Starting from Ground Zero!!

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AdmiralSnackbar
Posts: 24
Joined: Tue Jan 10, 2017 3:06 pm

Starting from Ground Zero!!

Post by AdmiralSnackbar » Mon Apr 17, 2017 10:49 pm

Hello, everyone, new to the Boglehead world, and I am drinking from a firehose. Here are the required details:

Emergency funds: Three months
Debt: Private Student Loan $50k @ 5.25% (not forgiveable)
Tax Filing Status: Married, filing Jointly
Tax Rate: 15% Federal, 0% State
State of Residence: OH
Age: 40
Desired Asset allocation: 80/20, but open to suggestions
Desired International allocation: 10-20%, but open to suggestions

Current Asset Class Breakdown: Not sure

Portfolio Size: $200k-ish
Summary:
His TSP: 30%
Her Roth: 30%
Her 403(b): 10%
Her 401(k): 30%


Current retirement assets
His Government TSP (traditional):
40% C Fund Common Stock Index (0.038%)
40% S Fund Small Cap Stock Index (0.038%)
20% I Fund International Stock Index (0.039%)

Her Roth IRA at Fidelity
23% Berwyn Fund (BERWX) (1.24%)
13% Wells Fargo Grwth Adm Cl (SGRKX) (0.96%)
12% Columbia Acorn International Cl R5 (CAIRX)(0.91%)
11% JP Morgan Mid Cap Value Fund Class L (FLMVX)(0.75%)
10% Royce Smaller CO Growth Service Cl (RYVPX)(1.48%)
7% American Growth Fund of America Class F1 (GFAFX)(0.71)
6% TCW Relative Value Dividend Apprec Cl N (TGIGX)(1.0%)
5% Clipper (CFIMX)(0.72%)
5% Lazard Emerging Mkts Equity Open Cl Shrs (LZOEX)(1.37%)
5% Fidelity Intl Cap Appreciation Fund (FIVFX)(1.14%)
5% Morgan Sta Inst Inc. US Real Estate CL I (MSUSX)(0.98%)

Her 403(b) at Fidelity (former employer)
20% Fid Convertible SEC (FCVSX) (0.45%)
24% Fid Dividend GR K (FDGKX) (0.5%)
23% Fid Stk Sel Sm Cap (FDSCX) (0.89%)
22% Fid Pacific Basin (FPBFX)(1.19%)
6% Fid Sel Energy (FSENX)(0.8%)
5% Fid Sel Energy Svcs (FSESX)(0.85%)

Her 401(k) at Schwab (former employer)
50% Schwab Mnged Ret Trust 2040 Cl V (no ticker)(0.35%)
13% Dodge & Cox Stock (DODGX)
15% JPMorgan Large Cap Growth R6 (JLGMX)(0.60%)
11% American Beacon Small Cp Val Inst (AVFIX) (0.84%)
4% Lazard Emerging Markets Equity Inst (LZEMX)(1.10%)
4% Oakmark International Investor (OAKIX)(1.00%)
3% Metropolitan West Total Return Bd P (MWTIX)(0.60%)


Contributions

New annual Contributions
None this year - aggressively paying down student debt. Plan is to finish paying it in 7-8 months

Available funds
None

Questions:
1. (a) If we do a trustee-to-trustee transfer of the Roth IRA from Fidelity to Vanguard, there are zero tax implications, since she's already paid taxes on them. Is this correct? (b) If so, then do we still need to worry whether it is an "in-kind" transfer, or if we cash out at Fidelity before transferring to Vanguard?

2. If I'm reading the IRS 590-B correctly, I can still do trustee-to-trustee transfer of wife's Roth, 403(b), and 401(k) all during the same calendar year, so long as Fidelity transfers assets (whether in-kind or cashed-out value) directly to Vanguard. Is this correct?

3. Can you point me to some terse and pithy resources about how to make sure I am not making any huge tax mistakes during the transfers of the 403(b) and 401(k)? I feel a bit overwhelmed by it all, and I am sort of close to getting some hired help.

4. Should I choose to get help, do you all recommend a CFP, CPA, or am I making it more complicated than it should be?

5. Regarding allocation, my wife and I are willing to take some risk, as I will be eligible for military retirement pension in about 11 years (roughly $5k/mo depending on how many more times I promote). As such, I was considering 60% total stock market, 20% international, and 20% total bond. However, I could use some insight in how to achieve this split across wife's Roth, traditional IRA, and my government TSP. Should I just split each investment vehicle into the 60-20-20 split, or try to achieve this ratio across all three vehicles?

6. My goodness, if anyone finishes this, I truly appreciate it. I do apologize if my questions are embarrassingly elementary, and if I am unclear, please let me know. All I am clear about is how little I actually know, and I am thirsty for more info. I read the Bogleheads' Guide to Investing in 2 days, and I've been immersing myself in YouTube videos, but I could definitely use any guidance you all are gracious enough to offer. THANK YOU SO MUCH!! (Caps for emphasis!)

Your newest Boglehead,
Alex
Last edited by AdmiralSnackbar on Thu Apr 20, 2017 11:36 am, edited 3 times in total.

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ruralavalon
Posts: 11282
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Starting from Ground Zero!!

Post by ruralavalon » Tue Apr 18, 2017 11:29 am

Welcome to the forum :) .

AdmiralSnackbar wrote:Hello, everyone, new to the Boglehead world, and I am drinking from a firehose. Here are the required details:

Emergency funds: Three months
Debt: Private Student Loan @ 5.25%
Tax Filing Status: Married, filing Jointly
Tax Rate: 15% Federal, 0% State
State of Residence: OH
Age: 40
Desired Asset allocation: 80/20, but open to suggestions
Desired International allocation: 10-20%, but open to suggestions

Current Asset Class Breakdown: Not sure

Portfolio Size: $200k-ish

Current retirement assets
His Government TSP (traditional):
40% C Fund Common Stock Index (0.038%)
40% S Fund Small Cap Stock Index (0.038%)
20% I Fund International Stock Index (0.039%)

Her Roth IRA at Fidelity
23% Berwyn Fund (BERWX) (1.24%)
13% Wells Fargo Grwth Adm Cl (SGRKX) (0.96%)
12% Columbia Acorn International Cl R5 (CAIRX)(0.91%)
11% JP Morgan Mid Cap Value Fund Class L (FLMVX)(0.75%)
10% Royce Smaller CO Growth Service Cl (RYVPX)(1.48%)
7% American Growth Fund of America Class F1 (GFAFX)(0.71)
6% TCW Relative Value Dividend Apprec Cl N (TGIGX)(1.0%)
5% Clipper (CFIMX)(0.72%)
5% Lazard Emerging Mkts Equity Open Cl Shrs (LZOEX)(1.37%)
5% Fidelity Intl Cap Appreciation Fund (FIVFX)(1.14%)
5% Morgan Sta Inst Inc. US Real Estate CL I (MSUSX)(0.98%)

Her 403(b) at Fidelity
20% Fid Convertible SEC (FCVSX) (0.45%)
24% Fid Dividend GR K (FDGKX) (0.5%)
23% Fid Stk Sel Sm Cap (FDSCX) (0.89%)
22% Fid Pacific Basin (FPBFX)(1.19%)
6% Fid Sel Energy (FSENX)(0.8%)
5% Fid Sel Energy Svcs (FSESX)(0.85%)

Her 401(k) at Schwab
50% Schwab Mnged Ret Trust 2040 Cl V (no ticker)(0.35%)
13% Dodge & Cox Stock (DODGX)
15% JPMorgan Large Cap Growth R6 (JLGMX)(0.60%)
11% American Beacon Small Cp Val Inst (AVFIX) (0.84%)
4% Lazard Emerging Markets Equity Inst (LZEMX)(1.10%)
4% Oakmark International Investor (OAKIX)(1.00%)
3% Metropolitan West Total Return Bd P (MWTIX)(0.60%)


Contributions

New annual Contributions
None this year

Available funds
None

Questions:
1. (a) If we do a trustee-to-trustee transfer of the Roth IRA from Fidelity to Vanguard, there are zero tax implications, since she's already paid taxes on them. Is this correct? (b) If so, then do we still need to worry whether it is an "in-kind" transfer, or if we cash out at Fidelity before transferring to Vanguard?

2. If I'm reading the IRS 590-B correctly, I can still do trustee-to-trustee transfer of wife's Roth, 403(b), and 401(k) all during the same calendar year, so long as Fidelity transfers assets (whether in-kind or cashed-out value) directly to Vanguard. Is this correct?

3. Can you point me to some terse and pithy resources about how to make sure I am not making any huge tax mistakes during the transfers of the 403(b) and 401(k)? I feel a bit overwhelmed by it all, and I am sort of close to getting some hired help.

4. Should I choose to get help, do you all recommend a CFP, CPA, or am I making it more complicated than it should be?

5. Regarding allocation, my wife and I are willing to take some risk, as I will be eligible for military retirement pension in about 11 years (anywhere between $8800-$10,000/mo depending on how many more times I promote). As such, I was considering 60% total stock market, 20% international, and 20% total bond. However, I could use some insight in how to achieve this split across wife's Roth, traditional IRA, and my government TSP. Should I just split each investment vehicle into the 60-20-20 split, or try to achieve this ratio across all three vehicles?

6. My goodness, if anyone finishes this, I truly appreciate it. I do apologize if my questions are embarrassingly elementary, and if I am unclear, please let me know. All I am clear about is how little I actually know, and I am thirsty for more info. I read the Bogleheads' Guide to Investing in 2 days, and I've been immersing myself in YouTube videos, but I could definitely use any guidance you all are gracious enough to offer. THANK YOU SO MUCH!! (Caps for emphasis!)

Your newest Boglehead,
Alex

Some additional information is needed.

How much is owed on the student loan? Is any of that eligible to be forgiven?

I am a little confused, is her 401k at Fidelity with a current employer or from a former employer?

Is her 403b at Schwab with a current employer or from a former employer?

Why are there no contributions being made this year?

You can simply add this to your original post using the edit button, so that all of your information is in one place.

. . . . .

You can rollover the Roth IRA from Fidelity to Vanguard without any tax consequences. It's best if you do a trustee to trustee transfer. Call Vanguard and they will help you with the rollover.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Fishing50
Posts: 184
Joined: Tue Sep 27, 2016 1:18 am

Re: Starting from Ground Zero!!

Post by Fishing50 » Tue Apr 18, 2017 3:08 pm

You should look at your total portfolio across all accounts. Update your assets with percentage assets overall, not each account.

80/20 AA is good.
10-20% International is good.

-Optimally, keep target AA across all accounts. Tax efficient wiki is a good place to start: https://www.bogleheads.org/wiki/Tax-efficient_fund_placement
-TSP is a great place to keep your 20% Bonds. I prefer F Fund during accumulation years, G Fund closer to retirement.
-Keep equities in Roth, to maximize tax-free growth. VTIAX Vanguard Total International Total stock Index is better than I Fund for international because it includes emerging markets.

-Consider Roth TSP contributions in the 15% tax bracket. You'll probably promote into the 25% tax bracket, making traditional TSP a better choice. MFJ with standard deductions, my military officer pension will still be in the 15% tax bracket before Social Security.
-I support aggressive student loan payments because you can contribute $29K into Roth accounts when complete.
-Retirement is no sure thing, being 11yrs away. High 3 is worth the gamble for the COLA adjustment in retirement. BRS ensures you keep govt contributions if you get caught in a RIF. BRS is worth considering if you can max out the govt match and invest the mid career bonus.
It's perfectly legal, go ask the IRS, they'll say the same thing. I actually feel stupid telling you this, I'm sure you would've investigated the matter yourself. Andy Dufresne

AdmiralSnackbar
Posts: 24
Joined: Tue Jan 10, 2017 3:06 pm

Re: Starting from Ground Zero!!

Post by AdmiralSnackbar » Tue Apr 18, 2017 4:21 pm

Fishing:

Excellent advice on all points. I will definitely look at F Fund while I am in accumulation phase. I will definitely consider Roth while in the 15% bracket and traditional once in the 25% bracket. As for BRS, I will take a hard look at it! Lastly, please excuse me, what is "MFJ"?
__

Rural:

Thank you for the kind welcome!

random_walker_77
Posts: 429
Joined: Tue May 21, 2013 8:49 pm

Re: Starting from Ground Zero!!

Post by random_walker_77 » Tue Apr 18, 2017 9:33 pm

AdmiralSnackbar wrote:
Questions:
1. (a) If we do a trustee-to-trustee transfer of the Roth IRA from Fidelity to Vanguard, there are zero tax implications, since she's already paid taxes on them. Is this correct? (b) If so, then do we still need to worry whether it is an "in-kind" transfer, or if we cash out at Fidelity before transferring to Vanguard?

2. If I'm reading the IRS 590-B correctly, I can still do trustee-to-trustee transfer of wife's Roth, 403(b), and 401(k) all during the same calendar year, so long as Fidelity transfers assets (whether in-kind or cashed-out value) directly to Vanguard. Is this correct?

3. Can you point me to some terse and pithy resources about how to make sure I am not making any huge tax mistakes during the transfers of the 403(b) and 401(k)? I feel a bit overwhelmed by it all, and I am sort of close to getting some hired help.

4. Should I choose to get help, do you all recommend a CFP, CPA, or am I making it more complicated than it should be?

5. Regarding allocation, my wife and I are willing to take some risk, as I will be eligible for military retirement pension in about 11 years (anywhere between $8800-$10,000/mo depending on how many more times I promote). As such, I was considering 60% total stock market, 20% international, and 20% total bond. However, I could use some insight in how to achieve this split across wife's Roth, traditional IRA, and my government TSP. Should I just split each investment vehicle into the 60-20-20 split, or try to achieve this ratio across all three vehicles?

6. My goodness, if anyone finishes this, I truly appreciate it. I do apologize if my questions are embarrassingly elementary, and if I am unclear, please let me know. All I am clear about is how little I actually know, and I am thirsty for more info. I read the Bogleheads' Guide to Investing in 2 days, and I've been immersing myself in YouTube videos, but I could definitely use any guidance you all are gracious enough to offer. THANK YOU SO MUCH!! (Caps for emphasis!)

Your newest Boglehead,
Alex


Welcome to bogleheads, and thank you for your service!

MFJ is "married filing jointly"

1a) I believe you're correct, and 1b), I don't think it matters. Look at what the trading fees are to sell at fidelity vs vanguard, assuming you want to change the portfolio

2) I'm not an expert, but that's my understanding as well

3) Mainly, make sure your name is never on the check. Do it via a direct trustee-to-trustee to avoid issues. You might find this interesting: https://www.merceradvisors.com/blog/201 ... -pitfalls/

4) CPA, or vanguard's PAS. But I don't think you'll need their help. CFP might be ok, but the trouble is in finding one that won't gouge you.

5) Fishing50 already linked you to the relevant wiki page. Since you're going between tax deferred accounts, it doesn't matter all that much. Try to bias the tax-free Roth towards the fast growing stuff (stocks) and leave the bonds in tax-deferred -- you'll eventually owe taxes, but this way, more of your portfolio ends up tax-free. Note, this is the small stuff though -- don't sweat it.

Other: Your current portfolio is needlessly complicated with a lot of small fund allotments. Not necessarily bad, but it does mean you're biased towards parts of the market, and that's usually not the best idea, especially if you don't understand how it's biased. Sounds like you're headed towards a 3 fund portfolio, which is a good approach. In any case, you're going to want to get away from those expensive funds in your schwab/fidelity accounts.

Your current plan to pay down the student loans sounds real good. That's a guaranteed 5.25%, and this is one of the few debts that you can't even discharge in a bankruptcy.

For further reading, there's a lot of good info on the wiki here, particularly https://www.bogleheads.org/wiki/Three-fund_portfolio . Also, I'd recommend reading "The Little book of common sense investing" as your next book. I found "A Random Walk down Wall Street" to be highly enlightening, and "The Millionaire Next Door" to be a good read. There are choice excerpts from the first two, as well as many other investing books, here: https://www.bogleheads.org/wiki/Taylor_ ... tment_Gems

Regarding 80% stocks and risk taking, that sounds like it's appropriate for you given the pension and a stable income. Just make sure you're ok w/ holding on even if your portfolio loses 40% and it looks like it's going to lose even more. This post by Taylor Larimore is one of my favorites: viewtopic.php?t=143500#p2133157 (and the linked thread is a compendium of favorite posts)

User avatar
ruralavalon
Posts: 11282
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Starting from Ground Zero!!

Post by ruralavalon » Wed Apr 19, 2017 7:48 am

Asset allocation.
AdmiralSnackbar wrote:Age: 40
Desired Asset allocation: 80/20, but open to suggestions
Desired International allocation: 10-20%, but open to suggestions
. . . . .
Regarding allocation, my wife and I are willing to take some risk, as I will be eligible for military retirement pension in about 11 years (anywhere between $8800-$10,000/mo depending on how many more times I promote). As such, I was considering 60% total stock market, 20% international, and 20% total bond.

At age 40 I usually suggest about 25 - 30% in bonds. This is expected to substantially reduce volatility (risk), with only a relatively slight decrease in return. Graph, "An Efficient Frontier: the power of diversification". Please see also William Bernstein, "The Rebalancing Bonus". Please see the wiki articles Bogleheads® investment philosophy, "Never bear too much or too little risk", and "Asset allocation".

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6).

Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your ability, willingness and need to take risk. In my opinion your desired asset allocation of 20% bonds, 20% international stocks, and 60% domestic stocks is within the range of what is reasonable.


Investing priority & new annual contributions.
AdmiralSnackbar wrote:New annual Contributions
None this year - aggressively paying down student debt. Plan is to finish paying it in 7-8 months

Is there an employer match offered in his TSP? If there is an employer match offered what is the employer match? If there is an employer match offered then it's wise as a first priority to contribute enough to get the full employer match each year.

It's good to see you aggressively paying off the student debt at 5.25% interest. I agree that paying off the 5.25% student loan is the top priority if there is no employer match in the TSP. Please see the wiki article "Prioritizing investments".


Roth contributions to TSP.
AdmiralSnackbar wrote: . . . I will be eligible for military retirement pension in about 11 years (anywhere between $8800-$10,000/mo depending on how many more times I promote)

Since you will be eligible for a pension, Roth contributions to your TSP account are likely better.

Ordinarily most people are likely better off making traditional contributions to their work-based plans. A pension changes that analysis, so that Roth contributions are likely better if you have a significant pension coming. TFB blog post, "Most TSP participants should switch to the Roth TSP".


Rollovers.
AdmiralSnackbar wrote:Questions:
1. (a) If we do a trustee-to-trustee transfer of the Roth IRA from Fidelity to Vanguard, there are zero tax implications, since she's already paid taxes on them. Is this correct? (b) If so, then do we still need to worry whether it is an "in-kind" transfer, or if we cash out at Fidelity before transferring to Vanguard?

The rollover of the Roth IRA from Fidelity to Vanguard will have no tax consequences. There is no need for an "in kind" transfer for any tax reason.

Ask both Fidelity and Vanguard what they would charge to sell the funds in the Roth IRA, and then decide whether to sell them before or after the rollover.

AdmiralSnackbar wrote:2. If I'm reading the IRS 590-B correctly, I can still do trustee-to-trustee transfer of wife's Roth, 403(b), and 401(k) all during the same calendar year, so long as Fidelity transfers assets (whether in-kind or cashed-out value) directly to Vanguard. Is this correct?

Yes, you can rollover all three accounts without tax consequence. Just call Vanguard, they will help with the rollovers. Ask for "trustee to trustee" transfers.

AdmiralSnackbar wrote:3. Can you point me to some terse and pithy resources about how to make sure I am not making any huge tax mistakes during the transfers of the 403(b) and 401(k)? I feel a bit overwhelmed by it all, and I am sort of close to getting some hired help.

I cannot give you another resource for that. Just call Vanguard, they will help with the rollovers. Ask for "trustee to trustee" transfers.


Achieving asset allocation in multiple accounts.
AdmiralSnackbar wrote: . . . I was considering 60% total stock market, 20% international, and 20% total bond. However, I could use some insight in how to achieve this split across wife's Roth, traditional IRA, and my government TSP. Should I just split each investment vehicle into the 60-20-20 split, or try to achieve this ratio across all three vehicles?

It is often best to look at all accounts together as a single unified whole, rather than consider each account separately. Start fund selection by choosing only the one or two best funds (diversified + low ER) in the work-based accounts such as your TSP, where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited choices available in the IRAs.

Can you tell us the relative sizes of the accounts? Like this:
His Government TSP (traditional), aa%
Her Roth IRA at Fidelity, bb%
Her 403(b) at Fidelity (former employer), cc%
Her 401(k) at Schwab (former employer), dd%
Total of all accounts = 100%

. . . . .

Again you can simply add the answers to the underlined questions to your original post using the edit button, so that all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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BL
Posts: 7245
Joined: Sun Mar 01, 2009 2:28 pm

Re: Starting from Ground Zero!!

Post by BL » Wed Apr 19, 2017 8:37 am

Even though I only use Vanguard, I have to tell you that you can find good low-ER INDEX funds at Fidelity, so there is no real requirement to move. See Wiki page on "3-Fund Portfolio" for suggested Fidelity funds.

Retirement is hoped and planned for, not guaranteed.

Look for low-ER index funds in her work plans unless she is moving them to Vanguard or Fidelity. Same with Roth.

If you want help, then consider Vanguard PAS, 0.3% AUM/year. They won't mislead you or put you into expensive funds (there almost aren't any at V!) Asking for help anywhere else is a risk because expensive choices are often given when low-ER index funds are generally the smartest choice. A Vanguard balanced fund such as a Target Date, Balanced, Life Strategy, or even the active Wellington/Wellesley might be a simple solution where you mainly have to select the desired bond %. Otherwise the 3 Total market US, international, and bond funds would do it, and might work better with having all your bonds in TSP..

Do some reading of Wiki and recommended books. Here is a 16 page pdf to get you started:
https://www.etf.com/docs/IfYouCan.pdf

AdmiralSnackbar
Posts: 24
Joined: Tue Jan 10, 2017 3:06 pm

Re: Starting from Ground Zero!!

Post by AdmiralSnackbar » Wed Apr 19, 2017 10:32 am

Wow, I am absolutely blown away by all the insight and sage wisdom from this community. I feel so much better about approaching this transition, and I think with my growing understanding, I think my wife and I can definitely do this without paying an advisor.

I will follow up on all the collective advice and suggested readings. Looks like this library card is going to put in some overtime hours. Thanks so much to this wonderful online community!!!

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ruralavalon
Posts: 11282
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Starting from Ground Zero!!

Post by ruralavalon » Wed Apr 19, 2017 3:57 pm

AdmiralSnackbar wrote:5. Regarding allocation, my wife and I are willing to take some risk, as I will be eligible for military retirement pension in about 11 years (anywhere between $8800-$10,000/mo depending on how many more times I promote). As such, I was considering 60% total stock market, 20% international, and 20% total bond. However, I could use some insight in how to achieve this split across wife's Roth, traditional IRA, and my government TSP. Should I just split each investment vehicle into the 60-20-20 split, or try to achieve this ratio across all three vehicles?


Fund selection & placement.
In selecting funds strive for a combination of broad diversification (to reduce risk) and low expense ratios (to increase your net gain). To simply and easily achieve those two goals I suggest choosing funds to simulate the very well diversified, low expense ratio "three-fund portfolio". Wiki article "Three-fund portfolio". Forum discussion, "The Three-Fund Portfolio".

It is often best to look at all accounts together as a single unified whole, rather than consider each account separately. Start fund selection by choosing only a few of the best funds (most diversified) in the TSP, where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited choices available in the IRAs.

The F Fund in the TSP is an intermediate-term bond fund, it tracks the very diversified Bloomberg Barclays U.S. Aggregate Bond Index. That is nearly identical to the Vanguard Total Bond Market Index Fund.

The G Fund in the TSP is unique, not available anywhere else. The G Fund offers the opportunity to earn rates of interest similar to those of long-term Government securities but without any risk of loss of principal.

The TSP does not have a total stock market index fund. The C Fund tracks the S&P 500 index, covering larger companies in the U.S.

I suggest using a total stock market index fund where available; otherwise an S&P 500 index fund (such as the C Fund in your TSP account) is good enough for domestic stocks. "In a 401(k) plan with limited choices one might very well opt for an S&P 500 index fund to serve as the domestic stock component of a three-fund portfolio." Wiki article, Three-fund portfolio, "Other considerations". An S&P 500 index fund covers 80% of the U.S. stock market, and in the 25 years since the creation of the total stock market fund the performance of the two types of funds has been almost identical. Morningstar “growth of $10k” graph, VFINX vs VTSMX. See also Allan Roth, CBS Moneywatch, "John C. Bogle on the S&P 500 vs. the Total Stock Market". So it seems that adding a little in mid/small cap stocks trying to mimic the holdings of a total stock market fund has historically added little in performance.

The TSP does not have a total international stock index fund. The I Fund uses the MSCI EAFE (Europe, Asia, Far East) indexes, and covers larger companies in developed markets outside North America. In other words it omits emerging markets, smaller companies and Canada.

Vanguard Total International Stock Index Fund is more diversified. It covers both larger and smaller companies, in both emerging and developed markets including Canada.

So for better diversification favor using the G and F Funds for bonds in the TSP, and disfavor using the I Fund in the TSP.


Example portfolio.
Here is an example portfolio that you could consider. This is a three-fund type portfolio, modified as necessary to accommodate the fund offerings in the TSP. The asset allocation is: 20% bonds; 20% international stocks; and 60% domestic stocks. The percentages given are percentages of the total portfolio, not of a given account. The suggestion is to switch both the existing balances and the new contributions to the funds indicated. All percentages

His TSP (30%)
10%, F Fund
10%, G Fund
10%, C Fund

Her Roth IRA @ Vanguard (30%)
20%, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%
10%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.05%

Her traditional rollover IRA @ Vanguard, her old 401k and 403b (40%)
40%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.05%


Rebalancing.
Because the funds will grow at different and unpredictable rates, it may be necessary every year or two to rebalance in order to maintain the desired asset allocation. Wiki article, "Rebalancing". You can easily adjust the asset stock/bond allocation by exchanging between funds inside the TSP. You can easily adjust the stock/bond allocation by exchanging between funds inside the TSP. You can easily adjust the domestic/international stock allocation by exchanging between funds inside her Roth IRA.

. . . . .

I suggest that you read one or two books on general investing. Wiki article, "Books: recommendations and reviews".

If you have any questions just ask.

I hope that this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Natsdoc
Posts: 39
Joined: Sun Jun 15, 2014 8:53 pm

Re: Starting from Ground Zero!!

Post by Natsdoc » Thu Apr 20, 2017 8:29 am

Welcome!

You can definitely do this on your own without hiring professional help!

A couple of thoughts/suggestions on your questions:

1. (a) If we do a trustee-to-trustee transfer of the Roth IRA from Fidelity to Vanguard, there are zero tax implications, since she's already paid taxes on them. Is this correct? (b) If so, then do we still need to worry whether it is an "in-kind" transfer, or if we cash out at Fidelity before transferring to Vanguard?

(a) Yes, that's correct. You've already paid taxes on the Roth IRA. (b) It doesn't matter from a tax standpoint but when we recently moved my husbands Roth IRA over to Vanguard they charged $35 to sell each fund, which adds up quickly if you start with a bunch of funds like you have. We called Vanguard first to find out and didn't get an accurate answer to this question, I don't think it was out of any malicious intent. However there have been a lot of posts recently about Vanguard having customer service issues, likely due to lots of rapid growth from people getting into indexing. Fidelity has many low cost index funds as well and a better reputation for customer service, so you could definitely leave her Roth IRA there and just move to different funds.

2. If I'm reading the IRS 590-B correctly, I can still do trustee-to-trustee transfer of wife's Roth, 403(b), and 401(k) all during the same calendar year, so long as Fidelity transfers assets (whether in-kind or cashed-out value) directly to Vanguard. Is this correct?

Yes, that is correct.
Just to clarify - you can transfer the Roth IRA to any company and it stays as your Roth IRA.

For the 403(b) and 401(k) you can do what's called a "rollover" into a traditional IRA account. This can be held at any company you want, but I'd definitely call and go over fund by fund the cost to sell the fund at each company - the info is online but can be a little hard to figure out which category each of the funds falls into.

The other option is to roll them into a current employer 403(b) or 401(k) IF your wife has a current employer plan that accepts rollovers.
The only significant advantage (if I understand it correctly) to rolling into an employer plan is that having a traditional IRA makes it more difficult to contribute to a Roth IRA (something called a backdoor Roth IRA) if your income is high (over $186,000 for married). If you don't anticipate your combined earnings being in this ballpark during your working years rolling into a traditional IRA gives you more options for what funds you have available.

Ruralavalon has given great advice about fund placement across your accounts - keeping it simple and easy to rebalance. If you stick with Fidelity there are similar index funds for total stock market and international.

+1 to looking into BRS. USAA has a calculator here: https://www.usaa.com/inet/wc/advice_ret ... ent_system
My military husband has been in long enough that we're under the old system, but the new BRS with TSP matching and continuation bonus doesn't seem like a bad deal either, especially if you're 11 years away from retirement. In terms of asset allocation 80/20 is reasonable, especially if you expect a pension of some kind. You can either look at it as a portion of "fixed income" and giving you the ability to take more risk in your investments, OR you can look at it as a reason that you can take less risk (in that the "number" you need for your retirement nest egg is actually lower because you won't have to withdrawal as much annually to live on)

Other questions
-Does your wife have a current employer plan with a match? If so I would contribute up to the match to get the free money (!) even before paying off the student loans.

Best of luck!

AdmiralSnackbar
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Re: Starting from Ground Zero!!

Post by AdmiralSnackbar » Fri Apr 21, 2017 3:00 pm

Nats, you are right, Fidelity does offer some low-cost options! However, after careful consideration, my wife and I are going to consolidate all accounts into Vanguard, as we feel a bit more connected to the values and ethos of Vanguard, vice Fidelity. After reading some other threads about Vanguard vs. Fidelity, it is clear that Vanguard's model is what drove down everyone else's ERs.

I will definitely look more carefully at the military's BRS, and I may follow up later with questions on that.

Wife doesn't have a current plan that matches, so unfortunately, no chance for us to take advantage of that.

Thanks, RuralAvalon, Fishing50, random_walker_77, BL, and Natsdoc for taking the time to start my Boglehead education!

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Nords
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Re: Starting from Ground Zero!!

Post by Nords » Sat Apr 22, 2017 10:43 am

AdmiralSnackbar wrote:I will definitely look more carefully at the military's BRS, and I may follow up later with questions on that.

You can read more at the DoD website:
http://militarypay.defense.gov/BlendedRetirement/
If you really want to dig into the details (with links to the law and the policies) then read the 31-page implementation document linked on the right-hand column:
http://militarypay.defense.gov/Portals/3/Documents/BlendedRetirementDocuments/FINAL_BRSImplementationGuidance.pdf?ver=2017-02-27-084532-740
Note that the website promises a comparison calculator "any day now". It's a few months overdue but milbloggers have been beta-testing it and the contractors are chasing down the last bugs.

The BRS decision is based more on how few servicemembers actually stay for at least 20 years (let's call the number 15%, although various sources quote 14%-19%). Instead of grinding through another decade for cliff-vesting at 20 in the current pension system, the BRS offers 5% matching contributions from DoD into your TSP account. If you do decide to leave the military before 20 then you'll have more in your TSP than under the current pension system.

I'm part of the DoD blogger roundtable group, and over the last few months we've answered just about every question on every edge case. You can get the basics from this post:
http://the-military-guide.com/new-military-blended-retirement-system/
and let me know if you have more questions.
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