Portfolio Review and Our Complete Economic Situation

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LTD
Posts: 17
Joined: Thu Feb 09, 2017 10:32 pm

Portfolio Review and Our Complete Economic Situation

Postby LTD » Fri Mar 10, 2017 9:13 am

I have been reading and learning from the BH wiki and the forum for the past 3 months now. Since finding the BH website we fired our broker and moved everything, except our 401k, to Vanguard. We are playing catch up due to making every mistake in the book and a couple that aren’t even in the book! I would like to be able to retire in 11 years at age 67. My wife would like to work part time for at least another 5 years after that.

I have a lot to learn and I am are very thankful for this site and the advice given. Thank you in advance for any and all comments, suggestions and advice!

Here is our current situation:

Our business
$2.4M-$2.8M/yr S-Corp with approx. $250,000.00 in owners’ income and 10% net profit. This can fluctuate a lot depending on how the overall economy is doing.
He works full time, she works part time at the business.
My guess is that we could sell the business for between $500k and $1M. Depending on how the economy/business are doing when we sell it. I just contacted a business broker yesterday, he is going to give us a valuation on the business next week.
Current cash in the business = Approx. $300,000.00 this would cover about 4.5 months of current business overhead.

Emergency fund
Three months of household expenses in a separate savings account.

Mortgage
Debt: $240K remaining on a 15 year mortgage @ 3% on our primary residence with about 8 years to go (w/o additional payments). We have approx. $500,000.00 in equity in the house.

Other debts
None.

Annual household budget
$99,552.00 including mortgage and property tax.
After the house is paid off this will reduce to approximately $64,752.00

Taxes
Tax Filing Status: Married Filing Jointly
Tax Rate: 39.6% Federal, 11.3% State
State of Residence: California
His Age: 56
Her Age: 51
Desired Asset allocation: 75% stocks / 25% bonds
Desired International allocation: 36.4% of stocks (20% of total AA)

Current retirement assets
Current total portfolio = upper middle six-figures.
Taxable = 31% and Tax-Advantaged = 69%
Invested = 75% and Cash = 25% the high cash position is due to selling some funds to move over to Vanguard and lack of knowledge and/or desire RE bonds (Need help on this).

5.11% Taxable
Cash

2% of total portfolio = Individual Stocks:
AT&T (T)
Berkshire B (BRK B)
Caterpillar (CAT)
Chevron (CVX)
Disney (DIS)

9% His 401k John Hancock
Blackrock Lifepath Index 2030 Fund LINKX ER=1.61%*
Company match = 3%
Current 2030 AA 71.43% Equities
27.45% Fixed income
1.12% Cash

9% Her 401k John Hancock
Blackrock Lifepath Index 2035 Fund LINKX ER=1.61%*
Company match = 3%
Current 2035 AA 71.43% Equities
27.45% Fixed income
1.12% Cash

Funds available in HIS and HER 401(k) (listing only the ones we would even consider):
Vanguard Value Index Fund VVIAX ER=1.59%*
Vanguard Growth Index Fund VIGAX ER=1.59%*
Vanguard Mid Cap Value ETF VOT ER=1.59%*
Vanguard Small Cap Value Index Fund VSIAX ER=1.59%*
Vanguard Small Cap Growth Index Fund VSGAX ER=1.59%*

*The ER’s above include 1.13% for John Hancock’s fees + .38% our 401k plan provider and .08% for the Vanguard funds.

.70% His Roth IRA at Vanguard
Cash

.76% Her Roth IRA at Vanguard
Cash

39.77% His SEP IRA at Vanguard
10.7% Vanguard Total International Stock Index Fund Admiral VTIAX ER=.11%
30.0% Vanguard Total Stock Market Index Fund Admiral VTSAX ER=.05%

15.16% Her Traditional IRA at Vanguard:
Symbol: Fund Name: ER % of total portfolio
VSS Vanguard FTSE All World Ex Us Small Cap ETF 0.13% 0.29%
VEA Vanguard FTSE Developed Mkts ETF 0.09% 2.06%
VWO Vanguard FTSE Emerging Markets ETF 0.14% 1.25%
VUG Vanguard Growth ETF 0.08% 2.05%
BLV Vanguard Long Term Bond Index ETF 0.09% 0.13%
VOE Vanguard Mid Cap Value ETF 0.08% 0.96%
VTV Vanguard Value ETF 0.08% 2.56%
SHY Ishares 1-3 Yr Treasury Bond ETF 0.15% 0.69%
GVI Ishares Intermediate Government Credit Bond ETF 0.20% 1.36%
EMB Ishares JP Morgan USD Emerging Markets bond ETF 0.60% 0.41%
MBB Ishares Mbs ETF 0.29% 0.81%
IWO Ishares Russell 2000 Growth ETF 0.25% 0.18%
IWN Ishares Russell 2000 ValUE ETF 0.25% 0.51%
IWP Ishares Russell Mid Cap Growth ETF 0.25% 0.78%
TIP Ishares Tips Bond ETF 0.20% 0.27%
JNK SPDR Bloomberg Barclays High Yield Bond ETF 0.40% 0.59%
CASH N/A 0.26%

18.5% Family Trust Account
Cash in Vanguard Money Market Account - Taxable

New annual Contributions (2016 tax year)
$24,000 his 401k + $15,070.00 employer matching contribution
$24,000 her 401k + $2,318.00 employer matching contribution
$6,500 his IRA/Roth IRA
$6,500 her IRA/Roth IRA
$7,750 HSA
$50,000.00 Taxable
$136,138.00 Total for 2016, (we will continue this as long as the business will allow it, a BIG IF).

Questions:
1. Is there a place anyone can recommend we take our company 401K to lower the fees? We are paying 1.61% on AUM + $1,750 annual administrative base fee + $500 for 401(a)(4) testing + $30.00 per participant + $225 safe harbor notice + $175 Employer Match True Up. + Trust reconciliation @ $175/ Hour.

2. Can we, or should we, do a backdoor ROTH? Am I “too old” for a ROTH? As some have told me -better to keep money in tax deferred since it does not have a lot of time to grow is the argument.

3. Our house is a large part of our net worth; we would consider renting the house, maybe selling it, in retirement. Renting the house would bring about $3,200.00/ month before expenses (today’s dollars). The house is in a very desirable area and I expect the value of houses in this area to go up a lot in the long term. Is renting the house while we travel and live in other areas/ countries a good idea? Or better to just sell it, step down in house and invest the difference? Alternatively could we keep this house and still be able to reasonably expect to retire in our time frame?

4. Any advice on bonds and TIPS would be appreciated. Which to buy, percentages of each one would hold and why. What should we put our current ROTH cash into, bonds or equities? I have seen differing opinions on this on the BH forum.

5. Are there any strategies for maximizing our social security? I know about delaying benefits and claiming spousal benefits… What I am thinking about here is how much each of us is paid from our business while we are still working. Since SS uses the top 35 years of income does it make sense to increase my wife’s income (and reduce mine) since DH already has a lot of higher income years? Or does it all balance out? Right now our 401k provider wants my income much higher than my wife’s so that we can maximize our contribution.

6. I am looking for any advice you have so as to optimize our retirement. What would you do in our situation?

Thank you again for any and all comments, suggestions and advice!
"Rich is the man for the things that he can, with dignity, live without"

bdpb
Posts: 1510
Joined: Wed Jun 06, 2007 3:14 pm

Re: Portfolio Review and Our Complete Economic Situation

Postby bdpb » Fri Mar 10, 2017 6:12 pm

LTD wrote:Our business
$2.4M-$2.8M/yr S-Corp with approx. $250,000.00 in owners’ income and 10% net profit. This can fluctuate a lot depending on how the overall economy is doing.
He works full time, she works part time at the business.
My guess is that we could sell the business for between $500k and $1M. Depending on how the economy/business are doing when we sell it. I just contacted a business broker yesterday, he is going to give us a valuation on the business next week.
Current cash in the business = Approx. $300,000.00 this would cover about 4.5 months of current business overhead.

Taxes
Tax Filing Status: Married Filing Jointly
Tax Rate: 39.6% Federal, 11.3% State

Current total portfolio = upper middle six-figures.

New annual Contributions (2016 tax year)
$136,138.00 Total for 2016, (we will continue this as long as the business will allow it, a BIG IF).

I'm having a hard time understanding your income and business profits.

Presumably, you mean you have 2.4M+ in sales.
Then you send home 250k to you and your wife as wages?
Then you have 10% net profit. Is that 10% of 2.4M, so 240k stays in the business? Doesn't seem right if the business has only 300k cash. Or do you mean 10% net profit of 250k goes home to you and your wife as income? Or is 10% net profit (some number not given) after paying yourself 250k and other expenses that accumulates as cash in the business?
Do you have job income outside of the business?

This leads to further confusion with your fed tax rate of 39.6%? That would require a taxable income of over 470k? Doesn't seem right based on home expenses and retirement savings.

Did you mean 7 figures for your current total portfolio? If you are saving 136k per year it seems like you should have more than 800k in portfolio?

User avatar
in_reality
Posts: 3765
Joined: Fri Jul 12, 2013 6:13 am

Re: Portfolio Review and Our Complete Economic Situation

Postby in_reality » Fri Mar 10, 2017 8:51 pm

Why is the 401k at John Hancock? Don't you have a say in choosing the plan?

Have you at least ruled out that it wouldn't be possible to hold it at a place like Schwab? Their ETF 401k runs about 0.6% but if you opt-out of the advice, can reduce that by 0.35-0.45%.

http://corporateservices.schwab.com/pub ... -advantage
[60% US _ 26% DEV _ 14% EM] | (-16% LC _ +8% MC _ +8% SC) | [47% FND/VAL _ 40% MKT _ 7% MOM _ 6% REIT] | (+/- 5% or *25% rebalancing bands)

smitcat
Posts: 181
Joined: Mon Nov 07, 2016 10:51 am

Re: Portfolio Review and Our Complete Economic Situation

Postby smitcat » Sat Mar 11, 2017 9:05 am

"$250,000.00 in owners’ income and 10% net profit"
Is there a reason why both of you take high salaries which require both employee and employer (both you) to pay full payroll taxes?

"My guess is that we could sell the business for between $500k and $1M. Depending on how the economy/business are doing when we sell it. I just contacted a business broker yesterday, he is going to give us a valuation on the business next week."
Please consider the legal , sales and tax fees to calculate the anticipated net profits you will realize. Your business basis as well as the % of F & F vs goodwill play a large part of this so your accountant may also have to weigh in on your calculations.

"1. Is there a place anyone can recommend we take our company 401K to lower the fees?"
Perhaps check into "employee Fiduciary" - we have been with them over a year now for a safe harbor plane and they have been good with fees about half of our last plan sponsor.

"2. Can we, or should we, do a backdoor ROTH? Am I “too old” for a ROTH?
A backdoor Roth that costs you nothing to get in is a winner no matter when, how, or why. Similarly any time you can do a mega backdoor Roth the same applies.

"3. Our house is a large part of our net worth; we would consider renting the house, maybe selling it, in retirement"
Renting any real estate is just like any business - think carefully if you want those types of interactions, time, opportunities, liabilities and risk in that time frame of your life.

"Since SS uses the top 35 years of income does it make sense to increase my wife’s income"
When you have your own business you pay both side of the SS and Medicare which is double the amount of an employee. It would be best to research the two "knees' on the SS payout amounts which lower your realized SS payout % as your SS income rises. We found that it was better to 'pay' ourselves less and invest that non paid tax money now rather than pay full SS now and realize the lower SS % payouts later on.
Anticipated taxes later as well as taxes now play a role in this analysis so your situation will be different yet similar -- you will need to collect your data and so your own calculations on this one as well.

LTD
Posts: 17
Joined: Thu Feb 09, 2017 10:32 pm

Re: Portfolio Review and Our Complete Economic Situation

Postby LTD » Sat Mar 11, 2017 9:06 am

bdpb wrote:
LTD wrote:Our business
$2.4M-$2.8M/yr S-Corp with approx. $250,000.00 in owners’ income and 10% net profit. This can fluctuate a lot depending on how the overall economy is doing.
He works full time, she works part time at the business.
My guess is that we could sell the business for between $500k and $1M. Depending on how the economy/business are doing when we sell it. I just contacted a business broker yesterday, he is going to give us a valuation on the business next week.
Current cash in the business = Approx. $300,000.00 this would cover about 4.5 months of current business overhead.

Taxes
Tax Filing Status: Married Filing Jointly
Tax Rate: 39.6% Federal, 11.3% State

Current total portfolio = upper middle six-figures.

New annual Contributions (2016 tax year)
$136,138.00 Total for 2016, (we will continue this as long as the business will allow it, a BIG IF).

I'm having a hard time understanding your income and business profits.

Presumably, you mean you have 2.4M+ in sales.
Then you send home 250k to you and your wife as wages?
Then you have 10% net profit. Is that 10% of 2.4M, so 240k stays in the business? Doesn't seem right if the business has only 300k cash. Or do you mean 10% net profit of 250k goes home to you and your wife as income? Or is 10% net profit (some number not given) after paying yourself 250k and other expenses that accumulates as cash in the business?
Do you have job income outside of the business?

This leads to further confusion with your fed tax rate of 39.6%? That would require a taxable income of over 470k? Doesn't seem right based on home expenses and retirement savings.

Did you mean 7 figures for your current total portfolio? If you are saving 136k per year it seems like you should have more than 800k in portfolio?


Thank you for your response and your questions. Sorry I did not make this clear. Answers to your questions:
2.4M - 2.8M is the gross revenue of the business. This can fluctuate even more than that but that is the range I expect for the next year or two. Before the recession it was above 3.3M for a year and during the recession it was as low as 1.4M and has been slowly growing since then.

In 2016 250K went home to me and my wife.

The 10% was the net profit on 2.6M in 2016. 300k seems low to me too, but remember we do not always have a year like 2016 (we hope to have more) :happy . And being an S corp the profits are taxed as ordinary income. On top of that, as I mentioned in the original post we have made every financial mistake in the book! :oops: We are now committed to fix that to the best of our ability.

Being an S corp the profits are taxed as ordinary income. So 250K salary + 260K profit = $510K which puts us above the 470K

We have no other income outside the business.

No, not 7 figures. The 136K was only in 2016 after having a good year and also realizing how far behind we were, my wife and I got on a budget and decided to save all we could from this point forward.

Thanks again!
"Rich is the man for the things that he can, with dignity, live without"

LTD
Posts: 17
Joined: Thu Feb 09, 2017 10:32 pm

Re: Portfolio Review and Our Complete Economic Situation

Postby LTD » Sat Mar 11, 2017 9:14 am

in_reality wrote:Why is the 401k at John Hancock? Don't you have a say in choosing the plan?

Have you at least ruled out that it wouldn't be possible to hold it at a place like Schwab? Their ETF 401k runs about 0.6% but if you opt-out of the advice, can reduce that by 0.35-0.45%.

http://corporateservices.schwab.com/pub ... -advantage


Our 401K is at John Hancock because our ex-accountant recommended the broker who then recommended JH. Luckily I discovered BH and the importance of low fees and now I want to fix this ASAP!

Luckily, I can choose the plan, and I will be on the phone with Schwab Monday morning! (Unless anyone knows anywhere else I can hold our 401K cheaper).

Does vanguard have a 401K plan for small business?

This was exactly what I was looking for...thank you!
"Rich is the man for the things that he can, with dignity, live without"

retiredjg
Posts: 28210
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Review and Our Complete Economic Situation

Postby retiredjg » Sat Mar 11, 2017 9:44 am

1. Is there a place anyone can recommend we take our company 401K to lower the fees? We are paying 1.61% on AUM + $1,750 annual administrative base fee + $500 for 401(a)(4) testing + $30.00 per participant + $225 safe harbor notice + $175 Employer Match True Up. + Trust reconciliation @ $175/ Hour.

I think this is the biggest improvement you can make in your overall situation because your plan is poor.

If you will do an internet search on Vanguard Small Business Plans and Fidelity Small Business plans you will find enough information to get started. I'm assuming yours is a small business. If not, just check both of those places for their 401k plans. If you use Fidelity, you will need to be sure their index funds and their target index funds are included in the plan.

A company called Employee Fiduciary has received pretty consistent good reviews around here as well. There are other companies that offer better 401k plans than yours but I'm just not as familiar with them. Generally, it is best to avoid insurance companies - they rarely have low cost plans.

2. Can we, or should we, do a backdoor ROTH? Am I “too old” for a ROTH? As some have told me -better to keep money in tax deferred since it does not have a lot of time to grow is the argument.

If you can move the SEP IRA and the tIRA out of the way by rolling each into a 401k plan, back door Roth might be a decent idea. You are not "too old" for Roth IRA.



4. Any advice on bonds and TIPS would be appreciated. Which to buy, percentages of each one would hold and why. What should we put our current ROTH cash into, bonds or equities? I have seen differing opinions on this on the BH forum.

Your proposed asset allocation of 75% stocks and 25% bonds is very aggressive for your ages. I'd increase it to at least 30% bonds if not more. Your best location to hold bonds will be in your new 401k.

What you put in your Roth IRA is not very important because they are not big enough to make any difference. Some people say it is good to hold the biggest growers in Roth IRA. Others put both stocks and bonds there. A few have said they prefer to hold only bonds in Roth IRA so that the Roth IRA space will not shrink.

5. Are there any strategies for maximizing our social security? I know about delaying benefits and claiming spousal benefits… What I am thinking about here is how much each of us is paid from our business while we are still working. Since SS uses the top 35 years of income does it make sense to increase my wife’s income (and reduce mine) since DH already has a lot of higher income years? Or does it all balance out? Right now our 401k provider wants my income much higher than my wife’s so that we can maximize our contribution.

This is probably best asked as a stand alone question.


Your portfolio could use a lot of clean up. :happy I would not worry about the small allocation to individual stocks, but some of the other accounts could be reduced to 1 or 2 funds.

User avatar
buckstar
Posts: 184
Joined: Wed Jul 06, 2011 9:38 am

Re: Portfolio Review and Our Complete Economic Situation

Postby buckstar » Sat Mar 11, 2017 10:37 am

Does your business have employees? If not, I would strongly consider a defined benefit plan. If structured correctly, you will be able to defer taxes on a much, much larger share of your income.

I use employee fiduciary for our 401k plan, they are very good, with low, transparent fees and let you pick your own investment options.

LTD
Posts: 17
Joined: Thu Feb 09, 2017 10:32 pm

Re: Portfolio Review and Our Complete Economic Situation

Postby LTD » Sat Mar 11, 2017 10:59 am

smitcat wrote:"$250,000.00 in owners’ income and 10% net profit"
Is there a reason why both of you take high salaries which require both employee and employer (both you) to pay full payroll taxes?

"My guess is that we could sell the business for between $500k and $1M. Depending on how the economy/business are doing when we sell it. I just contacted a business broker yesterday, he is going to give us a valuation on the business next week."
Please consider the legal , sales and tax fees to calculate the anticipated net profits you will realize. Your business basis as well as the % of F & F vs goodwill play a large part of this so your accountant may also have to weigh in on your calculations.

"1. Is there a place anyone can recommend we take our company 401K to lower the fees?"
Perhaps check into "employee Fiduciary" - we have been with them over a year now for a safe harbor plane and they have been good with fees about half of our last plan sponsor.

"2. Can we, or should we, do a backdoor ROTH? Am I “too old” for a ROTH?
A backdoor Roth that costs you nothing to get in is a winner no matter when, how, or why. Similarly any time you can do a mega backdoor Roth the same applies.

"3. Our house is a large part of our net worth; we would consider renting the house, maybe selling it, in retirement"
Renting any real estate is just like any business - think carefully if you want those types of interactions, time, opportunities, liabilities and risk in that time frame of your life.

"Since SS uses the top 35 years of income does it make sense to increase my wife’s income"
When you have your own business you pay both side of the SS and Medicare which is double the amount of an employee. It would be best to research the two "knees' on the SS payout amounts which lower your realized SS payout % as your SS income rises. We found that it was better to 'pay' ourselves less and invest that non paid tax money now rather than pay full SS now and realize the lower SS % payouts later on.
Anticipated taxes later as well as taxes now play a role in this analysis so your situation will be different yet similar -- you will need to collect your data and so your own calculations on this one as well.


Wow, you have given me a lot to think about, thank you!

A. Good point, I will talk to my wife and accountant to minimize our payroll taxes. Doesn't our pay also affect the amount we can put into our 401K?
B. I will take that into account and discuss it with the business broker. We are not ready to sell the business yet but I want to spend the next few years optimizing the sale when the time comes.
C. I will look at Employee Fiduciary ASAP. Thank you.
D. I have much to learn on Backdoor Roths and Mega BDR's. Do we have to convert our IRA's and pay any taxes due if we do a BDR? Or something like that?
E. Good point on the house. I will take all that into consideration, it may not be worth the hassle.
F. I need to learn more on SS. when I Googled: "the two "knees' on the SS payout amounts" all I get is "disability for knee replacement". Is what you are talking about known by another name? or do you have a URL on the subject?

Thanks again for your help!
"Rich is the man for the things that he can, with dignity, live without"

LTD
Posts: 17
Joined: Thu Feb 09, 2017 10:32 pm

Re: Portfolio Review and Our Complete Economic Situation

Postby LTD » Sat Mar 11, 2017 11:05 am

buckstar wrote:Does your business have employees? If not, I would strongly consider a defined benefit plan. If structured correctly, you will be able to defer taxes on a much, much larger share of your income.

I use employee fiduciary for our 401k plan, they are very good, with low, transparent fees and let you pick your own investment options.


We do have employees. So happy to get another endorsement for Employee Fiduciary. Thank you.
"Rich is the man for the things that he can, with dignity, live without"

Chip
Posts: 1106
Joined: Wed Feb 21, 2007 4:57 am

Re: Portfolio Review and Our Complete Economic Situation

Postby Chip » Sat Mar 11, 2017 11:07 am

LTD wrote:F. I need to learn more on SS. when I Googled: "the two "knees' on the SS payout amounts" all I get is "disability for knee replacement". Is what you are talking about known by another name? or do you have a URL on the subject?


Try "social security bend points" for a search term.

Also, take another look at the wiki. Many of the questions you're asking are discussed there.

LTD
Posts: 17
Joined: Thu Feb 09, 2017 10:32 pm

Re: Portfolio Review and Our Complete Economic Situation

Postby LTD » Sat Mar 11, 2017 3:41 pm

Chip wrote:
LTD wrote:F. I need to learn more on SS. when I Googled: "the two "knees' on the SS payout amounts" all I get is "disability for knee replacement". Is what you are talking about known by another name? or do you have a URL on the subject?


Try "social security bend points" for a search term.

Also, take another look at the wiki. Many of the questions you're asking are discussed there.


Yes, SS bend points worked, I will study that and go back to the wiki too. Thank you.
"Rich is the man for the things that he can, with dignity, live without"

LTD
Posts: 17
Joined: Thu Feb 09, 2017 10:32 pm

Re: Portfolio Review and Our Complete Economic Situation

Postby LTD » Sat Mar 11, 2017 3:54 pm

retiredjg wrote:
1. Is there a place anyone can recommend we take our company 401K to lower the fees? We are paying 1.61% on AUM + $1,750 annual administrative base fee + $500 for 401(a)(4) testing + $30.00 per participant + $225 safe harbor notice + $175 Employer Match True Up. + Trust reconciliation @ $175/ Hour.

I think this is the biggest improvement you can make in your overall situation because your plan is poor.


Agreed and I will fix it too!

If you will do an internet search on Vanguard Small Business Plans and Fidelity Small Business plans you will find enough information to get started. I'm assuming yours is a small business. If not, just check both of those places for their 401k plans. If you use Fidelity, you will need to be sure their index funds and their target index funds are included in the plan.


A very small business. I will look those up thank you for your input.

A company called Employee Fiduciary has received pretty consistent good reviews around here as well. There are other companies that offer better 401k plans than yours but I'm just not as familiar with them. Generally, it is best to avoid insurance companies - they rarely have low cost plans.

2. Can we, or should we, do a backdoor ROTH? Am I “too old” for a ROTH? As some have told me -better to keep money in tax deferred since it does not have a lot of time to grow is the argument.

If you can move the SEP IRA and the tIRA out of the way by rolling each into a 401k plan, back door Roth might be a decent idea. You are not "too old" for Roth IRA.

That's good news! - I want to do that, thanks.


4. Any advice on bonds and TIPS would be appreciated. Which to buy, percentages of each one would hold and why. What should we put our current ROTH cash into, bonds or equities? I have seen differing opinions on this on the BH forum.

Your proposed asset allocation of 75% stocks and 25% bonds is very aggressive for your ages. I'd increase it to at least 30% bonds if not more. Your best location to hold bonds will be in your new 401k.


I have wrestled with this, I may change it to 70/30 or 65/35.

What you put in your Roth IRA is not very important because they are not big enough to make any difference. Some people say it is good to hold the biggest growers in Roth IRA. Others put both stocks and bonds there. A few have said they prefer to hold only bonds in Roth IRA so that the Roth IRA space will not shrink.


Agreed. I am not going to worry too much about those right now.

5. Are there any strategies for maximizing our social security? I know about delaying benefits and claiming spousal benefits… What I am thinking about here is how much each of us is paid from our business while we are still working. Since SS uses the top 35 years of income does it make sense to increase my wife’s income (and reduce mine) since DH already has a lot of higher income years? Or does it all balance out? Right now our 401k provider wants my income much higher than my wife’s so that we can maximize our contribution.

This is probably best asked as a stand alone question.


Maybe I'll post it separately in a few days.

Your portfolio could use a lot of clean up. :happy I would not worry about the small allocation to individual stocks, but some of the other accounts could be reduced to 1 or 2 funds.


I think you are referring mainly to my wife's tIRA, this was a leftover from our ex-adviser. I guess it is time to sell them and buy Vanguard funds per our AA.

Thanks for all your help.
"Rich is the man for the things that he can, with dignity, live without"

retiredjg
Posts: 28210
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Review and Our Complete Economic Situation

Postby retiredjg » Sat Mar 11, 2017 4:06 pm

LTD wrote:
2. Can we, or should we, do a backdoor ROTH? Am I “too old” for a ROTH? As some have told me -better to keep money in tax deferred since it does not have a lot of time to grow is the argument.

If you can move the SEP IRA and the tIRA out of the way by rolling each into a 401k plan, back door Roth might be a decent idea. You are not "too old" for Roth IRA.

That's good news! - I want to do that, thanks.

Make sure the 401k plan you choose will accept rollovers from the SEP and the tIRA.


Maybe I'll post it separately in a few days.

I have not read it, but this little book has received some good reviews. Mike is a well respected poster here.

https://www.amazon.com/Social-Security- ... mike+piper



I think you are referring mainly to my wife's tIRA, this was a leftover from our ex-adviser.

That is mostly what I was looking at...."advisor" explains it. :happy

LTD
Posts: 17
Joined: Thu Feb 09, 2017 10:32 pm

Re: Portfolio Review and Our Complete Economic Situation

Postby LTD » Mon Mar 20, 2017 9:09 am

retiredjg wrote:
LTD wrote:
2. Can we, or should we, do a backdoor ROTH? Am I “too old” for a ROTH? As some have told me -better to keep money in tax deferred since it does not have a lot of time to grow is the argument.

If you can move the SEP IRA and the tIRA out of the way by rolling each into a 401k plan, back door Roth might be a decent idea. You are not "too old" for Roth IRA.


I have been looking into a backdoor ROTH further: I don't think I can do one this year since our AGI is over $194K??

From the Instructions for Form 8606:

"You can contribute to a Roth IRA for 2016 only if your 2016 modified adjusted gross income (AGI) for Roth IRA purposes is less than: $194,000 if married filing jointly or qualifying widow(er); $132,000 if single, head of household, or married filing separately and you didn’t live with your spouse at any time in 2016; or $10,000 if married filing separately and you lived with your spouse at any time in 2016."

Do I have that right? Or am I missing something?
"Rich is the man for the things that he can, with dignity, live without"

retiredjg
Posts: 28210
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Review and Our Complete Economic Situation

Postby retiredjg » Mon Mar 20, 2017 10:42 am

LTD wrote:Do I have that right? Or am I missing something?

You are missing something. Those limits prevent you from contributing directly to Roth IRA. You make too much money.

However, there is no income limit to make a non-deductible contribution to tIRA and there is no income limit on converting assets in tIRA to Roth IRA. Hence...the back door is a procedure to work around the income limits. It is a loophole.

However, you don't want to do it as long as there is money in any tIRA, Rollover IRA, SEP IRA, or SIMPLE IRA because those would have to be prorated with the conversion which is step two of the "back door". You need to move them out of the way.

The Wiki has a page on this topic and here is another. I suggest you download Form 8606 and work through it before you try the back door. If you can't get the paperwork to come out right, don't do the back door. Don't depend on your tax preparer to know what to do because most don't.

https://thefinancebuff.com/the-backdoor ... ow-to.html

LTD
Posts: 17
Joined: Thu Feb 09, 2017 10:32 pm

Re: Portfolio Review and Our Complete Economic Situation

Postby LTD » Wed Mar 22, 2017 8:28 am

retiredjg wrote:
LTD wrote:Do I have that right? Or am I missing something?

You are missing something. Those limits prevent you from contributing directly to Roth IRA. You make too much money.

However, there is no income limit to make a non-deductible contribution to tIRA and there is no income limit on converting assets in tIRA to Roth IRA. Hence...the back door is a procedure to work around the income limits. It is a loophole.

However, you don't want to do it as long as there is money in any tIRA, Rollover IRA, SEP IRA, or SIMPLE IRA because those would have to be prorated with the conversion which is step two of the "back door". You need to move them out of the way.

The Wiki has a page on this topic and here is another. I suggest you download Form 8606 and work through it before you try the back door. If you can't get the paperwork to come out right, don't do the back door. Don't depend on your tax preparer to know what to do because most don't.

https://thefinancebuff.com/the-backdoor ... ow-to.html


That explains it, thank you. My first step is to get my company 401K to a lower cost provider, then move our tIRA's and SEP IRA into the 401K and then do the backdoor roth.
"Rich is the man for the things that he can, with dignity, live without"


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