Almost at point to pay hourly adviser...

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jerome99
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Almost at point to pay hourly adviser...

Post by jerome99 » Fri Aug 23, 2013 9:16 am

Although my wife and I have made a significant amount of progress, I am almost to the point of paying an adviser for 3-4 hours of his time to review our portofolio and provide us guidance in the way of taxable investing as well as a few other items below. It would be very appreciated if the board could help us as they have for a few years and we can save some cash!

Federal Income Tax is 33%, State is 3.4% (IN)

1. We maximize all tax advantage opportunities we have, this includes a 401K, TSP, HSA and Backdoor Roths. We have between $4-5K a month of additional income that is available for investing. We need help in determining what order this money goes into certain investments. Do we plow it all into taxable index funds with Vanguard? Do we buy Ibonds, Treasuries? Muni bonds?

2. We plan on having kids beginning next fall. Do we start 529s right now?

Please ask any questions for background information that will help in providing us guidance.

Thank you in advance.

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ruralavalon
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Re: Almost at point to pay hourly adviser...

Post by ruralavalon » Fri Aug 23, 2013 9:31 am

Your ages?

Approximate size of retirement savings so far?

Debt? Amounts, types, interest rates?

How many months living expenses covered by your emergency fund?
Last edited by ruralavalon on Fri Aug 23, 2013 9:37 am, edited 2 times in total.
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hand
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Re: Almost at point to pay hourly adviser...

Post by hand » Fri Aug 23, 2013 9:35 am

You can start 529s now in your own name, and change to kids name when born, though not sure where gift tax starts to be an issue.
You may also want to consider paying down any debt that you have.

I Bonds work really well for an emergency fund assuming you are OK with them being illiquid for the first year.

jerome99
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Re: Almost at point to pay hourly adviser...

Post by jerome99 » Fri Aug 23, 2013 9:42 am

I am 31, my wife is 27

Approximate size of retirement savings so far?- $500,000

Type of medical insurance? High deductible? I have a $5,000 deductible HSA and she has Fed Govt PPO plan.

Debt? Amounts, types, interest rates?- Only debt is $100,00 mortgage at 2.75%, 13 years remaining on 15.

Emergency Fund- 5 months of expenses.

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mhc
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Re: Almost at point to pay hourly adviser...

Post by mhc » Fri Aug 23, 2013 9:44 am

OP,

invest the money at Vanguard in your taxable account according to your AA. If you follow a 3-fund portfolio, then you would have TSM and/or TISM in taxable. All bonds in tax-advantaged accounts. If you run out of room for bonds in tax-advantaged accounts, then you look into muni's. I have never found a reason to buy Ibonds even though I put a large amount into taxable every year.

I would start the 529 when the child is born.

Will your income change when you have children? If so, plan for that.

When my DW and I started having children, we spent a lot of money (2 new cars, finished basement, all the baby stuff). Try to think through the additional expenses. If your income stays the same, you probably have sufficient cash flow to handle it. If your income drops, you may want to bank some money.

Dave76
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Re: Almost at point to pay hourly adviser...

Post by Dave76 » Fri Aug 23, 2013 9:55 am

Many people on this board recommend the 529. I think the 529 has too many drawbacks. This recommendation is ill-advised.

stan1
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Re: Almost at point to pay hourly adviser...

Post by stan1 » Fri Aug 23, 2013 9:58 am

Dave76 wrote:Many people on this board recommend the 529. I think the 529 has too many drawbacks. This recommendation is ill-advised.


Care to state your rationale?

jerome99
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Re: Almost at point to pay hourly adviser...

Post by jerome99 » Fri Aug 23, 2013 10:04 am

One other item is whether we should be contributing to deductible 401K and TSP or Roth.

My rational has always been that our tax bracket now is higher than it will be in retirement. I haven't ran any numbers validating this overall decision, but wanted some helop from the board if there are other items that should be considered.

Thank you

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mhc
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Re: Almost at point to pay hourly adviser...

Post by mhc » Fri Aug 23, 2013 10:29 am

jerome99 wrote:One other item is whether we should be contributing to deductible 401K and TSP or Roth.

My rational has always been that our tax bracket now is higher than it will be in retirement. I haven't ran any numbers validating this overall decision, but wanted some helop from the board if there are other items that should be considered.

Thank you


In your tax bracket, you should take the tax savings now. Don't pay taxes until you have to. Who knows, you may never pay taxes on the money in your 401k.

gerrym51
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Re: Almost at point to pay hourly adviser...

Post by gerrym51 » Fri Aug 23, 2013 10:31 am

based on what you have at your ages we should be asking your for your advice.

your doing much better than most at your ages. i suggest you go with your gut. :mrgreen:

livesoft
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Re: Almost at point to pay hourly adviser...

Post by livesoft » Fri Aug 23, 2013 10:37 am

The 529 plans would just be an unimportant tax shelter for you, so they are not something to worry about. Consider this: If you didn't put money into the 529 plans, you would still be able to pay for the most expensive college in the US without any worries. You are saving an extra $5,000 a month which is $60,000 a year. That would pay all expenses for one year of college plus you would get tax breaks for paying for college.

So worry about the 529 plans later. In the meantime, you can just invest tax efficiently in a taxable account. There is nothing magic or hard at all about that. You have already listed the possible investments:

Total US Stock Market Index
Total International Stock Market Index
I-bonds
Tax-exempt muni bond fund.

As for deductible versus non-deductible: You have many years to go, so I would build up deductible with tradtional 401(k) and traditional TSP for now. If you save/invest so much money that you want to retire early, you will see the benefit of this. If you keep working to age 70 and end up in a high tax bracket, you will have no problem paying the taxes.
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jerome99
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Re: Almost at point to pay hourly adviser...

Post by jerome99 » Fri Aug 23, 2013 10:44 am

Thanks Livesoft. Do we only invest in numbers 3 and 4 if and when our AA would require us to do so?

jerome99
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Re: Almost at point to pay hourly adviser...

Post by jerome99 » Fri Aug 23, 2013 12:14 pm

gerrym51 wrote:based on what you have at your ages we should be asking your for your advice.

your doing much better than most at your ages. i suggest you go with your gut. :mrgreen:


We are extremely fortunate with our incomes. Just want to be as tax efficient as possible with this investing thing!

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ruralavalon
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Re: Almost at point to pay hourly adviser...

Post by ruralavalon » Fri Aug 23, 2013 1:14 pm

jerome99 wrote:Federal Income Tax is 33%, State is 3.4% (IN)

1. We maximize all tax advantage opportunities we have, this includes a 401K, TSP, HSA and Backdoor Roths. We have between $4-5K a month of additional income that is available for investing. We need help in determining what order this money goes into certain investments. Do we plow it all into taxable index funds with Vanguard? Do we buy Ibonds, Treasuries? Muni bonds?

2. We plan on having kids beginning next fall. Do we start 529s right now.


It looks to me like you are doing just fine.

In your already established asset allocation just add in a taxable account:
Vanguard Total Stock Market Index Fund;
Vanguard Total International Stock Index Fund; and
some tax free mini bond funds
and
I-bonds from Treasury Direct.
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livesoft
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Re: Almost at point to pay hourly adviser...

Post by livesoft » Fri Aug 23, 2013 1:20 pm

jerome99 wrote:Thanks Livesoft. Do we only invest in numbers 3 and 4 if and when our AA would require us to do so?

Yes, and only use tax-exempt muni bond fund if asset location of bonds in taxable is required. Otherwise, bonds in tax-advantaged accounts should be used.
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Taylor Larimore
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529 College Saving Plans.

Post by Taylor Larimore » Fri Aug 23, 2013 2:03 pm

Jerome:

It is not clear if you have run out of room in your tax-advantaged accounts and therefore must invest in a taxable account. If such is the case, I believe a tax-advantaged 529 College Savings Plan could be a superior method for college saving--especially for someone in a 33% tax-bracket.

The linked article below does a good job of explaining 529 College Savings Plans including the advantages and disadvantages:

Section 529 Plans

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

jerome99
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Re: Almost at point to pay hourly adviser...

Post by jerome99 » Fri Aug 23, 2013 3:00 pm

Taylor,

Yes, we maximize all our tax advantage options (401K, TSP, Backdoor Roth and HSA) and have in the neighborhood of $50K to invest annually in taxable.

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Re: Almost at point to pay hourly adviser...

Post by pkcrafter » Fri Aug 23, 2013 5:04 pm

Almost at point to pay hourly adviser...


A one-time consultation with a financial planner might be a good idea. This may cost you 3k, but still might help you with the big picture. I don't know what an advisor might tell you that you won't hear right here. There are only so many tax deductible accounts you can use unless you go with an annuity, and I'm sure you can find an advisor who will recommend one.

Paul
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MN Finance
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Re: Almost at point to pay hourly adviser...

Post by MN Finance » Sat Aug 24, 2013 10:09 am

It's hard to go with a 529 before you even have kids, but it's really a pretty good idea if you're willing to deal with the slightly higher hassle if you never have them for some reason. This could also be a pretty reasonable case for using an annuity given the high monthly surpluses, but that's somewhat controversial. Jeff Nat annuities have 20/mo cost which very nominally increases cost as the account grows larger and had the compounding benefits. If someone stops working to care for kids then the surplus is only temporary so saving to taxable is best, but if there's no income drop, then annuity/529 are good options.

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