What to add to my "Core 3"

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20Dukes11
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What to add to my "Core 3"

Post by 20Dukes11 »

Hi all,

My wife and I are in our mid-20s, and our current portfolio is broken out across the 3 following funds:

My 401k - ~$23,000 (63% of total portfolio)
100% PLFPX - Principal Large Cap S&P 500 Index Separate Account (.31% ER)

Wife's Vanguard Roth IRA - ~$10,500 (29% of total portfolio)
49% VBMFX - VG Total Bond Market Index Fund Inv Shares (.20% ER)
51% VGTSX - VG Total International Stock Index Fund Investor Shares (.22% ER)

My Vanguard Roth IRA - <$3,000 (8% of total portfolio)
100% VGSTX Vanguard STAR Fund (.34% ER)

I'm only holding the STAR fund because I don't yet have $3K in the IRA to go to another fund with. My questions is, what would be a nice fund to buy with this $3K, given the rest of my portfolio? My current AA is 85/15 stocks/bonds, and 80/20 Domestic/Int'l. My first thoughts are to gain some small cap exposure and round out my TSM, through the use of either a small cap or extended market fund.

Based off what M* says when swapping the STAR fund ($3K) for each of the two following funds yields basically the same results:

NAESX - Vanguard Small Capitalization Index Fund Investor Shares (.24% ER)
Domestic/Int'l/Bonds = 70/15/13

26 26 26
06 05 05
02 02 02

...or...

VEXMX - Vanguard Extended Market Index Fund Investor Shares (.22% ER)
Domestic/Int'l/Bonds = 70/15/13

26 26 26
06 05 05
02 02 02



With the above two scenarios,would I be missing a glaring hole somewhere as far as AA? Any thought here would be greatly appreciated. I hope I have provided enough information, but as always I'm happy to edit this post and include anything else that might help. I can tell you my 401K is dismal and the S&P 500 index I'm currently using is the only real winner.

Thanks very much
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retiredjg
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Re: What to add to my "Core 3"

Post by retiredjg »

I'm surprised it turns out that close, I'd use Extended Market unless you want to tilt to small cap.

I don't see any holes. One of those is the next logical thing to add in my opinion.
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20Dukes11
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

I was surprised too. Thanks for the input! Once I start maxing both of these IRAs out each year (I'm pretty close), I'll need to tackle how I go about putting more into the S&P500 fund in my 401K without overweighting my domestic stock allocation (as I mentioned above, the rest of the funds in our 401K are junk so I'm going to try and stick to the S&P500). I'm assuming I'll need to start funding a taxable account at the same time, to keep my other allocations up to snuff?
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retiredjg
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Re: What to add to my "Core 3"

Post by retiredjg »

My experience in helping people build their portfolios is that having a bond fund or stable value fund in the 401k pretty much needs to happen because the 401k gets the largest contribution.

In your case, you could push international out of Her Roth IRA and replace it with bonds. And push Extended Market or Small Cap out of His Roth IRa and replace that with bonds. But my instinct is that you need to find a bond fund in the 401k. Or a stable value fund.

Just how bad are the choices?
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20Dukes11
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

His 401K - through Principal Financial Group - 50% employer match up to 6%
Short-Term Fixed Income
- Principal Stable Value Fund - .91% ER

Fixed Income
- PIMCO GNMA A Fund - .90% ER
- Principal Bond and Mortgage Separate Account - .71% ER

Balanced/Asset Allocation
- Principal Lifetime Strategic Income Separate Account - .80% ER
- Principal Lifetime 2010 Separate Account - .85% ER
- Principal Lifetime 2020 Separate Account - .89% ER
- Principal Lifetime 2030 Separate Account - .93% ER
- Principal Lifetime 2040 Separate Account - .95% ER
- Principal Lifetime 2050 Separate Account - .96% ER
- Principal Lifetime 2060 Separate Account - 1.19% ER
- Vanguard STAR Fund - .34% ER

Large US Equity
- American Century Value Inv Fund - .98% ER
- Principal Large Cap S&P 500 Index Separate Account - .31% ER (***this is where 100% of my current contributions go)
- T. Rowe Price Equity Income Fund - .67% ER
- T. Rowe Price LargeCap Growth I Separate Account - .79% ER
- Vanguard PRIMECAP Inv Fund - .44%

Small/Mid US Equity
- DFA/Vaughn Nelson/LA Capital SmallCap Value II Separate Account - 1.24% ER
- MidCap Value III Separate Account - .81% ER
- Prudential Jennison Mid Cap Growth A Fund - 1.05% ER
- Vanguard Explorer Inv Fund - .53% ER
- Vanguard Mid-Cap Index Inv Fund - .24% ER

Int'l Equity
- Principal Int'l SmallCap Separate Account - 1.46% ER
- Vanguard Int'l Growth Inv Fund - .47% ER


I should have mentioned this earlier - My wife's employer also offers a 401K, but there is no match. She works for a state institution here in NC, and so all the funds are actually these state-specific index funds offered through Prudential. They look fine to me and have really low ERs as well:

Her 401K - through Prudential - no employer match
Stable Value
- NC Stable Value Fund - .44% ER

Intermediate-Term Bond
- NC Fixed Income Fund - .35% ER
- NC Fixed Income Index - .18% ER

Inflation Responsive
- NC Inflation Responsive Fund - .96% ER

Large Cap
- NC Large Cap Value Fund (benchmark is Russell 1000 Value Index) - .55% ER
- NC Large Cap Index Fund (benchmark is S&P 500) - .17% ER
- NC Large Cap Growth Fund (benchmark is Russell 1000 Growth Index) - .60% ER

Small/Mid Cap
- NC Small/Mid Value Cap Fund (benchmark is Russell 2500 Value Index) - .80% ER
- NC Small/Mid Cap Index Fund (Benchmark is Russell 2500 Index) - .17% ER
- NC Small/Mid Growth Cap Fund (benchmark is Russell 2500 Growth Index) - .87% ER

Global/Int'l
- NC Global Equity Fund (benchmark is MSCI All Country World Index) - .75% ER
- NC Int'l Index Fund (benchmark is MSCI All Country World ex-US Index)- .18% ER
- NC Int'l Fund (benchmark is MSCI All Country World ex-US Index) - .68% ER


I haven't started using them yet simply because between my 401K and our 2 Roth IRAs, we're not at the point where we're able to contribute anymore than we already do. Once I max out both of our Roth IRAs, I'll likely turn to my wife's 401K before putting anything else in my own 401K.
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retiredjg
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Re: What to add to my "Core 3"

Post by retiredjg »

You should definitely be using Her 401k before putting retirement money in taxable. Your wife's 401k is better than yours. Don't contribute more than enough to get the match to your 401k.

Principal Bond and Mortgage Separate Account - .71% ER <--if you have to have bonds in His 401k, this one is usable, but I'd rather have bonds in one of the Roths than use more than about 5% of this one.
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20Dukes11
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

retiredjg wrote:You should definitely be using Her 401k before putting retirement money in taxable. Your wife's 401k is better than yours. Don't contribute more than enough to get the match to your 401k.
Agreed. And yea, I'm only contributing up to the employer match in my 401K - then everything else is getting kicked out to the 2 Roth IRAs.
retiredjg wrote: Principal Bond and Mortgage Separate Account - .71% ER <--if you have to have bonds in His 401k, this one is usable, but I'd rather have bonds in one of the Roths than use more than about 5% of this one.
The 2 IRAs are where the entirety of our bond allocation lives.

Once I get these two IRAs fully funded for the year, I'll start socking away in the wife's 401K. Since I've got a fairly decent AA across the 401K/2 IRAs as it is, I may just try and "recreate" the same AA inside her 401K - using the index funds within each respective asset classes. Thoughts?
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retiredjg
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Re: What to add to my "Core 3"

Post by retiredjg »

20Dukes11 wrote:Once I get these two IRAs fully funded for the year, I'll start socking away in the wife's 401K. Since I've got a fairly decent AA across the 401K/2 IRAs as it is, I may just try and "recreate" the same AA inside her 401K - using the index funds within each respective asset classes. Thoughts?
You don't need to recreate the same AA inside her 401k, especially since it will be smaller at first. Just pick one good fund - maybe that bond index fund - and use it the same way you have created 1 AA in the other accounts.
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retiredjg
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Re: What to add to my "Core 3"

Post by retiredjg »

By the way, many people would encourage you to put more into her 401k before filling up the 2 IRAs.
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20Dukes11
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

retiredjg wrote:By the way, many people would encourage you to put more into her 401k before filling up the 2 IRAs.
What would the argument for this be, the tax advantage? As a reminder, there is no employer match on her 401K.
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retiredjg
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Re: What to add to my "Core 3"

Post by retiredjg »

Yes, the argument would be that tax-deferral is a good thing. Some people would say that your priorities should be:

1) His plan up to the match (free money and tax -deferral)
2) Her plan up to the max (tax-deferral)
3) Roth IRAs.

However, we don't know your tax bracket, so it is difficult to say.

If you have seen the "401k up to the match, followed by Roth IRA..." guideline, it does not necessarily apply to you. Part of that guideline is based on the assumption that fund choices in an IRA would be better than in a work plan. This is not true in your case - Her 401k has some very good choices.

I'm not saying you should abandon the Roth IRAs. I'm saying that some would say you need more inn tax-deferred 401k and less in Roth IRA if you can't fill all 4 of the accounts.

Do you know your tax bracket? Do you need help figuring it out?
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20Dukes11
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

retiredjg wrote:
If you have seen the "401k up to the match, followed by Roth IRA..." guideline, it does not necessarily apply to you. Part of that guideline is based on the assumption that fund choices in an IRA would be better than in a work plan. This is not true in your case - Her 401k has some very good choices.
Yes, I have seen this and have to say it is where my logic has come from thus far regarding our choice in investment vehicles. But you hit the nail on the head - I've been pretty confused by what the smartest choices are from a tax standpoint.
retiredjg wrote: Do you know your tax bracket? Do you need help figuring it out?
Wife and I are right in the middle of the 25% bracket - married filing joint, combined annual income of around $123,000.
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The529guy
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Re: What to add to my "Core 3"

Post by The529guy »

What's the current yield for your 401k's Principal Stable Value Fund? If it's decent, the ER isn't so important.
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retiredjg
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Re: What to add to my "Core 3"

Post by retiredjg »

20Dukes11 wrote:Wife and I are right in the middle of the 25% bracket - married filing joint, combined annual income of around $123,000.
In that case, my suggestion is His plan to the match, some in her plan, some in Roth. This gives you tax-deversification (some pre-tax and some post-tax) and it gives you a healthy dose of tax-deferral.

Everybody pretty much agrees on getting the match. I think most people agree on getting some in both tax-deferred and Roth if you are saving enough to do that. In between those two goals there seems to be a lot of variability in opinions about how much should go where. My opinion is to try to get between 1/4 and 1/2 into Roth, but even that could vary a lot over time depending on choices available, costs, how much you can save, etc.

Others have other opinions. You just have to find the spot that makes sense to you remembering that in the end it is how much you save that is important, not so much which account it is in.
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20Dukes11
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

Thanks so much -

So, Sounds like I should dial back a bit of my Roth IRA contributions in favor of some contributions to the wife's employer plan.

I suppose a little back story might help with a.) why we haven't been using my wife's employer sponsored funds, and b.) what my wife's entire retirement options actually are.

1. We were contributing to an employer sponsored Fidelity 403B (wife's employer) up until November '14, but then wife's employer did away with the plan altogether (stopped allowing future contributions), so we rolled those funds into a Roth IRA w/Vanguard.

2. Only two or three weeks ago, the employer (a state/university hospital) reintroduced this 403B, as well as 457B and 401K plans. The 403B is with Fidelity (as it used to be), the 457B is also with Fidelity, and the 401K is run through Prudential.

Now that I've taken an evening to look through the 3 plans mentioned above, I can tell you this... I'm hesitant to put anything back into the 403B, because I' now concerned it might go away sometime in the future. They still never provided employees with any justification for why it was originally removed/suspended. With this in mind I think the Fidelity 457B has the best funds options. To name a few...

Vanguard Extended Market Index Fund Institutional Shares (VIEIX) - .08% ER
Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) - .07% ER
Vanguard total Int'l Stock Index Fund Institutional Shares (VTSNX) - .12% ER
Vanguard Institutional Index Fund Institutional Shares - (VINIX) - .04% ER
Vanguard Target Retirement Funds (years 2010, 2015, 2020, ... , 2060) - .18% ER for all of them

Is there one particular asset class we could use her 457B for? I'm honestly so tired of moving things around at this point, I need something simple - I don't want specific asset classes split up across my IRAs, 401K, etc. if I can avoid it.

Thanks for all the patience and advice-
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retiredjg
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Re: What to add to my "Core 3"

Post by retiredjg »

20Dukes11 wrote:Is there one particular asset class we could use her 457B for?
There probably is, but since we don't know what things look like, suggesting one would be pure speculation. So I'll speculate that you use bonds in the 457b. Hard to go wrong with that.

If you want a real answer based on your actual situation, we need to know what your situation is. The kind and relative size of accounts matters. See the link at the bottom of this message for how to do that.
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20Dukes11
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

retiredjg wrote:
20Dukes11 wrote:Is there one particular asset class we could use her 457B for?
If you want a real answer based on your actual situation, we need to know what your situation is. The kind and relative size of accounts matters. See the link at the bottom of this message for how to do that.
Yea - I apologize, should have done that from the get-go. Let me do that quickly.
Last edited by 20Dukes11 on Wed Apr 01, 2015 7:10 pm, edited 1 time in total.
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20Dukes11
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

Emergency funds: >$18K (roughly 4 months)
Debt: 30 yr fixed home loan, $169,600 @3.75%
Tax Filing Status: Married Filing Joint
Tax Rate: 25% Federal, ~7% State
State of Residence: NC
Age: 26 (Him), 27 (Her)
Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: ~20% of stocks


His 401K - plan is with Principal Financial. Company matches 3%, up to 6% employee contributions

- Morley Financial Services, Inc. – Principal Stable Value Fund - .91%
- PIMCO – PIMCO GNMA A Fund - .91%
- Principal Global Investors – Bond and Mortgage Sep Acct - .71%
- Principal LifeTime Strategic Income Separate Account - .79%
- Principal LifeTime 2010 Separate Account - .83%
- Principal LifeTime 2020 Separate Account - .87%
- Principal LifeTime 2030 Separate Account - .91%
- Principal LifeTime 2040 Separate Account - .94%
- Principal LifeTime 2050 Separate Account - .94%
- Vanguard Group – Vanguard STAR Fund - .34%
- American Century Inv. Mgmt. – American Century Value Inv Fund - 1.00%
- Principal Global Investors – LargeCap S&P 500 Index Separate Account - 0.31%
- T. Rowe Price Associates, Inc. – T. Rowe Price Equity Income Fund - .67%
- T. Rowe Price/Brown Advisory – LargeCap Growth I Separate Account - .79%
- Vanguard Group – Vanguard Primecap Fund - .45%
- DFA/Vaughan Nelson/LA Capital – SmallCap Value II Separate Account - 1.28%
- Principal Global/Borrow Hanley – MidCap Value III Separate Account - .81%
- Prudential Investments, LLC – Prudential Jennison Mid Cap Growth A Fund - 1.07%
- Vanguard Group – Vanguard Explorer Fund - .51%
- Principal Global Investors/DFA – International SmallCap Separate Account - 1.46%
- Vanguard Group – Vanguard International Growth Fund - 0.48%

--------------------------------------------------------------------------------------------------------------------------

My wife has access to both a 403b as well as a 457b, both plans are offered through Fidelity. Both plans offer the same exact fund choices. The plans have a few more funds in them than just those I've listed below, but their ERs are all fairly high and I think the funds listed below would be more than ample if I chose to contribute to one of the plans. Perhaps someone can chime in regarding whether the 457b is better/worse than the 403b as well. As far as I know, the 457b has the upper hand, as I can withdraw my contributions whenever I want, without penalty, correct? Anyways, here are some of the funds available:

- Vanguard Target Retirement 2050 Funds (2010, 2015, 2020, ... , 2060) Investor Shares - .18%
- (VIEIX) Vanguard Extended Market Index Fund Institutional Shares - .08%
- (VBIRX) Vanguard Short-Term Bond Index Fund Admiral Shares - .10%
- (VBTIX) Vanguard Total Bond Market Index Fund Institutional Shares - .07%
- (VTSNX) Vanguard Total International Stock Index Fund Institutional Shares - .12%
- (VINIX) Vanguard Institutional Index Fund Institutional Shares - .04%

--------------------------------------------------------------------------------------------------------------------------

Finally, my wife also has access to a 401K that is run through Prudential. The plan holds these North Carolina-specific funds such as the "NC Large Cap Value Fund" and the "NC Large Cap Index". There are index fund options within the fixed-income, large cap, small/mid cap, and international asset classes with low ERs, but I'm thinking at this point in time I would likely be contributing to either the 403b or the 457b instead of this plan, so I could actually track the funds via tickers.


Currently I have our retirement portfolio spread across the 401K as well as 2 Vanguard Roth IRAs as follows:

His 401K - $23,000 (~63%)
100% Principal Large Cap S&P500 Index Separate Account – no ticker - (.32%) current plan is to contribute 6% each paycheck (with a 3% employer match), which is about $413/mo in total

Her Vanguard Roth IRA - $10,500 (~29%)
49% Vanguard Total Bond market Index Fund Inst. Shares – VBMFX - (.20%) current plan is to contribute $229/mo to this fund
51% Vanguard Total International Stock Index Fund Ist. Shares – VGTSX - (.22%) current plan is to contribute $229/mo to this fund

His Vanguard Roth IRA - <$3,000 (8%)
100% Vanguard Extended Market Index Fund Inv. Shares – VEXMX - (.24%) current plan is to contribute $458/mo to this fund

This is a total monthly contribution of around $1329, or $15,948 each year. This is just under 13% of our annual income.
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The above-mentioned future fund contributions breaks down roughly as follows:
US Stocks: 64%
Foreign Stocks: 17%
Bonds: 16%

M* Diversification:
17 18 18
08 09 11
06 07 06
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

I'm not entirely sure if we can contribute to more than one of the mentioned 403b/457b options, so I will be checking with my wife's HR dept tomorrow to confirm. In any event, we're a long ways from needing both :-)

Thanks in advance for all the help/insight - let me know if I've forgotten anything
Last edited by 20Dukes11 on Thu Apr 02, 2015 8:32 am, edited 2 times in total.
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The529guy
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Re: What to add to my "Core 3"

Post by The529guy »

The529guy wrote:What's the current yield for your 401k's Principal Stable Value Fund? If it's decent, the ER isn't so important.
If this is your fund, it doesn't look like anything to get excited about:
https://secure05.principal.com/allweb/d ... t/PSVF.pdf
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retiredjg
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Re: What to add to my "Core 3"

Post by retiredjg »

20Dukes11 wrote:I'm not entirely sure if we can contribute to more than one of the mentioned 403b/457b options, so I will be checking with my wife's HR dept tomorrow to confirm. In any event, we're a long ways from needing both :-)
I think the law allows her to contribute to all 3, but the 401k plus 403b total would be $18k so there is really no point in using more than one of those. She is also allowed to contribute another $18k to the 457b (it has a separate limit). This account can be tapped any time after separation from the job - there is no age requirement.
Thanks in advance for all the help/insight - let me know if I've forgotten anything
It would be helpful to have your contributions (including the match) for each year.
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20Dukes11
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

retiredjg wrote: It would be helpful to have your contributions (including the match) for each year.
See edit to my post above - thanks!
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BL
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Re: What to add to my "Core 3"

Post by BL »

There have been some threads here discussing the non-governmental 457b. The risk is that the money is not totally separate from the organization, so that it "belongs" to the organization and could be at risk to its creditors. You might want to read up on it if you are considering investing there, especially since you have other options. Granted your employer is not likely to end up in that situation, but it should be considered. Also IIRC, you may not be able to roll it over to an IRA as you can with the gov. 457b. I don't know a lot about it, but did check out that I was "safe" when I began a 457b in a city gov plan in the late 1990's and I was able to rollover to an IRA when I retired.

Here is something I found while Googling:
http://www.aon.com/attachments/human-ca ... wallie.pdf
Trust Requirement
A governmental 457(b) plan is subject to a trust requirement, while
assets of a 457(b) of a tax-exempt employer must remain subject to the
claims of the employer’s creditors.
As for funds, if you want simple, pick a Target Retirement fund with the bond % you like. Done.
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retiredjg
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Re: What to add to my "Core 3"

Post by retiredjg »

You are currently contributing more than twice as much to Roth IRA than to a tax deferred account such as a 401k/457b.

In the 25% tax bracket, I think the ratio should be reversed. Tax deferral is a good thing. Since the options in Her 457b are even cheaper than directly at Vanguard, there is no reason not to do this. You will pay less in tax and less in expenses (unless an annual fee is involved in which case the lower expense ratio may be offset).


His 401K - $23,000 (~63%)
100% Principal Large Cap S&P500 Index Separate Account – no ticker - (.32%)

Her Vanguard Roth IRA - $10,500 (~29%)
49% Vanguard Total Bond market Index Fund Inst. Shares – VBMFX - (.20%)
51% Vanguard Total International Stock Index Fund Ist. Shares – VGTSX - (.22%)

His Vanguard Roth IRA - <$3,000 (8%)
100% Vanguard Extended Market Index Fund Inv. Shares – VEXMX - (.24%)

Her 457b
(VTSNX) Vanguard Total International Stock Index Fund Institutional Shares - .12%
(VBTIX) Vanguard Total Bond Market Index Fund Institutional Shares - .07%

It seems like the easiest fix is to simply divert the contributions in Her Roth IRA to the same funds in Her 457b.

This will result in about a $1,375 reduction in taxes. You could increase the contribution to Her 457 a little or just put it in Her Roth IRA. It would be very easy to just let this money fall by the wayside since it is pretty much invisible - try not to let that happen. If you have been putting away that much in the past, you can increase it just a little and get it back at tax time.
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20Dukes11
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

Thanks very much for the insight.

So moving forward at our current contribution levels each month, our situation might look like:
His 401K - $413/mo. (includes employer match)
100% Principal Large Cap S&P500 Index Separate Account – no ticker - (.32%)

Her 403B - $458/mo.
50% (VTSNX) Vanguard Total International Stock Index Fund Institutional Shares - .12%
50% (VBTIX) Vanguard Total Bond Market Index Fund Institutional Shares - .07%

His Roth IRA - $458/mo.
100% Vanguard Extended Market Index Fund Inv. Shares – VEXMX - (.24%)

That totals $1329/mo, or about 13% of our income. 65% of these contributions would be traditional, versus the remaining 35% to Roth.


Also - regarding the 457B plan - I'm not sure what types of questions to ask to really vet the plan with my wife's employer, if that makes sense. I can tell you my wife works for a state university hospital, so I'm assuming it is in fact a government 457B, but is this a safe assumption to make? I did take a look at the link BL posted, but that's out of my league:

http://www.aon.com/attachments/human-ca ... wallie.pdf

God Bless you if you can actually digest that material... thanks for all the help!
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retiredjg
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Re: What to add to my "Core 3"

Post by retiredjg »

20Dukes11 wrote:Thanks very much for the insight.

So moving forward at our current contribution levels each month, our situation might look like:
His 401K - $413/mo. (includes employer match)
100% Principal Large Cap S&P500 Index Separate Account – no ticker - (.32%)

Her 403B - $458/mo.
50% (VTSNX) Vanguard Total International Stock Index Fund Institutional Shares - .12%
50% (VBTIX) Vanguard Total Bond Market Index Fund Institutional Shares - .07%

His Roth IRA - $458/mo.
100% Vanguard Extended Market Index Fund Inv. Shares – VEXMX - (.24%)
This will work pretty well for awhile, but it will eventually overweight the Extended Market because your contributions to 500 Index and Extended Market are equal. The ratio should be closer to 80% and 20% if you are trying to have something like the total stock market.

Some people consider an overweight to mid and small caps desirable. If you are not one of them, you will need to add a 500 Index position in His Roth IRA. It will not hurt to be a a little overweighted until you can build up His Roth enough to hold 2 funds (about $6k).

Also - regarding the 457B plan - I'm not sure what types of questions to ask to really vet the plan with my wife's employer, if that makes sense. I can tell you my wife works for a state university hospital, so I'm assuming it is in fact a government 457B, but is this a safe assumption to make?
A state university hospital is almost certainly a governmental 457b plan, but I would find out for sure. It should be very easy to find out. The plan documents should say so. HR should be able to tell you. And if you want to double check, see if you can roll it to an IRA when she separates from employment. If the answer is "yes", it is a governmental 457b. A non-governmental 457b cannot be rolled to an IRA (one of several downsides to that type of plan).
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Re: What to add to my "Core 3"

Post by Chadnudj »

Wife and I are right in the middle of the 25% bracket - married filing joint, combined annual income of around $123,000.
Presuming you and your wife continue to receive raises, etc., it is distinctly possible that in the near future you will no longer be able to do the direct Roth IRA (a backdoor Roth still may be possible, though). If you want to do a Roth (and there's some debate as to whether it makes sense for many/most individuals, beyond the idea of tax diversification in retirement), it might be worth it to prioritize maxing out your Roths now (after taking advantage of all employer matches of course) before your income rises too high to continue doing so.

Also, with that less than $3k, why not look into ETFs? If you're buying and holding, the ETFs have no disadvantages to the funds....
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20Dukes11
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

retiredjg wrote: This will work pretty well for awhile, but it will eventually overweight the Extended Market because your contributions to 500 Index and Extended Market are equal. The ratio should be closer to 80% and 20% if you are trying to have something like the total stock market.
Agreed - considering I have basically NO small/mid-cap exposure at this point, I was thinking I would beef up this area for a while and then readjust my contributions.
retiredjg wrote: A state university hospital is almost certainly a governmental 457b plan, but I would find out for sure. It should be very easy to find out. The plan documents should say so. HR should be able to tell you. And if you want to double check, see if you can roll it to an IRA when she separates from employment. If the answer is "yes", it is a governmental 457b. A non-governmental 457b cannot be rolled to an IRA (one of several downsides to that type of plan).
Thanks very much for this. These will be the questions I ask before moving forward with the plan.
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20Dukes11
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

OK,

As an update I've decided to go ahead and contribute to the previously mentioned 457B. Our future contributions break down like this:

His Principal 401K - $413/mo (includes employer match) - contributions are all Traditional
100% Principal Large Cap S&P 500 Index Separate Account - no ticker - (.32%)

Her Fidelity 457B - $600/mo - contributions are all Traditional
67% Vanguard Extended Market Index Fund Institutional Shares - VIEIX - (.08%)
33% Vanguard Total Bond Market Index Fund Institutional Shares - VBTIX - (.07%)

Vanguard Roth IRA - $325/mo
100% Vanguard Total International Stock Index Fund Investor Shares - VGTSX - (.22%)

This is an AA of stocks/bonds = 84/14, with ~28% int'l stocks. Total contributions are around $1340/mo., or ~$16K per year. Morningstar grid looks like:
19 19 19
08 08 10
06 06 06

Another question for you all - we have about $14K sitting in other index funds within the Roth IRAs we set up earlier this year (see my above post from April 1st at 8:09 pm). For simplicity's sake, should I go ahead and just exchange these funds to be the same as the ones I'll be using in the 457B going forward? Are there any hidden 'gotchas' I'm not seeing that accompany this kind of swapping of funds? Let me know this doesn't make any sense.

Thanks! Have a great week.
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20Dukes11
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

Bumping this for my previous question about exchanging funds out. Thanks!
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Re: What to add to my "Core 3"

Post by ruralavalon »

20Dukes11 April 1 at 6:09 pm wrote:Currently I have our retirement portfolio spread across the 401K as well as 2 Vanguard Roth IRAs as follows:

His 401K - $23,000 (~63%)
100% Principal Large Cap S&P500 Index Separate Account – no ticker - (.32%) current plan is to contribute 6% each paycheck (with a 3% employer match), which is about $413/mo in total

Her Vanguard Roth IRA - $10,500 (~29%)
49% Vanguard Total Bond market Index Fund Inst. Shares – VBMFX - (.20%) current plan is to contribute $229/mo to this fund
51% Vanguard Total International Stock Index Fund Ist. Shares – VGTSX - (.22%) current plan is to contribute $229/mo to this fund

His Vanguard Roth IRA - <$3,000 (8%)
100% Vanguard Extended Market Index Fund Inv. Shares – VEXMX - (.24%) current plan is to contribute $458/mo to this fund
20Dukes11 April 13 at 6:22 am wrote: As an update I've decided to go ahead and contribute to the previously mentioned 457B. Our future contributions break down like this:

His Principal 401K - $413/mo (includes employer match) - contributions are all Traditional
100% Principal Large Cap S&P 500 Index Separate Account - no ticker - (.32%)

Her Fidelity 457B - $600/mo - contributions are all Traditional
67% Vanguard Extended Market Index Fund Institutional Shares - VIEIX - (.08%)
33% Vanguard Total Bond Market Index Fund Institutional Shares - VBTIX - (.07%)

Vanguard Roth IRA - $325/mo
100% Vanguard Total International Stock Index Fund Investor Shares - VGTSX - (.22%)

This is an AA of stocks/bonds = 84/14, with ~28% int'l stocks. Total contributions are around $1340/mo., or ~$16K per year. Morningstar grid looks like:
19 19 19
08 08 10
06 06 06

Another question for you all - we have about $14K sitting in other index funds within the Roth IRAs we set up earlier this year (see my above post from April 1st at 8:09 pm). For simplicity's sake, should I go ahead and just exchange these funds to be the same as the ones I'll be using in the 457B going forward? Are there any hidden 'gotchas' I'm not seeing that accompany this kind of swapping of funds? Let me know this doesn't make any sense.

Thanks! Have a great week.
I cannot understand your question. Please restate what you are proposing to do and why.

How much money is currently in each account? How much money is currently in each fund?

Why only one Roth IRA now, when there were two Roth IRAs before?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: What to add to my "Core 3"

Post by retiredjg »

Dukes, I'm finding this confusing as well. I think it's because you format your contributions in the same way we format the actual portfolio (not the contributions). So we really don't know what your current portfolio looks like.

I thought I knew earlier, but now I'm not so sure - what I took for a portfolio may have been contributions instead. Since each fund grows at its own pace, the ratio you put in may not be the ratio you actually have.

So to get an answer,

1) show us what you have now

2) show us how you intend to add money in the same post so there's not a lot of flipping back and forth

3) ask the question again
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

retiredjg wrote: 1) show us what you have now
Total portfolio is around $36.6K:

My 401k - ~$23,000 (63% of total portfolio)
100% PLFPX - Principal Large Cap S&P 500 Index Separate Account (.31% ER)

Wife's Vanguard Roth IRA - ~$10,500 (29% of total portfolio)
49% VBMFX - VG Total Bond Market Index Fund Inv Shares (.20% ER)
51% VGTSX - VG Total International Stock Index Fund Investor Shares (.22% ER)

My Vanguard Roth IRA - $3,100 (8% of total portfolio)
100% VEXMX Vanguard Extended Market Index Fund Investor Shares (.24% ER)

This is an AA of US/Int'l/Bonds = 70/15/13, respectively.
retiredjg wrote: 2) show us how you intend to add money in the same post so there's not a lot of flipping back and forth
The real change as far as plans we'll be using moving forward, is that instead of funding two Roth IRAs, we'll be putting a large portion of our contributions into my wife's 457B. We'll still be putting some money into one of the Roth IRAs, but won't be fully funding both of them to begin with. Total contributions across all plans will be around $1340/mo., or $16,000 annually:

His Principal 401K - $413/mo. (includes employer match) - contributions are all Traditional
100% Principal Large Cap S&P 500 Index Separate Account - no ticker - (.32%)

Her Fidelity 457B - $600/mo. - contributions are all Traditional
67% Vanguard Extended Market Index Fund Institutional Shares - VIEIX - (.08%)
33% Vanguard Total Bond Market Index Fund Institutional Shares - VBTIX - (.07%)

Vanguard Roth IRA - $325/mo.
100% Vanguard Total International Stock Index Fund Investor Shares - VGTSX - (.22%)

These contributions have an AA of US/Int'l/Bonds = 60/24/14, respectively.
retiredjg wrote: 3) ask the question again
So here's the question: As I mentioned above under part 2), I'm planning on contributing to both an extended market index fund (VIEIX) and a bond market index fund (VBTIX) in wife's 457B. With this in mind, should I exchange the two other ext'd market (VEXMX) and total bond market (VBMFX) index funds I currently own inside our Roth IRAs for those very same funds (VIEIX,VBTIX)? To keep everything down to just one index fund per asset class?

Hope that clears it up somewhat - thanks for all the patience!!
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Re: What to add to my "Core 3"

Post by abuss368 »

Vanguard Total Stock Market is an excellent choice that provides diversification and a very low cost.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

abuss368 wrote:Vanguard Total Stock Market is an excellent choice that provides diversification and a very low cost.
Thanks- I'm using the S&P 500 fund in my 401K for lack of better funds inside the plan to choose from. With this being a large part of my portfolio already, I'm not sure there's a place for a TSM fund, lest I start holding too much of the same asset class in multiple places.
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Re: What to add to my "Core 3"

Post by retiredjg »

See if it is helpful to you to look at your portfolio like this - the percentages represent a percentage of your current portfolio, not account.

My 401k - ~$23,000 (63% of total portfolio)
63% PLFPX - Principal Large Cap S&P 500 Index Separate Account (.31% ER)

Wife's Vanguard Roth IRA - ~$10,500 (29% of total portfolio)
14.2% VBMFX - VG Total Bond Market Index Fund Inv Shares (.20% ER
14.8% VGTSX - VG Total International Stock Index Fund Investor Shares (.22% ER)

My Vanguard Roth IRA - $3,100 (8% of total portfolio)
8% VEXMX Vanguard Extended Market Index Fund Investor Shares (.24% ER)

Her Fidelity 457B
0% Vanguard Extended Market Index Fund Institutional Shares - VIEIX - (.08%)
0% Vanguard Total Bond Market Index Fund Institutional Shares - VBTIX - (.07%)


This is an AA of US/Int'l/Bonds = 70/15/13, respectively.

And I get 71/14.8/14.2 - close enough.



To do contributions, I approach it from a different direction. I start with the amount you are able to contribute which is $1340 monthly. To maintain the portfolio you have, you want to send about 70% of that to US stocks, about 15% to international, and about 15% to bonds.

70% of that $1,340 needs to go to US stocks ($938). Of that $938, if you want to approximate the total stock market, 80% ($750) should go to 500 index and 20% ($188) should go to Extended Market.

You only have $413 going to 500 index, not the $750 needed. Is this because you want to overweight the Extended Market portion of the portfolio? Or is it because that's just how the numbers fell out?

If you want to overweight the Extended Market (mid and small caps) that's OK. But if you want to have something that resembles Total Stock Market, we have to find another place to hold a 500 Index fund.

Which do you want to do?



The real change as far as plans we'll be using moving forward, is that instead of funding two Roth IRAs, we'll be putting a large portion of our contributions into my wife's 457B. We'll still be putting some money into one of the Roth IRAs, but won't be fully funding both of them to begin with. Total contributions across all plans will be around $1340/mo., or $16,000 annually:

His Principal 401K - $413/mo. (includes employer match) - contributions are all Traditional
100% Principal Large Cap S&P 500 Index Separate Account - no ticker - (.32%)

Her Fidelity 457B - $600/mo. - contributions are all Traditional
67% Vanguard Extended Market Index Fund Institutional Shares - VIEIX - (.08%) <---this is $402 a month going to Extended Market - a lot more than is needed to make TSM
33% Vanguard Total Bond Market Index Fund Institutional Shares - VBTIX - (.07%) <---$198 going to bonds - I get $201 so close enough

Vanguard Roth IRA - $325/mo.
100% Vanguard Total International Stock Index Fund Investor Shares - VGTSX - (.22%) <----this is OK, but since 24% of the contributions are going to international, your international percentage will rise from the roughly 15% you seem to want

These contributions have an AA of US/Int'l/Bonds = 60/24/14, respectively.

So here's the question: As I mentioned above under part 2), I'm planning on contributing to both an extended market index fund (VIEIX) and a bond market index fund (VBTIX) in wife's 457B. With this in mind, should I exchange the two other ext'd market (VEXMX) and total bond market (VBMFX) index funds I currently own inside our Roth IRAs for those very same funds (VIEIX,VBTIX)? To keep everything down to just one index fund per asset class?
We will come back to this question.

What I think you are doing is trying to make the contribution for each account "be right" with the final percentages you want in your portfolio in such a way that you don't have to repeat funds in different accounts. It does not work that way. You almost have to repeat at least 1 and usually 2 funds somewhere in the portfolio because the amount you contribute to an account may not equal the desired percentage in your portfolio.

So you need to make a decision about what you want to do.
  • 1) If you continue with the contributions as you have posted them, your Extended Market (mid and small cap stocks) allocation will rise significantly. You will have roughly the 70% in US stocks you want, but it will be overweighted in mid and small cap stocks and will not actually look like total stock market. Also your international allocation will rise from about 15% to something higher - eventually near 24%.

    Both of these things are OK - it would not be an out in the weeds portfolio. But you should only go there if that is what you want and intend to do. It should not happen accidentally.

    2) Adjust your contributions to represent the portfolio that you want. I think that is 70% TSM, 15% international, 15% bonds but as we go further into this, I'm not so sure that is what you want.
There is actually a 3rd option and it involves the question you are asking about the "extra" funds in the Roth IRAs. But I don't want to go there until we get together on this other part first.
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

retiredjg wrote:
70% of that $1,340 needs to go to US stocks ($938). Of that $938, if you want to approximate the total stock market, 80% ($750) should go to 500 index and 20% ($188) should go to Extended Market.

You only have $413 going to 500 index, not the $750 needed. Is this because you want to overweight the Extended Market portion of the portfolio? Or is it because that's just how the numbers fell out?
I had planned a heavier contribution going toward Extended Market simply because I thought my current portfolio was somewhat deficient. But, if 20% is a recommended amount of my total Stock allocation to put towards this area, I'm fine with that.
retired wrote: If you want to overweight the Extended Market (mid and small caps) that's OK. But if you want to have something that resembles Total Stock Market, we have to find another place to hold a 500 Index fund.
I have access to the Vanguard Institutional Index Fund Institutional Shares (VINIX) fund within my wife's 457B; would this be a preferred place to add additional US stock contributions, versus increasing my current contributions to the Principal Large Cap S&P 500 Index Separate Account found in my 401K?
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Re: What to add to my "Core 3"

Post by retiredjg »

20Dukes11 wrote:I had planned a heavier contribution going toward Extended Market simply because I thought my current portfolio was somewhat deficient. But, if 20% is a recommended amount of my total Stock allocation to put towards this area, I'm fine with that.
Your current portfolio is a little deficient in extended market. Right now it sits as 11.3% of the US stock, not the 20% of US stock desired if you want to have total stock market. However, it will only take a few months of contributions to get it up to target. Once it gets up to target, if you don't change your contributions, you will end up overweighted in mid and small caps.

retired wrote:If you want to overweight the Extended Market (mid and small caps) that's OK. But if you want to have something that resembles Total Stock Market, we have to find another place to hold a 500 Index fund.
I have access to the Vanguard Institutional Index Fund Institutional Shares (VINIX) fund within my wife's 457B; would this be a preferred place to add additional US stock contributions, versus increasing my current contributions to the Principal Large Cap S&P 500 Index Separate Account found in my 401K?
Yes. This will fix the problem and it uses the cheapest option since Her 500 Index is cheaper than His 500 Index. So after a few months of contributing as you originally stated, just switch some of the money going to Extended in Her 457b to 500 Index in Her 457b.



This brings us back to your question of what to do with the 2 funds in the portfolio that aren't getting any contributions:
  • My 401k - ~$23,000 (63% of total portfolio)
    63% PLFPX - Principal Large Cap S&P 500 Index Separate Account (.31% ER)

    Wife's Vanguard Roth IRA - ~$10,500 (29% of total portfolio)
    14.2% VBMFX - VG Total Bond Market Index Fund Inv Shares (.20% ER
    14.8% VGTSX - VG Total International Stock Index Fund Investor Shares (.22% ER)

    My Vanguard Roth IRA - $3,100 (8% of total portfolio)
    8% VEXMX Vanguard Extended Market Index Fund Investor Shares (.24% ER)

    Her Fidelity 457B
    0% Vanguard Extended Market Index Fund Institutional Shares - VIEIX - (.08%)
    0% Vanguard Total Bond Market Index Fund Institutional Shares - VBTIX - (.07%)
With this in mind, should I exchange the two other ext'd market (VEXMX) and total bond market (VBMFX) index funds I currently own inside our Roth IRAs for those very same funds (VIEIX,VBTIX)? To keep everything down to just one index fund per asset class?
No. You cannot exchange what you have into these funds because these are institutional funds. You probably already know that Vanguard sells the same fund in different share classes. If you invest less than $10k, you get "Investor" shares. If you invest more than $10k, you get "Admiral" shares and they are cheaper than Investor shares ( sort of a bulk discount). Inside a work plan, you often get access to "Institutional" shares - these are even cheaper and they have a very high minimum (example = $5 million) which can only be reached in a large plan.

Bottom line, your VEXMX is exactly the same thing as the VIEIX except that you get to buy the latter for a lower expense ratio because of the bulk discount. So just leave those funds alone unless you need to buy or sell something to rebalance your portfolio.

Sorry about the delay. I hope that answered all your questions. :happy
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

Awesome - can't thank you enough for the input here.

My game plan now uncludes the following steps:
  • 1. Stay the course with my current monthly contribution plan, until Extended Market is around 20% of my total US Stock holdings. Then, dial this back in favor of more contributions to the 500 Index in the 457B (VINIX).

    2.Leave the extended market and total bond market funds found in my IRA alone.
Let me know if I've missed anything here - thanks!
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Re: What to add to my "Core 3"

Post by retiredjg »

I don't think you've missed anything. You have good plans to use, you are saving money, your investing plan is reasonable. Looks pretty good to me!
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

Excellent. Again, I appreciate all your time and insight with this!
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Re: What to add to my "Core 3"

Post by Rick Ferri »

retiredjg wrote:I don't see any holes.
I agree.

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Re: What to add to my "Core 3"

Post by 20Dukes11 »

Hi all,

I wanted to add another question/piece of info to my thread here, as I was re-reading it last night.

I don't know if it changes anything with regards to the general suggestion to keep most of our contributions as Traditional, but BOTH the 401K and 457B plans we are using have the option of electing Roth contributions.

Thanks
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Re: What to add to my "Core 3"

Post by retiredjg »

No it does not change any suggestion as far as I'm concerned. In the 25% bracket, you need a healthy dose of traditional accompanied by a smaller dose of Roth. The exact ratio is subject to discussion and people have varying opinions.

You could attempt to contribute enough to traditional to get into the 15% bracket and then make all the rest of your contributions to Roth. I'm not sure if you are near enough the 15% bracket to do that.
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

Thanks very much for the reply here.

Looking back through my thread, I believe I failed to mention that my wife also contributes to a defined benefit plan, at 6% (required by employer) per paycheck. Here in NC, its known as the NC Teachers and State Employees Retirement (TSERS) plan. Wife has been with the employer for almost 4 years now. She plans to stay until she’s vested, but we feel it’s likely she’ll leave shortly thereafter. But given her occupation, its highly likely she’ll find employment at another state run facility/university. I mention this in case there is any reason to believe she might be able to roll over the current DB plan at some point.

I’ve never known how to factor these types of DB plans into our portfolio, and have heard some people only consider them as “icing on the cake”, as they can’t be counted on these days. Thoughts as to how this might affect the Roth/Trad’l decision, as well as other decisions?

I apologize for not mentioning this earlier. Thanks again
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Re: What to add to my "Core 3"

Post by retiredjg »

In general, a DB pension argues on the side of using more Roth. But not necessarily so if the person is not going to get SS.

What you should understand about this traditional vs Roth decision:
  • -there are lots of moving parts and we may or may not know what those moving parts will mean in 30 or 40 years

    -there are different opinions on the matter even if people agree on some of the other stuff

    -all the planning is based on guesswork so there is no way to know just which would work out better

    -the traditional vs Roth decision is way less important than how much money you save and having an appropriate stock to bond ratio
What people do tend to agree on and what is most logical is that arriving in retirement with both taxed and not-yet-taxed assets is probably a good thing. My best guess is that arriving at retirement with more than half Roth may mean that you have paid too much tax along the way.

Do not fall for the general belief that Roth is some how better and that there is some kind of magical compounding that happens in a Roth account. It simply is not true.
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Re: What to add to my "Core 3"

Post by 20Dukes11 »

retiredjg wrote:In general, a DB pension argues on the side of using more Roth. But not necessarily so if the person is not going to get SS.

What people do tend to agree on and what is most logical is that arriving in retirement with both taxed and not-yet-taxed assets is probably a good thing. My best guess is that arriving at retirement with more than half Roth may mean that you have paid too much tax along the way.

Do not fall for the general belief that Roth is some how better and that there is some kind of magical compounding that happens in a Roth account. It simply is not true.
Thanks very much for this. Would it be an oversimplification to think that by choosing to go the Trad'l contribution route now, you also have more flexibility in the long run, because you have the option of a Roth conversion sometime down the road? The way I see it, Trad'l contributions allow me to put more away TODAY. Then if, as I near retirement, I see myself falling into a higher tax bracket, I can do a Roth conversion. But only if need be. This type of conversion does not exist if you were to choose Roth contributions to begin with.
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Re: What to add to my "Core 3"

Post by retiredjg »

Yes, you can certainly put off conversions till later.

Many people fall into a lower tax bracket in retirement. If you put off SS until later than 62 this can help you be in a lower tax bracket for awhile. That is often a good time to do Roth conversions (between retirement and RMDs) because you are likely to be in the lowest tax bracket you will be in. Or you may be in the same tax bracket you will always be in.

Example. You are in the 25% bracket now. If you put money into Roth, it will cost you 25% to put the money there. If you convert to Roth, it will cost you 25% to do the conversion. But what if you are in the 15% bracket in retirement? What if you have $17k of "space" left in the 15% tax bracket? You can then convert $17k to Roth at only 15%, not the 25% it would cost you today.

The same thing could happen if there is a year of unemployment or if one of you stops working in order to care for children. Any time there is a year where you drop into a lower bracket, see if there is an opportunity to do a conversion (remembering that you need to use money in savings to pay the taxes).

And what happens if you never do the Roth conversions? You simply pay tax at whatever your rate is when you withdraw the money. This is not a bad thing and not something to try to avoid. And it usually does not result in paying a higher percentage of tax.

Please note that all I said above is just a guestimate. I didn't include state taxes and I have no way of knowing if you are in some kind of phase out in your taxes (like child care credit) that could increase or decrease the numbers. And there is no way to know what taxes will look like in 30 or 40 years. I'm just talking generalities.
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