Checking In After Five Years

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
ef11
Posts: 198
Joined: Sat Mar 10, 2012 10:39 pm

Checking In After Five Years

Post by ef11 » Thu Jan 26, 2017 4:40 pm

Hello all,

It has been almost five years since my first post on this forum and since I started my career fresh out of college. I have taken a lot of advice from members on this forum, read several books on Asset Allocation and Wealth Management, and have been able to convince several of my friends to join the Boglehead strategy and for that I am thankful.

I wanted to post my current status as well as my four year status so you can see a comparison, and then get any thoughts on how I'm doing and where I can improve. I find this exercise really helps me focus and remain disciplined year after year.

See this link for my "Checking In After Four Years" thread where I got great advice and implemented much of it.
viewtopic.php?t=180500

Emergency funds: 5 months - $13,000 in checking account, monthly expenses are $2,500. (At four year mark was $40,000)
Debt: None (At four year mark was $10,000)
Tax Filing Status: Single
Tax Rate: 28% Federal, 0% State
State of Residence: Texas
Age: 28
Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 25% of stocks
Desired Detailed Asset Allocation: 45% Large-Cap, 10% Small/Mid-Cap, 25% International, 10% bonds, 10% REIT
Current Asset Allocation:

49% S&P 500 Index ER 0.012%
11% Vang Ext Mkt ER 0.05%
23% ACWI EX-US ER 0.10%
9% Vang Tot Bd Mkt ER 0.04%
8% Fidelity MSCI Real Estate ER 0.084%

Current retirement assets - Total $159,000 (At four year mark was $60,000)

Taxable - $43,000 (At four year mark was $0)
401k - $98,000 (At four year mark was $60,000)
Roth IRA - $18,000 (At four year mark was $0)

Total Worth Comparison: Four year mark was (40-10+60) = $90,000 Five year mark is (13+159) = $172,000

This represents a total gain in my accounts of $82,000 over a one year period, I never would have imagined that much before adding the numbers.

Contributions

New annual Contributions - 401K & Roth IRA

Employer matches 4% on a 6% contribution, I currently contribute 19% to max out
Employer 401K contribution - $98,000 * 0.04 = $4,000 (employer typically gives additional lump sum money too, in 2016 I got $7,400 total)
Assuming I keep 401K contribution at 19% - $98,000 * 0.19 = $18,500 + $4,000 = $22,500

New annual Contributions - Taxable

In 2016 I had on average $3,000 free cash flow each month, therefore 2017 should see a roughly $36,000 contribution to taxable account.

Biggest Changes Since Four Year Mark

1. Paid off the $10,000 car loan in early 2016
2. Went from 25% to 28% tax bracket
3. Created a taxable account with Fidelity worth $43,000
4. Created a Roth IRA with Fidelity worth $18,000
5. 401K grew in total from $60,000 to $98,000
6. Moved REIT from 401K at 0.7% ER to Roth IRA at 0.084% ER
7. Started an amazing new job with the same company that allows for much travel and fun, along with a lot of work

Questions:

1. Rebalancing - I have never had to rebalance my portfolio due to contributions keeping it in order. One thing that makes this tough though is my REIT is all in my Roth and I only contribute to that at the beginning of the year, so naturally it gets under weighted (that's why even with good performance in 2016 it has fallen to 8%). I have previously believed in opportunistic rebalancing where I have a 20% tolerance band and 10% rebalancing bands, but I think I should contribute my $5,500 to my Roth and reset everything back to my "Desired Detailed Asset Allocation" for simplicity sake, since equities are at an all time high, and also because I have never rebalanced.

2. Mega Backdoor Roth IRA - My company allows for an "After Tax" portion to be contributed to the 401K up to ~$32,000 ($18,000 + $4,000 + $32,000 = limit of $54,000) which I believe I can subsequently roll into a Roth IRA making my total Roth contributions $32,000 + $5,500 = $37,500. The issue with this I believe is how many times can I roll the money from the After Tax 401K to a Roth IRA. If I can do it 12 times then I just do it every month and it is very easy. However, if I can only do it once or twice, I either have to leave it in cash in between rollovers to the Roth IRA or face the tax consequences when rolling it on any gains. Can anyone provide any thoughts on this? I can't seem to get a clear answer on how many times my plan lets me do this.

Notice my Taxable account is set to grow $36,000 in 2017 so if I could instead funnel $32,000 of that into my Roth IRA through this Mega Backdoor Roth, I could end up way better off.

3. When calculating my ability to contribute to a Roth IRA, I take my total income and reduce it by the amount of tax deductible contributions I made ($18,000) correct? So as long as I don't make more than ($133,000 + $18,000) $151,000 I am still somewhat eligible for a Roth, is this correct?

4. Any other thoughts appreciated. I know some people like HSA/FSA etc but I really have no medical expenses at all and I get low-deductible full coverage through my company for $100 a month, so I am most comfortable with that option at this time. I pay a fairly low $975 a month for rent including all bills and am just saving cash instead of purchasing a home at this time. No planned large expenses in the near term, just saving as much as possible :)
Last edited by ef11 on Sat Dec 30, 2017 10:05 am, edited 1 time in total.
45% Vang S&P500 Fund ER .011% | 10% Vang Extended Market Fund ER .038% | 25% ACWI EX US IMI NL R ER .10% | 10% Vang Total Bond Market ER .027% | 10% Fidelity MSCI Real Estate ER 0.084%

ABQ4804
Posts: 389
Joined: Sun Jul 24, 2011 4:08 pm

Re: Checking In After Five Years

Post by ABQ4804 » Thu Jan 26, 2017 4:50 pm

Bravo!

User avatar
greg24
Posts: 3272
Joined: Tue Feb 20, 2007 10:34 am

Re: Checking In After Five Years

Post by greg24 » Thu Jan 26, 2017 4:51 pm

You are doing awesome. :sharebeer

MrDrinkingWater
Posts: 92
Joined: Tue Dec 23, 2014 11:30 am

Re: Checking In After Five Years

Post by MrDrinkingWater » Thu Jan 26, 2017 5:59 pm

For Question Number 3, see https://www.irs.gov/publications/p590a/ch02.html and fill out Worksheet 2-1, Modified Adjusted Gross Income for Roth IRA purposes. Publication 590-A is full of useful information. Good luck!

I am proud of your effort to make your life better over the past few years. Keep it up!

Grt2bOutdoors
Posts: 19324
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Checking In After Five Years

Post by Grt2bOutdoors » Thu Jan 26, 2017 6:12 pm

Great job! :sharebeer Like hearing stories like this.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Gropes & Ray
Posts: 1067
Joined: Wed Jul 16, 2014 7:28 am

Re: Checking In After Five Years

Post by Gropes & Ray » Thu Jan 26, 2017 6:17 pm

I am highly impressed. Good job!

User avatar
vitaflo
Posts: 1000
Joined: Sat Sep 03, 2011 3:02 pm

Re: Checking In After Five Years

Post by vitaflo » Thu Jan 26, 2017 8:14 pm

ef11 wrote: 4. Any other thoughts appreciated. I know some people like HSA/FSA etc but I really have no medical expenses at all and I get low-deductible full coverage through my company for $100 a month, so I am most comfortable with that option at this time
The time to put money away into an HSA is when you have no medical expenses, because some day you will have them and it is so nice to have that money set aside already.

I consider an HSA one of the best investment vehicles you can have. First, it's pre-tax money, so you save on taxes (which you said you just went up in tax brackets). If used for medical expenses, you pay no tax on the withdrawals, which means it's the only investment vehicle that is entirely tax free (both in and out). It's like getting an instant 28% gain for every dollar you put into it. Why wouldn't you want that?

Secondly, if you keep it until you turn 65 you can start to pull from it for non-medical expenses. This means it acts as yet another retirement vehicle (should you choose). Of course you will pay taxes on withdrawals then, but the option to have more tax-deferred vehicles for retirement is a good one.

My HSA is the first thing I max out every year. It's doubly good if you are healthy, because you're able to put so much away tax free for later when you need it (and trust me you will need it).

I'd seriously consider looking into it.

ef11
Posts: 198
Joined: Sat Mar 10, 2012 10:39 pm

Re: Checking In After Five Years

Post by ef11 » Thu Jan 26, 2017 9:01 pm

MrDrinkingWater wrote: For Question Number 3, see https://www.irs.gov/publications/p590a/ch02.html and fill out Worksheet 2-1, Modified Adjusted Gross Income for Roth IRA purposes. Publication 590-A is full of useful information. Good luck!

I am proud of your effort to make your life better over the past few years. Keep it up!
Ok thanks for the feedback. The websites I view never explicitly lay out that you can deduct your Traditional 401K contributions from your total income, but I guess I can so my assumption is right.
vitaflo wrote:
ef11 wrote: 4. Any other thoughts appreciated. I know some people like HSA/FSA etc but I really have no medical expenses at all and I get low-deductible full coverage through my company for $100 a month, so I am most comfortable with that option at this time
The time to put money away into an HSA is when you have no medical expenses, because some day you will have them and it is so nice to have that money set aside already.

I consider an HSA one of the best investment vehicles you can have. First, it's pre-tax money, so you save on taxes (which you said you just went up in tax brackets). If used for medical expenses, you pay no tax on the withdrawals, which means it's the only investment vehicle that is entirely tax free (both in and out). It's like getting an instant 28% gain for every dollar you put into it. Why wouldn't you want that?

Secondly, if you keep it until you turn 65 you can start to pull from it for non-medical expenses. This means it acts as yet another retirement vehicle (should you choose). Of course you will pay taxes on withdrawals then, but the option to have more tax-deferred vehicles for retirement is a good one.

My HSA is the first thing I max out every year. It's doubly good if you are healthy, because you're able to put so much away tax free for later when you need it (and trust me you will need it).

I'd seriously consider looking into it.
Hmm thanks for that information, I did not know that at 65 you can start pulling it out for non-medical expenses. That does essentially make it an additional retirement account.

The one thing that has always kept me from doing it is I am led to believe I have to then sign up for the high-deductible medical plan, and at a young age I have had multiple surgeries for injuries due to working out and running. So I feel the safest option that allows me to sleep at night is the low-deductible plan. I also feel if I have the high-deductible plan I might be tempted to put off care and that is not smart. Am I wrong on having to have the high-deductible plan?

Thank you all for the kind words and for taking the time to read my story.
45% Vang S&P500 Fund ER .011% | 10% Vang Extended Market Fund ER .038% | 25% ACWI EX US IMI NL R ER .10% | 10% Vang Total Bond Market ER .027% | 10% Fidelity MSCI Real Estate ER 0.084%

User avatar
grabiner
Advisory Board
Posts: 22907
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Checking In After Five Years

Post by grabiner » Thu Jan 26, 2017 9:35 pm

ef11 wrote:The one thing that has always kept me from doing it is I am led to believe I have to then sign up for the high-deductible medical plan, and at a young age I have had multiple surgeries for injuries due to working out and running. So I feel the safest option that allows me to sleep at night is the low-deductible plan. I also feel if I have the high-deductible plan I might be tempted to put off care and that is not smart. Am I wrong on having to have the high-deductible plan?
This is a good reason not to use a high-deductible plan, even if it might be mathematically optimal. Usually, you'll come out ahead financially with a high-deductible plan because of the tax benefits, even if you sometimes use the deductible, But if you are deterred from going to the doctor by the possibility of a $200 bill, then you should get a plan with a $10 co-payment instead for your own health.

And this is a fairly common situation; even affluent people with high-deductible plans tend to avoid doctor visits because they view the incentives differently.
Wiki David Grabiner

User avatar
BolderBoy
Posts: 4146
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: Checking In After Five Years

Post by BolderBoy » Thu Jan 26, 2017 10:48 pm

Congratulations. You are making us proud!
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

User avatar
aj76er
Posts: 594
Joined: Tue Dec 01, 2015 11:34 pm
Location: Portland, OR

Re: Checking In After Five Years

Post by aj76er » Fri Jan 27, 2017 1:17 am

grabiner wrote:
ef11 wrote:The one thing that has always kept me from doing it is I am led to believe I have to then sign up for the high-deductible medical plan, and at a young age I have had multiple surgeries for injuries due to working out and running. So I feel the safest option that allows me to sleep at night is the low-deductible plan. I also feel if I have the high-deductible plan I might be tempted to put off care and that is not smart. Am I wrong on having to have the high-deductible plan?
This is a good reason not to use a high-deductible plan, even if it might be mathematically optimal. Usually, you'll come out ahead financially with a high-deductible plan because of the tax benefits, even if you sometimes use the deductible, But if you are deterred from going to the doctor by the possibility of a $200 bill, then you should get a plan with a $10 co-payment instead for your own health.

And this is a fairly common situation; even affluent people with high-deductible plans tend to avoid doctor visits because they view the incentives differently.
Yes, I can attest to this. Psychologically, I hate paying out-of-pocket expenses and it deters me from getting check-ups as regularly as I should. I've considered foregoing the high-deductable plan just for this reason.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

Nate79
Posts: 3592
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Checking In After Five Years

Post by Nate79 » Fri Jan 27, 2017 1:58 am

I just want to point out that the maximum contribution limit for 401k is $18,000, not $18,500 that you posted.

ef11
Posts: 198
Joined: Sat Mar 10, 2012 10:39 pm

Re: Checking In After Five Years

Post by ef11 » Fri Jan 27, 2017 12:47 pm

aj76er wrote:
grabiner wrote:
ef11 wrote:The one thing that has always kept me from doing it is I am led to believe I have to then sign up for the high-deductible medical plan, and at a young age I have had multiple surgeries for injuries due to working out and running. So I feel the safest option that allows me to sleep at night is the low-deductible plan. I also feel if I have the high-deductible plan I might be tempted to put off care and that is not smart. Am I wrong on having to have the high-deductible plan?
This is a good reason not to use a high-deductible plan, even if it might be mathematically optimal. Usually, you'll come out ahead financially with a high-deductible plan because of the tax benefits, even if you sometimes use the deductible, But if you are deterred from going to the doctor by the possibility of a $200 bill, then you should get a plan with a $10 co-payment instead for your own health.

And this is a fairly common situation; even affluent people with high-deductible plans tend to avoid doctor visits because they view the incentives differently.
Yes, I can attest to this. Psychologically, I hate paying out-of-pocket expenses and it deters me from getting check-ups as regularly as I should. I've considered foregoing the high-deductable plan just for this reason.
Thank you both for the feedback and for making me feel somewhat sane to make this choice ha. The $200 bill isn't what really worries me, it's that I think a surgery would cost me thousands and I might just try to let it heal on its own, etc which isn't the right choice, I should instead seek medical care and not have the burden of cost. So for me, this option allows me to be healthier as I tend to have more issues than my peers.
Nate79 wrote: I just want to point out that the maximum contribution limit for 401k is $18,000, not $18,500 that you posted.
Yes, I just know I will lower my % contributed once I get my 3-4% cost of living raise, so for simplicity I put that, but will reduce from 19% to 18% to ensure I hit $18,000

Thank you all again for the kind words and advice.

No one has responded to question 1 and 2 so I think I will plan to contribute funds for my 2017 Roth and rebalance my portfolio to my desired allocation very soon.
45% Vang S&P500 Fund ER .011% | 10% Vang Extended Market Fund ER .038% | 25% ACWI EX US IMI NL R ER .10% | 10% Vang Total Bond Market ER .027% | 10% Fidelity MSCI Real Estate ER 0.084%

Post Reply