taxable = $xx,xxx) and then divide the dollar amount of each account by the total:
All 401k dollars ÷ total $xx,xxx = 0.xx or xx%
All 2013-intended Roth dollars ($5,500) ÷ $xx,xxx (portfolio total) = 0.xx or xx%
All Taxable dollars ready for immediate investment ($10,000) ÷ $xx,xxx (portfolio total) = 0.xx or xx%


In case it is helpful, I'll demonstrate the above with your list of new contributions.

darthvader747 wrote:Target Annual Contribution ($39,000)
401k - 60% $21.5k ÷ $39k = 0.55 (55% of contributions).
Roth - 20% $5.5k ÷ $39k = 0.14 (14% of contributions).
After Tax - 20% $12k ÷ $39k = 0.31 (31% of contributions).


I'm working out some suggestions based on $60k in the 401k, but I need to know if that's the entire 401k amount. Thanks for your patience!
Last edited by pingo on Thu Feb 21, 2013 3:04 pm, edited 1 time in total.

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Post by darthvader747 » Wed Feb 20, 2013 10:50 pm

"You mentioned that $60k is in a 401k target fund, but I don't know if that is your whole 401k or if there are other funds, too."

Yes, total 401k amount is 60k. Thanks!

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Post by pingo » Thu Feb 21, 2013 5:58 pm

Darth,

I am about to post 3 different ideas in 3 different posts, starting with what seems simplest to me (from an execution and maintenance standpoint). Each evolved from the discussions in this thread. I'll be curious to know your response.

And it won't hurt my feelings if you hate all of them. :D

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Post by darthvader747 » Thu Feb 21, 2013 7:01 pm

Thanks for taking the trouble!
Just want to make sure I dint miss your posts. I don't see 3 posts. I am guessing you haven't posted already which is fine. Just checking to make sure I dint miss it somehow.

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Post by pingo » Thu Feb 21, 2013 7:52 pm

Unexpected interruption. Okay, let's see...where was I...?

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Post by pingo » Thu Feb 21, 2013 7:55 pm

Idea #1

Desired Asset Allocation: 80% Stocks / 20% Bonds
Desired International: 30% of equities

Translation: Merely choose Target Fund(s) closest to desired amount of bonds.

401k ($60,000)
Target Fund ER 0.25 <-- $21,500/yr.
+ After-Tax Target Fund ER 0.25 <-- Up to $29,500/yr; can regularly roll over to VG Roth.

Roth ($5,500)
Vanguard LifeStrategy Growth (VASGX) ER 0.17 or Target Retirement 2030 (VTHRX) ER 0.17 <-- $5,500/yr.
+ Rollovers from 401k After-Tax contributions


Notes:
• Weighted ER 0.22% (roughly).
• Simplicity! No need for rebalancing.
• Retire with a HUGE tax-free Roth IRA with no RMD.
• Remember that a loan can also be taken from 401k to help with house purchase.
• Up to $35,000/yr can go to Roth thanks to 401k In-Service Withdrawls of after-tax contributions.
• Save for down payment in i-Bonds, cash and/or short-term bonds (do not included w/retirement; means lower After-Tax 401k contributions).
• If you do use Roth money to save for house ($5.5k + $12k per year), in 10 years you'd have $115,000 available without penalty + 401k loan + another $17,500 each year thereafter.
• In retirement, live off Roth (0% taxable) and 401k at low tax rates.
Tax-efficient fund placement and tax-loss harvesting and foreign tax credit become unnecessary.
Last edited by pingo on Thu Feb 21, 2013 11:00 pm, edited 12 times in total.

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Post by pingo » Thu Feb 21, 2013 7:59 pm

Idea #2

Desired Asset Allocation: 80% Stocks / 20% Bonds
Desired International: 30% of equities

Translation: 45% S&P 500 : 11% Russell 2000 : 24% Total International : 20% Bonds

401k (80% or $60,000)
45% S&P 500 ER 0.02 <-- $15,265/yr (71% of 401k contributions).
11% Russell 2000 ER 0.06 <--$3870 (18% of 401k contributions).
11% EuroPacific Growth (RERGX) ER 0.50
13% Bond Index ER 0.06 <--$2365 (11% of 401k contributions).

Roth (07% or $5,500)
07% Vanguard Total Bond (VBMFX) ER 0.22% <--$5,500/yr; converts to VBTLX ER 0.10 in 2014.

Taxable (13% or $10,000)
13% Vanguard Total International (VTIAX) ER 0.18% <--$12,000/yr.

All accounts = 100%

Notes:
• Weighted ER 0.08% . . . W o w .
• Rebalance in only one account.
• Based on principles of tax-efficiency.
• Takes advantage of the Foreign Tax Credit.
• Taxable equities can be use for home down payment, as explained here. (It is still considered risky.)
• Percent of Taxable International will increase. Decrease EuroPacific Growth (RERGX) to keep combined International at 24% (30% of equities).
• In a few years VG Total Int'l may reach 24% of portfolio, at which point you'll no longer have EuroPac Grwth and you'll need to begin placing a portion of taxable savings into VG Total Stock (VTSMX or VTSAX).
Do not have dividends automatically re-invested in the taxable account to simplify accounting of lots and tax-loss harvesting. Hold dividend cash separately to invest with other deposits.
Last edited by pingo on Thu Feb 21, 2013 8:29 pm, edited 8 times in total.

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Post by pingo » Thu Feb 21, 2013 8:04 pm

Idea #3 (Hybrid-ish)

Desired Asset Allocation: 80% Stocks / 20% Bonds
Desired International: 30% of equities

401k (80% or $60,000)
80% Target Fund ER 0.25 <-- $21,500/yr.

Roth (07% or $5,500)
07% Vanguard LifeStrategy Growth (VASGX) ER 0.17 or Target Retirement 2030 (VTHRX) ER 0.17 <-- $5,500/yr.

Taxable (13% or $10,000)
7.3% Vanguard Total Stock (VTSMX) ER 0.16
3.1% Vanguard Total International (VGTSX) ER 0.22
2.6% i-Bonds or short or intermediate-term bond fund (tax-exempt or taxable)

Notes:
• Weighted ER 0.23% (roughly).
• Saving for house via equities is still risky, but the mechanics of it are still explained here.
• Rebalance in taxable account via new contributions only.
i-Bonds are tax-deferred until withdrawn (cannot redeem before 1 yr; minor interest penalty if redeemed before 5yrs).
• Taxable account fund minimums may be a problem at first.
Last edited by pingo on Thu Feb 21, 2013 8:30 pm, edited 1 time in total.

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Post by pingo » Thu Feb 21, 2013 8:19 pm

Had to do some on-the-fly edits. :(

Refresh and you'll see eveything as I intended it. (Sorry.)

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Post by pingo » Fri Feb 22, 2013 1:13 pm

Edited to use only target funds.

I don't know if it makes a difference, but it occurred to me this morning that really this is probably what makes the most sense (to me anyway). (sigh)

Idea #4

Desired Asset Allocation: 80% Stocks / 20% Bonds
Desired International: 30% of equities

Translation: Target Funds plus bonds-only in taxable.[/b].

401k ($60,000)
80% Employer Target Fund with 90/10 stock-bond ratio <--$21,500/yr.

Roth ($5,500)
07% Vanguard Target Retirement 2040 - 2060 (any of those will do) ER 18% <--$5,500/yr.

Taxable
13% i-Bonds, or short or intermediate term bond fund (taxable or tax-exempt) <--$12,000/yr.

Notes:
• If you desire, use a single 90/10 target fund in 401k and Roth (e.g. VG Target 2045), and that should be good enough to give you a combined portfolio that is close enough to 80% stocks / 20% bonds if one assumes/expects/hopes for higher returns from the high equity allocation.
• Allocations of VG Target 2040 - 2060 are identical (90/10). Just hold which ever one makes sense to you.
• Simplicity! No rebalancing (by you).
• Flexibility to hold Bonds as house down payment or to keep as part of retirement without high volatility risk and without having to worry about whether or not an inconvenient crash will make you wait 10 years longer than expected.
• Remember that a loan can also be taken from 401k to help with house purchase.
• Up to $35,000/yr could go to Roth thanks to 401k In-Service Withdrawls of after-tax contributions, if ever choose to do so.
Last edited by pingo on Tue Feb 26, 2013 1:19 am, edited 6 times in total.

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Post by darthvader747 » Mon Feb 25, 2013 3:06 pm

pingo wrote:Idea #3 (Hybrid-ish)

Desired Asset Allocation: 80% Stocks / 20% Bonds
Desired International: 30% of equities

401k (80% or $60,000)
80% Target Fund ER 0.25 <-- $21,500/yr.

Roth (07% or $5,500)
07% Vanguard LifeStrategy Growth (VASGX) ER 0.17 or Target Retirement 2030 (VTHRX) ER 0.17 <-- $5,500/yr.

Taxable (13% or $10,000)
7.3% Vanguard Total Stock (VTSMX) ER 0.16
3.1% Vanguard Total International (VGTSX) ER 0.22
2.6% i-Bonds or short or intermediate-term bond fund (tax-exempt or taxable)

Notes:
• Weighted ER 0.23% (roughly).
• Saving for house via equities is still risky, but the mechanics of it are still explained here.
• Rebalance in taxable account via new contributions only.
i-Bonds are tax-deferred until withdrawn (cannot redeem before 1 yr; minor interest penalty if redeemed before 5yrs).
• Taxable account fund minimums may be a problem at first.


I like this option because of its simplicity. I dont know anything about Ibonds. I can certainly read up on them. What is the easiest way to buy and sell these?
Can you provide a link? I understand the benefit of having bonds. What is the benefit of having i-bonds? Why not just go for a vanguard bond index fund in the after tax box?

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Post by pingo » Mon Feb 25, 2013 9:01 pm

darthvader747 wrote:I like this option because of its simplicity.


Upon reflection, I think it wise to use the target funds, too. I think there is so much information to deal with right now, that you're not quite registering a lot of what's in this thread.

And honestly, I think the 4th idea I posted is the simplest because I realized you can use one fund in each account. In case you missed it, I want to direct your attention to the Idea #4 note in bold face that says:

pingo's Idea #4 Notes wrote:• If you desire, use a single 90/10 target fund in 401k and Roth (e.g. VG Target 2045), and that should be good enough to give you a combined portfolio that is close enough to 80% stocks / 20% bonds.


As such, I have edited the original Idea #4 post to get rid of all the separate asset funds in favor of the target funds. I think it's less confusing that way.

Regarding the i-Bonds...

darthvader747 wrote:Can you provide a link?


...the option you referred to and quoted contained the link:

pingo wrote:i-Bonds are tax-deferred until withdrawn (cannot redeem before 1 yr; minor interest penalty if redeemed before 5yrs).


This is what I mean by perhaps being so overwhelmed that many details are falling through the cracks. I've often wondered if you're reading the links people have posted in this thread, and this explains it. Anyway, it's okay. I should have pointed out earlier that when you see something underlined in light blue, it's a link to where you can read about it.

darthvader747 wrote:What is the easiest way to buy and sell these?


It practically works like an online bank account directly with TreasuryDirect.gov (note the link). :wink:

darthvader747 wrote:I understand the benefit of having bonds. What is the benefit of having i-bonds? Why not just go for a vanguard bond index fund in the after tax box?


There may be no wrong choice here.

Given the current bond environment, it probably won't make much difference what you choose. Some benefits of i-Bonds include what I already said in my earlier post, and there is no risk of loss of principal, no fluctuation of asset value and you they keep up with inflation. However, don't confuse a 0% real return with nominal returns. i-Bonds offer a nominal return that right now equals inflation (0% real). Some bond funds may offer a nominal return that is slightly higher or lower than inflation, but there is no guarantee that they'll keep up with inflation and they can fluctuate in value.

Anyway, I think you get 90% of what you want merely by holding the aggressive target funds in the 401k and Roth, you really can take your time to read and re-read this thread, explore the site and search for more information. Give it some time to sink in. I don't think there's as much of a need to rush into a decision with the taxable money.

:beer
Last edited by pingo on Tue Mar 05, 2013 12:24 am, edited 9 times in total.

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Post by darthvader747 » Mon Feb 25, 2013 11:54 pm

Pingo - I couldn't thank you enough! I am going with the target fund strategy.
I have learnt a lot going through this exercise. Thanks again!!

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Post by pingo » Tue Feb 26, 2013 1:17 am

:sharebeer

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Post by pingo » Tue Feb 26, 2013 6:49 pm

I wanted to bring up a timely discussion concerning i-Bonds that may be helpful:

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=111666&newpost=1625523

All the best!

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