Portfolio Suggestions--More tax free space, bonds in taxable?

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Topic Author
SpartanBull
Posts: 131
Joined: Fri Jun 06, 2014 12:31 am

Portfolio Suggestions--More tax free space, bonds in taxable?

Post by SpartanBull »

Emergency funds: Yes, One year of living expenses in an interest bearing checking account.
Debt: No Debt. Own my car and living at home for a year after college. Student Loans already paid off.
Tax Filing Status: (Single)
Tax Rate: xx% Federal, xx% State MI (I don't know what my tax rate is :/.)
State of Residence: MI
Age: 24
Desired Asset allocation: 100% stocks / 0% bonds
Desired International allocation: 1/3...33% of stocks

Portfolio Size--Around $150,000.


Current retirement assets

Taxable ($135,000)
67% VTSAX $90,000. Expense Ratio .05%
33% VTIAX $45,000 Expense Ratio .14%

My Roth IRA at Vanguard ($15,500)
67% VTSAX $90,000. Expense Ratio .05%
33% VTIAX $45,000 Expense Ratio .14%

Total of All Accounts--$150,500 (Close Ballpark for simplicity of the post.

Contributions

New annual Contributions
$5500 every year into my Roth IRA
$75000 every year currently into my taxable


Questions:
1. I'm a self employed small business owner running my own service type business. This means I'm not working a 9-5 with access to employer 401s, employer matching, etc etc. I'm registered as a "Corporation". I'm worried that I'm not putting enough in "tax efficient/tax shelter" type vehicles, besides the $5500 a year into my Roth. Is it important that I get a Roth 401K, SEP Ira, etc going. If so, which of these would be best, and how important is this in your opinion?

2. My risk tolerance is high as I am very early in accumulation phase. Theres a 0% chance of me panicking/selling, etc. That being said, I would consider 90/10 stocks bonds rather than 100/0. Don't take that to mean my risk tolerance is anything other than very high though. The reason I am 100% stock is that I've read how Terrible bonds can be in a Taxable. I would just feel that 10% is a bit prudent and still equity heavy, but I just have these concerns about the taxable nature of bonds. I hope this question wasn't too unclear, but any help would be appreciated.
krow36
Posts: 2470
Joined: Fri Jan 30, 2015 5:05 pm
Location: WA

Re: Portfolio Suggestions--More tax free space, bonds in taxable?

Post by krow36 »

SpartanBull, welcome to the forum!
I believe it would be a very good idea for you to set up a small business plan. Does your small business have employees? If no employees, an individual 401k or a SEP IRA would be a very good idea. The i401k allows you to contribute 53k per year. The SEP IRA allows contributions of 25% of your profit, not to exceed 53k per year.

If you have employees, the SIMPLE IRA would allow you to contribute 12.5k plus 3% of your profit per year but would require you contribute 3% of each employee’s wages to each employee. Here a link to Vanguard’s Small Business Plans website, which provides an overview of the 3 plan types.
https://investor.vanguard.com/what-we-o ... Link=facet
Topic Author
SpartanBull
Posts: 131
Joined: Fri Jun 06, 2014 12:31 am

Re: Portfolio Suggestions--More tax free space, bonds in taxable?

Post by SpartanBull »

I would like to go with the i401k route and contribute 53k Per year. I had heard these were difficult/time consuming. Is this something vanguard can "handle" for you, or is what I heard about i401k's being overly complicated a bit exaggerated?
krow36
Posts: 2470
Joined: Fri Jan 30, 2015 5:05 pm
Location: WA

Re: Portfolio Suggestions--More tax free space, bonds in taxable?

Post by krow36 »

How about answering the question: do you have employees?

I have not heard that individual (solo) 401k's are either difficult or time consuming to set up. I believe they are easy to set up. Many BH folks prefer the Fidelity i401k rather than Vanguard's.

Have you studied the Wiki on i401k's? https://www.bogleheads.org/wiki/Solo_401(k)_plan
Theoretical
Posts: 1546
Joined: Tue Aug 19, 2014 10:09 pm

Re: Portfolio Suggestions--More tax free space, bonds in taxable?

Post by Theoretical »

SpartanBull wrote:Emergency funds: Yes, One year of living expenses in an interest bearing checking account.
Debt: No Debt. Own my car and living at home for a year after college. Student Loans already paid off.
Tax Filing Status: (Single)
Tax Rate: xx% Federal, xx% State MI (I don't know what my tax rate is :/.)
State of Residence: MI
Age: 24
Desired Asset allocation: 100% stocks / 0% bonds
Desired International allocation: 1/3...33% of stocks

Portfolio Size--Around $150,000.


Current retirement assets

Taxable ($135,000)
67% VTSAX $90,000. Expense Ratio .05%
33% VTIAX $45,000 Expense Ratio .14%

My Roth IRA at Vanguard ($15,500)
67% VTSAX $90,000. Expense Ratio .05%
33% VTIAX $45,000 Expense Ratio .14%

Total of All Accounts--$150,500 (Close Ballpark for simplicity of the post.

Contributions

New annual Contributions
$5500 every year into my Roth IRA
$75000 every year currently into my taxable


Questions:
1. I'm a self employed small business owner running my own service type business. This means I'm not working a 9-5 with access to employer 401s, employer matching, etc etc. I'm registered as a "Corporation". I'm worried that I'm not putting enough in "tax efficient/tax shelter" type vehicles, besides the $5500 a year into my Roth. Is it important that I get a Roth 401K, SEP Ira, etc going. If so, which of these would be best, and how important is this in your opinion?

2. My risk tolerance is high as I am very early in accumulation phase. Theres a 0% chance of me panicking/selling, etc. That being said, I would consider 90/10 stocks bonds rather than 100/0. Don't take that to mean my risk tolerance is anything other than very high though. The reason I am 100% stock is that I've read how Terrible bonds can be in a Taxable. I would just feel that 10% is a bit prudent and still equity heavy, but I just have these concerns about the taxable nature of bonds. I hope this question wasn't too unclear, but any help would be appreciated.
Tax exempt bonds will give you some cushion, and the main reason I'd consider bonds even at a high risk tolerance is to counter the risks of being a business owner. The other factor to consider is what industry is your business?

You might consider tilting your portfolio away from the sector and size you are in to limit your portfolio's correlation to your business's day to day status. If you run a pharmacy, for example you might consider an ex-health care S&P fund.
Topic Author
SpartanBull
Posts: 131
Joined: Fri Jun 06, 2014 12:31 am

Re: Portfolio Suggestions--More tax free space, bonds in taxable?

Post by SpartanBull »

krow36 wrote:How about answering the question: do you have employees?

I have not heard that individual (solo) 401k's are either difficult or time consuming to set up. I believe they are easy to set up. Many BH folks prefer the Fidelity i401k rather than Vanguard's.

Have you studied the Wiki on i401k's? https://www.bogleheads.org/wiki/Solo_401(k)_plan
I do not have employees. I use independent contractors that I 1099 when they make over a certain amount (most of them get 10'99ed). Thanks for the advice on the Fidelity i401k...I am going to look into that one. Had not seen the wiki yet...thank you for linking that.
Topic Author
SpartanBull
Posts: 131
Joined: Fri Jun 06, 2014 12:31 am

Re: Portfolio Suggestions--More tax free space, bonds in taxable?

Post by SpartanBull »

Theoretical wrote:
SpartanBull wrote:Emergency funds: Yes, One year of living expenses in an interest bearing checking account.
Debt: No Debt. Own my car and living at home for a year after college. Student Loans already paid off.
Tax Filing Status: (Single)
Tax Rate: xx% Federal, xx% State MI (I don't know what my tax rate is :/.)
State of Residence: MI
Age: 24
Desired Asset allocation: 100% stocks / 0% bonds
Desired International allocation: 1/3...33% of stocks

Portfolio Size--Around $150,000.


Current retirement assets

Taxable ($135,000)
67% VTSAX $90,000. Expense Ratio .05%
33% VTIAX $45,000 Expense Ratio .14%

My Roth IRA at Vanguard ($15,500)
67% VTSAX $90,000. Expense Ratio .05%
33% VTIAX $45,000 Expense Ratio .14%

Total of All Accounts--$150,500 (Close Ballpark for simplicity of the post.

Contributions

New annual Contributions
$5500 every year into my Roth IRA
$75000 every year currently into my taxable


Questions:
1. I'm a self employed small business owner running my own service type business. This means I'm not working a 9-5 with access to employer 401s, employer matching, etc etc. I'm registered as a "Corporation". I'm worried that I'm not putting enough in "tax efficient/tax shelter" type vehicles, besides the $5500 a year into my Roth. Is it important that I get a Roth 401K, SEP Ira, etc going. If so, which of these would be best, and how important is this in your opinion?

2. My risk tolerance is high as I am very early in accumulation phase. Theres a 0% chance of me panicking/selling, etc. That being said, I would consider 90/10 stocks bonds rather than 100/0. Don't take that to mean my risk tolerance is anything other than very high though. The reason I am 100% stock is that I've read how Terrible bonds can be in a Taxable. I would just feel that 10% is a bit prudent and still equity heavy, but I just have these concerns about the taxable nature of bonds. I hope this question wasn't too unclear, but any help would be appreciated.
Tax exempt bonds will give you some cushion, and the main reason I'd consider bonds even at a high risk tolerance is to counter the risks of being a business owner. The other factor to consider is what industry is your business?

You might consider tilting your portfolio away from the sector and size you are in to limit your portfolio's correlation to your business's day to day status. If you run a pharmacy, for example you might consider an ex-health care S&P fund.
My business could be considered event promotions. I think it'd be very difficult to envision something happening that would slow the demand for what I offer. I suppose the main risk to me would be other competitors and things like that.
crit
Posts: 546
Joined: Mon Jan 05, 2015 11:54 am

Re: Portfolio Suggestions--More tax free space, bonds in taxable?

Post by crit »

To get to 10% bonds, move $10k of your VTSAX and $5k from VTIAX in your Roth to VTBLX. Your amounts are off above, so it looks like your whole Roth should be bonds. Tax-efficient, simple.
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