Advice on 401k, bonus

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gisherson
Posts: 2
Joined: Fri Mar 10, 2017 12:33 pm

Advice on 401k, bonus

Post by gisherson » Fri Mar 10, 2017 2:49 pm

Hi there - long-time spender, brand new tightwad looking for some advice.

Emergency funds: Two months
Debt: $5,500 student loan on deferral while I finish my degree, $4,000 wife student loan @ 4.75%, Car 1 $37K @ 3.4%, Car 2 $17K @ 0%, Mortgage - $390K @ 4%
Tax Filing Status: Married Filing Joint
Tax Rate: 33% Federal, 6% State
State of Residence: GA
Age: 45
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 20% of stocks

My total portfolio is ~$635K, almost all of which is in my 401k.

Current retirement assets

Taxable
0% cash
1.5% Betterment - various funds (55/45 stock/bond split, abt 20% international)

His 401k: 98% Vanguard Target Retirement 2035 (.07%)
His HSA: 0.5%

I also have a company defined benefit pension. The company stopped additional contributions this year. If I were to leave the company today, the lump sum would be ~$160K.

Contributions

New annual Contributions
$18,000 his 401k (employer matches the first 6%)
$5,500 his backdoor Roth
$5,500 her backdoor Roth
$6,750 HSA
$36,000+ from paychecks
$70,000 from bonus/RSU vesting

Funds available in his 401(k), as of 4/1/2017
American Funds EuroPacific Growth Fund (RERGX) 0.50%
PIMCO Total Return Instl (PTTRX) 0.47%
T. Rowe Price Inst. Small Cap Stock (TRSSX) 0.67%
Touchstone Sands Capital Inst Gr (CISGX) 0.79%
Vanguard Extended Market Index (VEXAX) 0.09%
Vanguard Institutional Index (VINIX) 0.04%
Vanguard Windsor II (VWNAX) 0.26%
Vanguard Total Bond Market Index (VBTIX) 0.05%
Vanguard Prime Money Market (VMMXX) 0.16%
Vanguard Growth and Income Adm (VGIAX) 0.23%
Vanguard Tot Intl Stock Ix Inst (VTSNX) 0.09%
plus the Target Retirement and company Dividend and Stock funds

Questions:
1. Given my options, I still presume that the Target Retirement Fund is all I need in the 401k? Just looking for confirmation or alternate views, since that's currently where most of my money sits.

2. For the incoming stock/RSUs of $70K, I'll get most in the next week and about 1/4 in May. My plan is to bring my emergency fund to 6 months (~$20K of the 70), and to buy backdoor Roths for my wife and I for both 2016 and 2017 ($22K). How would you use the remaining ~$28K? Based on what I've read while lurking around here, left to my own devices I'd probably knock out the $4K student loan at 4.75%, but then it's a bit of a tossup for me between attacking Car 1 or building up some after-tax investments. Thoughts?

3. For the ongoing after-tax money - same question: debt vs. investments and, if investments, how should those be constructed? Also thinking about building up an after-tax health savings pile to allow the HSA to grow untouched.

I look forward to your feedback. I've learned a lot by lurking here for awhile. After I finished beating myself up for wasting so much income for so many years, I thought it was time to get a gut check on the forward plan.

Thanks in advance.

Dave

centrifuge41
Posts: 1155
Joined: Mon May 17, 2010 9:04 am

Re: Advice on 401k, bonus

Post by centrifuge41 » Fri Mar 10, 2017 3:56 pm

Hello gisheron,

Welcome to Bogleheads! :)

Yes, with 0.07% target retirement funds, and almost all investable assets sitting in 401k, the target retirement fund looks like the thing to do. Pick the one with the bond allocation that matches your risk tolerance. (E.g. if you pick a fund that's 30% bond, then you can tolerate the stock portion (70%) halving in case of a really serious bear market. Your portfolio could decline by 35% in bad times).

If you ever have lots of taxable investments too, it's only then that I think it's easier to use separate funds rather than a target fund. Good thing the prices are low either way.

Yeah sure, after having emergency fund, paying down loans from highest apr to lowest apr makes sense (wife student loan, car 1).

With additional incoming money, probably a mix of debt paydown (but no need on the 0% car loan), maxing out 401k/backdoor IRA, and taxable investments (Generally, keep these in total stock index and total intl stock index, for tax efficiency). It's at that time that you'd break up the target retirement fund in 401k as well - easier to just do everything in pieces (total stock, total intl stock, bond/fixed income).

gisherson
Posts: 2
Joined: Fri Mar 10, 2017 12:33 pm

Re: Advice on 401k, bonus

Post by gisherson » Sat Mar 11, 2017 6:41 am

centrifuge41 wrote:Hello gisheron,

Welcome to Bogleheads! :)


Thanks centrifuge41, and thanks for the second set of eyes!

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