Check up to Begin 2014

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jerome99
Posts: 193
Joined: Tue Jan 10, 2012 8:38 am

Check up to Begin 2014

Post by jerome99 » Thu Jan 02, 2014 8:56 am

Combined income is $380,000

Emergency Funds- 4 months

Debt: Only debt is 15 yr mortgage (15 years remaining) 2.875% fixed, $310,000 balance

Tax Filing Status: Married

Tax Rate: 33% Federal 3.4% State, IN

Age: 31 years old, Wife is 27

Current Asset Allocation: 75% Stocks/ 25% Bonds

Current International Allocation: 33% of Stocks

Current Portfolio including 401K is mid-high six figures

His Taxable Account
Vanguard Intl- VTIAX- 25%
Vanguard TSM- VTSMX- 17%

His 401K
American Funds (RWMCX)- 15.2%
American Funds (RGACX)- 15%

Her TSP
Bonds- G Fund- 17%

His Roth
Vanguard Extended Market- VEXAX- 4%

Her Roth
Vanguard Bonds- VBTLX- 4.4%

His HSA
Metro West Total Bond- MWTRX- 2.4%


His 401K American Funds (401K doesnt allow for additional after tax money)

Company Match- $6,039 Annually

Funds available in 401K
American Funds AMCAP Fund R3 (RAFCX) (1.05)
American Funds SMALLCAP World Fund R3 (RSLCX) (1.41)
Royce Premier R (RPRRX) (1.78)
INVESCO Small Cap Growth Fund - R (1.50)
American Fund Inv Co. Amer. (RICCX) (.97)
American Funds Gr Fund Amer. (RGACX) (.97)
American Funds Wash Mut (RWMCX) (.97)
American Funds Global Bal Fund (RGBCX) (1.28)
American Funds Cap World Bond (RCWCX) (1.21)
PIMCO Total Return Fund (PTRRX) (1.10)
All American Funds Target Date Funds (1.10)

Other Funds available in her TSP
Don't think this matters as its best place for Bonds (G-Fund)- Correct?

New Annual Contributions
$23,339 his 401K (incuding company match)
$19,700 her TSP (including match)
$5,500 her Roth- backdoor
$5,500 his Roth- backdoor
$4,000/month to the most tax efficient/lowest cost fund/funds- Need considerable help on this.

Questions
1. With taxable becoming more and more of a higher % of the overall balance, what can/should be done to reduce taxes? I-Bonds? Treasuries? Or Continue to plow into taxable each month?
2. Any improvement available to be the most expense/fee efficient?
3. Is % international and % bonds reasonable for our age, annual income and need/lack of need to take risk?

jerome99
Posts: 193
Joined: Tue Jan 10, 2012 8:38 am

Re: Check up to Begin 2014

Post by jerome99 » Thu Jan 02, 2014 11:25 am

One other question would be do my two American Funds' funds or my taxable Vanguard funds have enough small/mid cap exposure where my usage of VEXAX is overweighing this sector or is the current set up good?

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Duckie
Posts: 5672
Joined: Thu Mar 08, 2007 2:55 pm

Re: Check up to Begin 2014

Post by Duckie » Thu Jan 02, 2014 7:00 pm

jerome99 wrote:With taxable becoming more and more of a higher % of the overall balance, what can/should be done to reduce taxes? I-Bonds? Treasuries? Or Continue to plow into taxable each month?
  1. Put Extended Market (or small-cap, see below) in taxable and put bonds in His Roth IRA.
  2. I savings bonds through Treasury Direct are a good idea but there is a $10K per person per year limit.
  3. At a certain point you may need to either add a muni bond fund [e.g. (VWITX) Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (0.20%)] in taxable or add PIMCO Total Return in His 401k.
Any improvement available to be the most expense/fee efficient?
You've picked the cheapest options already.
Is % international and % bonds reasonable for our age, annual income and need/lack of need to take risk?
Your AA is fine.
[D]o my two American Funds' funds or my taxable Vanguard funds have enough small/mid cap exposure where my usage of VEXAX is overweighing this sector or is the current set up good?
Looking at the market caps RWMCX has very little medium and no small caps and RGACX had decent medium and virtually no small caps. Given that I would recommend a small-cap or small-cap value fund instead of Extended Market. And put it in taxable.

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g$$
Posts: 436
Joined: Wed Dec 21, 2011 12:17 am
Location: San Francisco

Re: Check up to Begin 2014

Post by g$$ » Fri Jan 03, 2014 3:09 am

Do you have any kids? You could find more tax advantaged space with a 529. Or maybe you can contribute to an HSA?

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Blue
Posts: 1148
Joined: Sat Jul 12, 2008 10:18 pm

Re: Check up to Begin 2014

Post by Blue » Fri Jan 03, 2014 5:12 am

g$$ wrote:Do you have any kids? You could find more tax advantaged space with a 529. Or maybe you can contribute to an HSA?
Indiana has 20% 529 tax credit up to $5,000 max contribution. Well worth the consideration.

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Blue
Posts: 1148
Joined: Sat Jul 12, 2008 10:18 pm

Re: Check up to Begin 2014

Post by Blue » Fri Jan 03, 2014 5:15 am

Also, I assume you meant VTSAX instead of VTSMX in taxable given the size of your portfolio, but you should confirm that you have admiral shares for the lower expense ratio.

Longtimelurker
Posts: 471
Joined: Fri Dec 13, 2013 8:23 am

Re: Check up to Begin 2014

Post by Longtimelurker » Fri Jan 03, 2014 7:59 am

I am in a very similar position financially. What I chose to do was to focus on things I have some control over (i.e. taxes) in my setup. I likewise run a 75/25 AA, although i am 50/50 US/Intl in equities. Here is what I would look at if I were you:

- iBonds are a no-brainer. They add inflation protection to you FI portfolio, reduce your FI duration, increase your tax advantaged space, can be used as an emergency fund/liability matching for retirement etc. Uber flexible. I would ASAP get $10k per SS# (so $20k per year for you and your wife). You can get an additional $5k per SS# with tax return, but I have not done that.
- EEBonds. These are less desirable then iBonds at the moment, but offer another $30k in tax advantaged space per year. They really should only be purchased if holding for 20 years (doubling period), so are good for liability matching. I do not currently own or plan to own these.
- 529 plan. If you and your wife plan on kids, you could start a 529 plan now. It is easy to change the beneficiary in the future. This is another $26k per year in tax advantaged space if you want to stay under the gift tax limit.
- Muni's. In your taxable you may want to consider a muni fund. I use the ETF MUB. Federal Tax free income at yields that are better than the total bond market funds is a pretty good thing! If you don't need the liquidity then compare muni SEC yield to your after tax rate on your mortgage. Contribute to the higher of the two, with a bias towards paying off mortgage - as it is the safer bet.
- Be ready to tax loss harvest. At some point you will have this opportunity and you need to capture those loses to reduce future tax liability.

hope this helps
Stay the course. If you can't resist greed, and fear is proven to be 2x as strong, you are doomed as an investor.

jerome99
Posts: 193
Joined: Tue Jan 10, 2012 8:38 am

Re: Check up to Begin 2014

Post by jerome99 » Fri Jan 03, 2014 10:59 am

Thanks for the feedback. What is meant by liability matching?

Longtimelurker
Posts: 471
Joined: Fri Dec 13, 2013 8:23 am

Re: Check up to Begin 2014

Post by Longtimelurker » Fri Jan 03, 2014 3:17 pm

jerome99 wrote:Thanks for the feedback. What is meant by liability matching?
Process of ensuring that known liabilities in the future are met. i.e. $10k in TIPS maturing each year could match the anticipated tax bill on your home. Here is a great discussion:

http://www.bogleheads.org/forum/viewtop ... 0&t=106544
Stay the course. If you can't resist greed, and fear is proven to be 2x as strong, you are doomed as an investor.

jerome99
Posts: 193
Joined: Tue Jan 10, 2012 8:38 am

Re: Check up to Begin 2014

Post by jerome99 » Mon Jan 06, 2014 10:52 am

aaaaa

jerome99
Posts: 193
Joined: Tue Jan 10, 2012 8:38 am

Re: Check up to Begin 2014

Post by jerome99 » Wed Jan 08, 2014 10:47 am

With the above equity positions and the sale of Extended Market for Small Cap Index, what is my needed Small Cap Index AA to have the total market?

I think to determine this I need to know the amount of TSM which is Small Cap along with the exposure (which is almost nill I think) I get from my two American Funds funds.

Thanks in advance.

staythecourse
Posts: 5694
Joined: Mon Jan 03, 2011 9:40 am

Re: Check up to Begin 2014

Post by staythecourse » Wed Jan 08, 2014 10:57 am

Longtimelurker wrote:I am in a very similar position financially. What I chose to do was to focus on things I have some control over (i.e. taxes) in my setup. I likewise run a 75/25 AA, although i am 50/50 US/Intl in equities. Here is what I would look at if I were you:

- iBonds are a no-brainer. They add inflation protection to you FI portfolio, reduce your FI duration, increase your tax advantaged space, can be used as an emergency fund/liability matching for retirement etc. Uber flexible. I would ASAP get $10k per SS# (so $20k per year for you and your wife). You can get an additional $5k per SS# with tax return, but I have not done that.
- EEBonds. These are less desirable then iBonds at the moment, but offer another $30k in tax advantaged space per year. They really should only be purchased if holding for 20 years (doubling period), so are good for liability matching. I do not currently own or plan to own these.
- 529 plan. If you and your wife plan on kids, you could start a 529 plan now. It is easy to change the beneficiary in the future. This is another $26k per year in tax advantaged space if you want to stay under the gift tax limit.
- Muni's. In your taxable you may want to consider a muni fund. I use the ETF MUB. Federal Tax free income at yields that are better than the total bond market funds is a pretty good thing! If you don't need the liquidity then compare muni SEC yield to your after tax rate on your mortgage. Contribute to the higher of the two, with a bias towards paying off mortgage - as it is the safer bet.
- Be ready to tax loss harvest. At some point you will have this opportunity and you need to capture those loses to reduce future tax liability.

hope this helps
Nice summary and agree.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Duckie
Posts: 5672
Joined: Thu Mar 08, 2007 2:55 pm

Re: Check up to Begin 2014

Post by Duckie » Wed Jan 08, 2014 11:11 pm

jerome99 wrote:With the above equity positions and the sale of Extended Market for Small Cap Index, what is my needed Small Cap Index AA to have the total market?

I think to determine this I need to know the amount of TSM which is Small Cap along with the exposure (which is almost nill I think) I get from my two American Funds funds.
Large caps are roughly 81% of the US stock market, mid caps are 6%, and small caps are 13%. See Approximating total stock market. To check your specifics go to the free Morningstar Instant X-Ray calculator. Type in VTSMX and $5000 as a baseline. See what the style box shows. When I do it I see:
24 24 26
06 06 06
03 03 03
Write it down. Then type in your current or planned US stock funds (use the two American funds and Extended Market or small caps). See what comes closer to the VTSMX style box. Tweek it until you get what you want. It's not going to be exact, but close enough is good enough.

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