Portfolio Questions - from a novice

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heatstroke
Posts: 6
Joined: Fri May 12, 2017 4:56 pm

Portfolio Questions - from a novice

Post by heatstroke » Wed May 17, 2017 8:02 pm

Hi, this is my first post. I am just starting to take control of my finances, recently read the White Coat Investor, Little Book of Common Sense Investing, Boglehead Guide to Investing. I still have a lot to learn and was debating whether or not should I should read some more before making concrete decisions with my portfolio but I will be eligible to contribute to my company's 401k in about 4 weeks. Any advice would be greatly appreciated, thank you in advance.


Emergency Funds: 20k with Ally
Debt: 150k, loan from parents with no interest
Tax Filling Status: Single
Tax Rate: 25% federal, 3.75% state
State of Residence: IL
Age: 32
Desire Asset Allocation: 90% Stocks, 10% bonds
Desired International Allocation: unsure

I just started a job and will be eligible to contribute my company's 401k starting in June. I plan to contribute the max of 18k for this year, I am bi-monthly and will only have 14 pay periods to do this. The company will match 3% of my total salary. Base salary is 70k and guessing the bonus will be around 30k.


Current Retirement Assets: ~80k, all non-taxable assets

401k (403b and 401a) - Fidelity
401a: ~9k
7% Fidelity 500 Index Fund (FXSIX) - 0.035%
2% Vanguard Developed Market Index Fund (VTMNX) - 0.06%
2% Fidelity Intermediate Treasury Bond Index Fund (FIBAX) - 0.09%
403b: ~21k
16% Fidelity 500 Index Fund (FXSIX) - 0.035%
5% Vanguard Developed Market Index Fund (VTMNX) - 0.06%
5% Fidelity Intermediate Treasury Bond Index Fund (FIBAX) - 0.09%

LPL ROTH IRA ~14k
4% Franklin Biotech (FBDIX) 0.98%
3% Franklin Total Return (FKBAX) 0.85%
3% Franklin Rising Dividends (FRDPX) 0.91%
3% Franklin Dynatech (FKDNX) 0.90%
2% Franklin Mutual Global Discovery (TEDIX) 1.23%
1% Franklin Equity Income (FISEX) 0.87%

LPL Traditional IRA ~2k
3% Restaurant Brands (QSR)

Vanguard ROTH IRA ~33k
41% Vanguard 500 Index Fund Admiral Class (VFIAX)


New Annual Contributions
18k for 401k (plus 2.1K company match))
5.5k for Vanguard ROTH IRA (already contributed for 2017)


Available Funds

Funds available in 401k with the new company, using John Hancock
500 Index Fund (JFIVX) 1.00%
Active Bond Fund (JIADX) 1.15%
All Cap Core Fund (JEACX) 1.34%
American Balanced Fund (RLBEX) 1.25%
American Funds 2010 Target Date Retirement Fund (REATX) 1.33%
American Funds 2015 Target Date Retirement Fund (REJTX) 1.33%
American Funds 2020 Target Date Retirement Fund (RECTX) 1.34%
American Funds 2025 Target Date Retirement Fund (REDTX) 1.36%
American Funds 2030 Target Date Retirement Fund (REETX) 1.37%
American Funds 2035 Target Date Retirement Fund (REFTX) 1.39%
American Funds 2040 Target Date Retirement Fund (REGTX) 1.39%
American Funds 2045 Target Date Retirement Fund (REHTX) 1.41%
American Funds 2050 Target Date Retirement Fund (REITX) 1.41%
American Funds 2055 Target Date Retirement Fund (REKTX) 1.44%
American Funds 2060 Target Date Retirement Fund (REMTX) 1.44%
Blue Chip Growth Fund (JIBCX) 1.33%
Capital Appreciation Fund (JICPX) 1.25%
Capital Income Builder (RIREX) 1.26%
Capital World Bond Fund (RCWFX) 1.51%
Capital World Growth and Income Fund (RWIFX) 1.41%
Core Bond Fund (JICDX) 1.16%
Equity Income Fund (JIEMX) 1.31%
EuroPacific Growth Fund (RERFX) 1.46%
Fidelity Advisor Total Bond Fund (FEPIX) 1.22%
Financial Industries Fund (JEFSX) 1.54%
Franklin Founding Funds Allocation Fund (FFAAX) 1.47%
Fundamental All Cap Core Fund (JEOAX) 1.23%
Fundamental Investors (RFNFX) 1.27%
Fundamental Large Cap Value Fund (JHVIT) 1.18%
Global Bond Fund (JIGDX) 1.30%
High Yield Fund (JIHDX) 1.24%
International Equity Index Fund (JIEQX) 1.09%
International Small Cap Fund (JIIMX) 1.54%
International Value Fund (JIVIX) 1.37%
Invesco International Growth Fund (AIEVX) 1.60%
Investment Quality Bond Fund (JIQBX) 1.15%
JH Lifestyle Aggressive (JILAX) 1.48%
JH Lifestyle Balanced (JILBX) 1.42%
JH Lifestyle Conservative (JILCX) 1.34%
JH Lifestyle Growth (JILGX) 1.45%
JH Lifestyle Moderate (JILMX) 1.36%
JH Retirement through 2010 (JLAOX) 1.34%
JH Retirement through 2015(JLBOX) 1.34%
JH Retirement through 2020 (JLDOX) 1.33%
JH Retirement through 2025 (JLEOX) 1.33%
JH Retirement through 2030(JLFOX) 1.34%
JH Retirement through 2035 (JLHOX) 1.34%
JH Retirement through 2040 (JLIOX) 1.34%
JH Retirement through 2045(JLJOX) 1.34%
JH Retirement through 2050 (JLKOX) 1.36%
JH Retirement through 2055(JLKUX) 1.36%
JH Retirement through 2060 (JRETX) 1.36%
John Hancock Disciplined Value International Fund (JDIUX) 1.47%
JP Morgan US Equity Fund (JUSRX) 1.33%
Lifestyle Fund - Balanced (JILBX) 1.42%
Lifestyle Fund - Conservative (JILCX) 1.36%
Lifestyle Fund - Growth (JILGX) 1.45%
Lifestyle Fund - Moderate (JILMX) 1.36%
Mid Cap Index Fund (JECIX) 1.03%
Mid Cap Stock Fund (JIMSX) 1.38%
Mid Value Fund (JEMUX) 1.53%
Money Market Fund (JHOXX) 1.00%
Natural Resources Fund (JINRX) 1.46%
New Opportunities Fund (JISOX) 1.31%
New Perspective Fund (RNPFX) 1.42%
New World Fund (RNWFX) 1.62%
Real Estate Securities Fund (JIREX) 1.26%
Real Return Bond Fund (JIRRX) 1.27%
Science & Technology Fund (JESTX) 1.60%
Small Cap Growth Fund (JESGX) 1.61%
Small Cap Index Fund (JESIX) 1.05%
Small Cap Value Fund (JESVX) 1.64%
Small Company Value Fund (JISVX) 1.75%
SMALLCAP World Fund (RSLFX) 1.69%
Strategic Income Opportunities Fund (JESNX) 1.22%
The Growth Fund of America (RGAEX) 1.30%
The Income Fund of America (RIDFX) 1.25%
The Investment Company of America (RICEX) 1.26%
Total Bond Market Fund (JTBMX) 1.03%
Total Stock Market Index Fund (JETSX) 1.05%
US Government Securities Fund (RGVEX) 1.24%
US Growth Fund (JHUPX) 1.31%
US High Yield Bond Fund (JIHLX) 1.30%
Utilities Fund (JEUTX) 1.39%
Value Fund (JEVLX) 1.36%
Vanguard Energy Fund (VGELX) 1.28%
Vanguard Growth Index Fund (VIGAX) 1.05%
Vanguard Mid-cap growth ETF (VOT) 1.11%
Vanguard Mid-cap value ETF (VOE) 1.11%
Vanguard Short-Term Federal Fund (VSGDX) 1.07%
Vanguard Small Cap Growth Index Fund (VSGAX) 1.05%
Vanguard Small Cap Value Index Fund (VSIAX) 1.05%
Vanguard Target Retirement 2010 (VTENX) 1.11%
Vanguard Target Retirement 2015 (VTXVX) 1.11%
Vanguard Target Retirement 2020 (VTWNX) 1.11%
Vanguard Target Retirement 2025 (VTTVX) 1.12%
Vanguard Target Retirement 2030 (VTHRX) 1.12%
Vanguard Target Retirement 2035 (VTTHX) 1.12%
Vanguard Target Retirement 2040 (VFORX) 1.13%
Vanguard Target Retirement 2045 (VTIVX) 1.13%
Vanguard Target Retirement 2050 (VFIFX) 1.13%
Vanguard Target Retirement 2055 (VFFVX) 1.13%
Vanguard Target Retirement 2060 (VTTSX) 1.13%
Vanguard Target Retirement Income (VTINX) 1.11%
Vanguard Value Index Fund (VVIAX) 1.05%
Washington Mutual Investors Fund (RWMFX) 1.27%


Funds available in 401k with Fidelity
Large Cap
Fidelity® 500 Index Fund (FXSIX) .035%
Fidelity® Contrafund® - Class K (FCNKX) 0.58%
Invesco Diversified Dividend Fund Class R6 (LCEFX) 0.42%
Parnassus Core Equity Fund - Institutional Shares (PRILX) 0.66%

Midcap
Fidelity® Extended Market Index Fund - Premium Class (FSEVX) 0.07%
Fidelity® Low-Priced Stock Fund - Class K (FLPKX) 0.78%

Smallcap
Columbia Small Cap Index Fund Class Z (NMSCX) 0.2%
JPMorgan U.S. Small Company Fund Class R6 (JUSMX) 0.75%

International
American Funds EuroPacific Growth Fund® Class R-6 (RERGX) 0.5%
Lazard Emerging Markets Equity Portfolio Institutional Shares (LZEMX) 1.09%
Vanguard Developed Markets Index Fund Institutional Shares (VTMNX) 0.06%

Specialty
Cohen & Steers Institutional Realty Shares (CSRIX) 0.75%
Fidelity® Real Estate Index Fund - Premium Class (FSRVX) 0.09%

Blended Investments
Fidelity Freedom K® 2005 Fund (FFKVX) 0.49%
Fidelity Freedom K® 2010 Fund (FFKCX) 0.53%
Fidelity Freedom K® 2015 Fund (FKVFX) 0.56%
Fidelity Freedom K® 2020 Fund (FFKDX) 0.58%
Fidelity Freedom K® 2030 Fund (FFKEX) 0.65%
Fidelity Freedom K® 2040 Fund (FFKFX) 0.67%
Fidelity Freedom K® 2050 Fund (FFKHX) 0.67%
Fidelity Freedom K® 2060 Fund (FDKNX) 0.67%
Fidelity Freedom K® Income Fund (FFKAX) 0.44%

Income
Fidelity® High Income Fund (SPHIX) 0.73%
Fidelity® Inflation-Protected Bond Fund (FINPX) 0.45%
Fidelity® Intermediate Treasury Bond Index Fund - Premium Class (FIBAX) 0.09%
Fidelity® Long-Term Treasury Bond Index Fund - Premium Class (FLBAX) 0.09%
Fidelity® Total Bond Fund (FTBFX) 0.45%
Fidelity® U.S. Bond Index Fund - Premium Class (FSITX) 0.05%
Templeton Global Bond Fund Class R6 (FBNRX) 0.58%
Fidelity® Treasury Only Money Market Fund (FDLXX) 0.42%


Questions:
1. I owe my parents 150k. They helped me pay off my school loans. They are not charging me any interest and keep insisting that I should prioritize saving money rather than pay them back. I am living at home to further save money. I currently have no other expenses besides the 150k I owe my parents. I am estimating a 30k bonus at work. My plan is to pay my parents back 30k a year and pay back the debt in 5 years. Should I take their word and stretch out my payment schedule over more than 5 years? I would be able to use that extra money for a taxable account, if I were to go that a route would it be better to contribute to a traditional IRA or should I do a backdoor ROTH? I expect to be in a higher tax bracket in the next couple of years.

2. My company uses John Hancock for their 401k. I don't love the expense ratios and there is also a 0.55% pro-rata basis for record keeping services. I am leaning towards using Vanguard Retirement Fund 2050 which has a high expense ratio of 1.13%. Does the pro-rata basis fee make the total expense ratio 1.68% in addition to whatever other hidden fees JH is known for having? Are the fees too high where I should not make the 18k contribution to it? I don't know how to do those calculations to make that determination.

3. If I contribute to the 401k and select the Vanguard Retirement Fund, would I need to convert my Vanguard ROTH IRA (currently VFIAX) to the same Vanguard Retirement Fund? Would I need to change my Fidelity and LPL holdings to be in line with the Vanguard Retirement Fund as well?

3. Should I leave my old 401k with Fidelity or roll it over to Vanguard? I really like the expense ratios with Fidelity. I don't like the idea of not being able to make any contributions to it. I was thinking about having it rolled over to a Vanguard Traditional IRA. If I were to do that, I was thinking about doing a backdoor conversion to a ROTH. Does that sound like a good idea?

4. My holdings with LPL are being managed by my dad. I anticipate moving both the ROTH IRA and Traditional IRA to Vanguard.

I know my questions are kind of all of the place. I would like to simplify my portfolio by having everything with Vanguard if possible and ideally consolidate everything to a Target Retirement Fund. I have been reading some of the other posts and they mention transitioning out of a Target Retirement Fund once the portfolio reaches a certain size. What is the thinking behind that?

Thank you again in advance for the help. This forum and the Bogle (Bogleheads) books have been invaluable.

mhalley
Posts: 5135
Joined: Tue Nov 20, 2007 6:02 am

Re: Portfolio Questions - from a novice

Post by mhalley » Thu May 18, 2017 2:20 pm

Dave Ramsey says dinner tastes different when eating at your debtors table and I tend to agree. I would pay the loan asap. I would take advantage of backdoor Roth before your income goes up.
Look at your portfolio as a whole, having different assets in different accounts is fine as long as the total aa is what you desire. The wiki states 401k are worthwhile to an er of 1.7%. That is cutting it close, but you might not be at the bad 401k forever.
Fidelity, schwab and vanguard are all fine. That being said, rolling a 401k to an Ira would eliminate the ability to do backdoor roths, so I would keep it at the fidelity 401k.
People transition out of tr funds at higher levels to decrease er fees. Tr funds do not have an admiral class. Tr runs about .16, total stock market admiral is .04, total intl .11, total bond .05.
https://www.bogleheads.org/wiki/401(k)
You might just go with the cheapest 401k choices since the tr funds are so expensive (total stock market) and make up the rest in your roths. Roll that small trad Ira into a Roth and away from the high fees.
The total fees are rquired to be disclosed. http://www.moneycrashers.com/calculate- ... 5-minutes/

User avatar
Duckie
Posts: 5082
Joined: Thu Mar 08, 2007 2:55 pm

Re: Portfolio Questions - from a novice

Post by Duckie » Thu May 18, 2017 5:18 pm

heatstroke, welcome to the forum.
heatstroke wrote:Age: 32
Desire Asset Allocation: 90% Stocks, 10% bonds
I'd bump this up to 20% bonds.
Desired International Allocation: unsure
Vanguard has found between 20% and 40% of stocks in international to be the "sweet spot". See the Vanguard paper link and the discussion. I usually split the difference and recommend 30% of stocks. So if you have 90% stocks that would 27% international stocks. If you have 80% stocks that would 24% international.
LPL ROTH IRA ~14k
<snip>
LPL Traditional IRA ~2k
<snip
Vanguard ROTH IRA ~33k
I would roll both LPL IRAs over to Vanguard for much cheaper options and convert the TIRA to a Roth IRA. This would a normal conversion, not the backdoor version you've mentioned.
Funds available in 401k with the new company, using John Hancock
The best options are:
  • Total Stock Market Index Fund (JETSX) 1.05% -- Complete US stocks
  • International Equity Index Fund (JIEQX) 1.09% -- Almost complete international stocks
  • Total Bond Market Fund (JTBMX) 1.03% -- US bonds
  • or the Vanguard Target Retirement fund that come closest to your AA
Funds available in 401k with Fidelity
The best options are:
  • Fidelity 500 Index (FXSIX) .035% -- Large caps, 80% of US stocks
  • Fidelity Extended Market Index (FSEVX) 0.07% -- Mid/small caps, 20% of US stocks
  • Fidelity® Real Estate Index (FSRVX) 0.09% -- US REITs
  • Vanguard Developed Markets Index (VTMNX) 0.06% -- Developed markets, 80% of international stocks
  • Fidelity U.S. Bond Index (FSITX) 0.05% -- US bonds
My plan is to pay my parents back 30k a year and pay back the debt in 5 years. Should I take their word and stretch out my payment schedule over more than 5 years?
No. They are you parents and they love you. But you owe them and you can afford to pay them, so pay it off in the planned five years.
My company uses John Hancock for their 401k. I don't love the expense ratios and there is also a 0.55% pro-rata basis for record keeping services. I am leaning towards using Vanguard Retirement Fund 2050 which has a high expense ratio of 1.13%. Does the pro-rata basis fee make the total expense ratio 1.68% in addition to whatever other hidden fees JH is known for having?
Yes.
Are the fees too high where I should not make the 18k contribution to it?
No. Even with the extra fee it's still worth contributing to the max, especially since you get a match.
If I contribute to the 401k and select the Vanguard Retirement Fund, would I need to convert my Vanguard ROTH IRA (currently VFIAX) to the same Vanguard Retirement Fund? Would I need to change my Fidelity and LPL holdings to be in line with the Vanguard Retirement Fund as well?
If you choose the target-date fund (and I don't recommend it) then to make things easier you could put the other tax-sheltered assets in a target-date fund also. But since the Fidelity t-d funds are more costly than the individual funds, I wouldn't. In fact, I'd use individual funds in all accounts.
Should I leave my old 401k with Fidelity or roll it over to Vanguard? I really like the expense ratios with Fidelity. I don't like the idea of not being able to make any contributions to it. I was thinking about having it rolled over to a Vanguard Traditional IRA. If I were to do that, I was thinking about doing a backdoor conversion to a ROTH. Does that sound like a good idea?
You wrote that your income is going up soon. For 2017, as long as your taxable income is below $118K you can contribute directly to a Roth IRA. If you're going to be above that limit soon then rolling your old Fidelity 401k into a Rollover IRA will get in the way of the Backdoor Roth IRA method because of the pro-rata rule. If you choose to convert the $30K to a Roth IRA you'll take a big tax hit. Are you sure you want to do that? And you don't want to roll it to your new plan because of the high costs.
My holdings with LPL are being managed by my dad. I anticipate moving both the ROTH IRA and Traditional IRA to Vanguard.
Good.
I have been reading some of the other posts and they mention transitioning out of a Target Retirement Fund once the portfolio reaches a certain size. What is the thinking behind that?
At Vanguard, the target-date funds use Investor Class shares of their components no matter how high the account value. But if you buy the individual funds, when your account value gets high enough you can buy Admiral Class shares which are cheaper.

EdLaFave
Posts: 266
Joined: Fri Dec 26, 2014 2:31 am

Re: Portfolio Questions - from a novice

Post by EdLaFave » Thu May 18, 2017 5:48 pm

Few things...

1.) I'd exchange the investments in the IRAs for low cost, total market, index funds.

2.) That new 401k isn't great. I'd look at the 500 Index, total bond, total stock, and the vanguard target date funds closely.

3.) I'd strongly consider rolling over the old 401k to an IRA so you can take advantage of better fund selection and lower fees. The only possible con (that I'm aware of) to this approach is that it may make a backdoor roth less appealing in the future.

To answer your questions...

1.) Nothing to add here.

2.) I've read that when expenses get around 2% it is an indication that you're better off in taxable. Also, consider the fact that you may not be at this employer for long...that makes paying high fees easier to swallow because you can quickly roll it over to a low cost IRA.

3.) You won't need to do those things BECAUSE you bought Vanguard in the 401k...but as I suggested it makes sense to adjust the IRAs. Remember to think of your entire portfolio as a whole, not just individual accounts.

4.) Awesome! The LPL IRA's fees are very high!

...target retirement date funds have higher expenses than if you owned the individual market funds yourself. If we're talking about tax advantaged accounts then the main reason to have a target date retirement fund is if you want the simplest portfolio imaginable (1 fund you consistently reinvest in and re-balancing is done for you). I don't mind the small bit of extra complexity so I don't use target date funds, my wife wants it as simple as possible so she does.

heatstroke
Posts: 6
Joined: Fri May 12, 2017 4:56 pm

Re: Portfolio Questions - from a novice

Post by heatstroke » Thu May 18, 2017 10:20 pm

mhalley wrote:Dave Ramsey says dinner tastes different when eating at your debtors table and I tend to agree. I would pay the loan asap.
This is a good perspective. I would like to do this sooner rather than later. Ideally in 3 years but more realistically in 5 years.

I would take advantage of backdoor Roth before your income goes up.
Look at your portfolio as a whole, having different assets in different accounts is fine as long as the total aa is what you desire. The wiki states 401k are worthwhile to an er of 1.7%. That is cutting it close, but you might not be at the bad 401k forever.
Fidelity, schwab and vanguard are all fine. That being said, rolling a 401k to an Ira would eliminate the ability to do backdoor roths, so I would keep it at the fidelity 401k.
This is a good reminder. I tend to look at my portfolio as individual components rather than as a whole.

People transition out of tr funds at higher levels to decrease er fees. Tr funds do not have an admiral class. Tr runs about .16, total stock market admiral is .04, total intl .11, total bond .05.
Ok, this makes sense.

https://www.bogleheads.org/wiki/401(k)
You might just go with the cheapest 401k choices since the tr funds are so expensive (total stock market) and make up the rest in your roths. Roll that small trad Ira into a Roth and away from the high fees.
The total fees are rquired to be disclosed. http://www.moneycrashers.com/calculate- ... 5-minutes/
I am looking closer at the 500 Index, Total Stock, and Total Bond Funds. Thank you for that moneycrashers link, I have it bookmarked for future reference.

Thank you for your post mhalley and for taking the time to respond.
Last edited by heatstroke on Thu May 18, 2017 10:59 pm, edited 2 times in total.

heatstroke
Posts: 6
Joined: Fri May 12, 2017 4:56 pm

Re: Portfolio Questions - from a novice

Post by heatstroke » Thu May 18, 2017 10:53 pm

Duckie wrote:I'd bump this up to 20% bonds.
I am not dead set on the 90/10 ratio, I have not been through a Bear Market yet so this is just an educated guess for now. I would like to think that with 30+ years until retirement that I would be able see it through but I am not sure.

Desired International Allocation: unsure
Thanks for those links, I will check those out.

LPL ROTH IRA ~14k
<snip>
LPL Traditional IRA ~2k
<snip
Vanguard ROTH IRA ~33k
Yes, I agree with all of this. Not a huge fan of the LPL options.

The best options are:
Total Stock Market Index Fund (JETSX) 1.05% -- Complete US stocks
International Equity Index Fund (JIEQX) 1.09% -- Almost complete international stocks
Total Bond Market Fund (JTBMX) 1.03% -- US bonds
or the Vanguard Target Retirement fund that come closest to your AA
What about the 500 Index Fund (JFIVX)? Given the 1.13% with the Vanguard Target Retirement Fund, I think I am leaning towards JETSX and JTBMX.

My company uses John Hancock for their 401k. I don't love the expense ratios and there is also a 0.55% pro-rata basis for record keeping services. I am leaning towards using Vanguard Retirement Fund 2050 which has a high expense ratio of 1.13%. Does the pro-rata basis fee make the total expense ratio 1.68% in addition to whatever other hidden fees JH is known for having?
I know my company just switched to John Hancock this year, I will need to ask which company they used in the past. It is a very small company, less than 10 employees. I keep seeing Employee Fiduciary's name pop up, I will need to read up on it a little more to see if that might be an option.

Are the fees too high where I should not make the 18k contribution to it?
Right, I might be overthinking it. I don't know how long I will be with this company and there is a chance that they won't keep using John Hancock.

If you choose the target-date fund (and I don't recommend it) then to make things easier you could put the other tax-sheltered assets in a target-date fund also. But since the Fidelity t-d funds are more costly than the individual funds, I wouldn't. In fact, I'd use individual funds in all accounts.
I really love those expense ratios in the Fidelity Account. Like I mentioned before, I tend to lose sight of looking at my portfolio as a whole. Maintaining my preferred AA over my entire portfolio is the goal, not just in individual accounts.

You wrote that your income is going up soon. For 2017, as long as your taxable income is below $118K you can contribute directly to a Roth IRA. If you're going to be above that limit soon then rolling your old Fidelity 401k into a Rollover IRA will get in the way of the Backdoor Roth IRA method because of the pro-rata rule. If you choose to convert the $30K to a Roth IRA you'll take a big tax hit. Are you sure you want to do that? And you don't want to roll it to your new plan because of the high costs.
Right, I already contributed to a Roth IRA for 2017 because I don't anticipate being over $118k. Does it make sense rolling over my old Fidelity 401k into a Traditional IRA with Vanguard? I don't know how important it is but I don't like the idea of not being able to contribute to the Fidelity 401k anymore. In the future, I anticipate being over the Roth IRA income limit so I would be able to contribute to the Traditional IRA (old Fidelity 401k if rolled over). Is that logical?

At Vanguard, the target-date funds use Investor Class shares of their components no matter how high the account value. But if you buy the individual funds, when your account value gets high enough you can buy Admiral Class shares which are cheaper.
That makes it very clear. Thank you Duckie for taking the time to reply to my post.

heatstroke
Posts: 6
Joined: Fri May 12, 2017 4:56 pm

Re: Portfolio Questions - from a novice

Post by heatstroke » Thu May 18, 2017 11:20 pm

EdLaFave wrote:1.) I'd exchange the investments in the IRAs for low cost, total market, index funds.
Are you referring to the LPL account? If you are, we are both on the same page.
2.) That new 401k isn't great. I'd look at the 500 Index, total bond, total stock, and the vanguard target date funds closely.
We are also on the same page for this. There is 0.13% difference between the 500 Index and the Vanguard Target Date 2050 fund and 0.08% difference between the Total Stock and VTD 2050. Does that push it over the edge for either the 500 Index or Total Stock?

3.) I'd strongly consider rolling over the old 401k to an IRA so you can take advantage of better fund selection and lower fees. The only possible con (that I'm aware of) to this approach is that it may make a backdoor roth less appealing in the future.
The fees bother me less than not being able to contribute money to that account anymore. I was thinking about rolling the old Fidelity 401k over to a Traditional IRA with Vanguard. I anticipate being over the income limit for a Roth IRA contribution next year but I would be able to contribute to the Traditional IRA (old Fidelity 401k) next year if I wanted to. Is that a good enough reason to rollover the old Fidelity 401k to a Traditional IRA with Vanguard?

To answer your questions...

1.) Nothing to add here.

2.) I've read that when expenses get around 2% it is an indication that you're better off in taxable. Also, consider the fact that you may not be at this employer for long...that makes paying high fees easier to swallow because you can quickly roll it over to a low cost IRA.

3.) You won't need to do those things BECAUSE you bought Vanguard in the 401k...but as I suggested it makes sense to adjust the IRAs. Remember to think of your entire portfolio as a whole, not just individual accounts.

4.) Awesome! The LPL IRA's fees are very high!

...target retirement date funds have higher expenses than if you owned the individual market funds yourself. If we're talking about tax advantaged accounts then the main reason to have a target date retirement fund is if you want the simplest portfolio imaginable (1 fund you consistently reinvest in and re-balancing is done for you). I don't mind the small bit of extra complexity so I don't use target date funds, my wife wants it as simple as possible so she does
This point is constantly being reinforced, looking at my portfolio as a whole, and is a very helpful reminder. I like the simplicity of a Target Date Retirement Fund but the more I think about it, I am not opposed to rebalancing yearly as needed.

Thanks for your post EdLaFave, I appreciate you taking the time to reply.

User avatar
Duckie
Posts: 5082
Joined: Thu Mar 08, 2007 2:55 pm

Re: Portfolio Questions - from a novice

Post by Duckie » Fri May 19, 2017 2:26 pm

heatstroke wrote:
Duckie wrote:The best options are:
Total Stock Market Index Fund (JETSX) 1.05% -- Complete US stocks
What about the 500 Index Fund (JFIVX)?
I prefer Total Stock Market to 500 Index because TSM contains the missing mid/small caps and is more diversified.
Does it make sense rolling over my old Fidelity 401k into a Traditional IRA with Vanguard?
No. You expect your income to rise soon to a point you can't contribute to a Roth IRA directly. If you roll the $30K to a Rollover IRA that will get in the way of the backdoor method. You have excellent options at the old 401k. So I see three choices:
  1. Roll the old Fidelity 401k to a Rollover IRA at Vanguard and once your income is too high to contribute to your Roth IRA, just don't contribute.
  2. Roll the old Fidelity 401k to a Rollover IRA at Vanguard and convert it all to your Roth IRA. This will result in a major tax hit but will allow for future backdoor Roth IRA contributions.
  3. Leave the old Fidelity 401k where it is. This avoids a tax hit and allows for future backdoor Roth IRA contributions.
I recommend #3.

heatstroke
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Joined: Fri May 12, 2017 4:56 pm

Re: Portfolio Questions - from a novice

Post by heatstroke » Sat May 20, 2017 8:13 pm

No. You expect your income to rise soon to a point you can't contribute to a Roth IRA directly. If you roll the $30K to a Rollover IRA that will get in the way of the backdoor method. You have excellent options at the old 401k. So I see three choices:
Roll the old Fidelity 401k to a Rollover IRA at Vanguard and once your income is too high to contribute to your Roth IRA, just don't contribute.
Roll the old Fidelity 401k to a Rollover IRA at Vanguard and convert it all to your Roth IRA. This will result in a major tax hit but will allow for future backdoor Roth IRA contributions.
Leave the old Fidelity 401k where it is. This avoids a tax hit and allows for future backdoor Roth IRA contributions.
I recommend #3.
I have a questions In regards to the first option. If I rollover the old Fidelity 401k into a Traditional IRA with Vanguard, would I be able to contribute to it in the future if my income is too high for a Roth? I like the option of being able to make contributions to this Traditional IRA account in the future. There shouldn't be any tax implications from moving over the old Fidelity 401k to a Traditional IRA with Vanguard. The main issues are whether I want the account with Fidelity or Vanguard and the ability to make future contributions. The ability to make future contributions to the Traditional IRA with Vanguard is what has me leaning towards moving the account to Vanguard.

Thanks Duckie.

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Duckie
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Joined: Thu Mar 08, 2007 2:55 pm

Re: Portfolio Questions - from a novice

Post by Duckie » Sun May 21, 2017 4:26 pm

heatstroke wrote:If I rollover the old Fidelity 401k into a Traditional IRA with Vanguard, would I be able to contribute to it in the future if my income is too high for a Roth? I like the option of being able to make contributions to this Traditional IRA account in the future. There shouldn't be any tax implications from moving over the old Fidelity 401k to a Traditional IRA with Vanguard. The main issues are whether I want the account with Fidelity or Vanguard and the ability to make future contributions.
If you roll the old Fidelity 401k over to an IRA at either Fidelity or Vanguard it will probably be titled as a "Rollover IRA" but will treated the same as a Traditional IRA for tax purposes. Yes, you would be allowed to make contributions to this IRA if you wanted to. But because IRAs titled "Rollover" have a couple of advantages, and mixing the employee rollover with current contributions could mess up those advantages, you might be better off contributing to a separate TIRA.

The two main advantages of rollovers that are not commingled are:
  1. Greater bankruptcy protection.
  2. If you ever want to roll the IRA back to an employer plan (aka reverse rollover), some plans not only won't take an IRA not titled "Rollover" but also won't take it if there are any commingled contributions (although I don't know how they'd know). The IRS doesn't care, but some persnickety plans follow old rules. See Alan S.'s post.
Also, you have a current 401k, and if you make too much to contribute to a Roth IRA you also make too much to make a deductible TIRA contribution. You can make a non-deductible contribution but you'll have to file Form 8606 every year to track the basis. If you don't, you'll end up paying taxes on money on which you've already paid taxes.

heatstroke
Posts: 6
Joined: Fri May 12, 2017 4:56 pm

Re: Portfolio Questions - from a novice

Post by heatstroke » Tue May 23, 2017 11:02 pm

Duckie wrote:
If you roll the old Fidelity 401k over to an IRA at either Fidelity or Vanguard it will probably be titled as a "Rollover IRA" but will treated the same as a Traditional IRA for tax purposes. Yes, you would be allowed to make contributions to this IRA if you wanted to. But because IRAs titled "Rollover" have a couple of advantages, and mixing the employee rollover with current contributions could mess up those advantages, you might be better off contributing to a separate TIRA.

The two main advantages of rollovers that are not commingled are:
Greater bankruptcy protection.
If you ever want to roll the IRA back to an employer plan (aka reverse rollover), some plans not only won't take an IRA not titled "Rollover" but also won't take it if there are any commingled contributions (although I don't know how they'd know). The IRS doesn't care, but some persnickety plans follow old rules. See Alan S.'s post.
Also, you have a current 401k, and if you make too much to contribute to a Roth IRA you also make too much to make a deductible TIRA contribution. You can make a non-deductible contribution but you'll have to file Form 8606 every year to track the basis. If you don't, you'll end up paying taxes on money on which you've already paid taxes.

That was very helpful, thanks Duckie.

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