PHD student (bro) needs help with financial planning

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Topic Author
sighchological
Posts: 186
Joined: Sat Feb 02, 2013 11:12 am

PHD student (bro) needs help with financial planning

Post by sighchological »

Hello,

I’m trying to help my brother and his wife do some financial planning. Would welcome any suggestions! Thanks in advance.
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Tax Filing Status: Married Filing Jointly
Tax Rate: 15% Federal, 4.63% % State
State of Residence: Colorado

Brother’s Age: 29, Wife’s Age: 29
Brother’s Occupation: PHD student (Literature), Wife’s Occupation: Speech Language Therapist
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Brother’s net income: $22K - student stipend (Salary may increase to gross $50K-$60K after PHD graduation in 4 years)
Wife’s net income: $42K (Planning to be a housewife and retain current job to work per diem)

Cash Flow: Lives frugally; saves around $30K a year.
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Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 20% - 30% of stocks
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Financial objectives:

1. Remain debt free. Provide for children's schooling (not sure yet if we're going to go the public school, charter school, private school, or homeschooling route)
2. Within the next 10 years, (maybe) purchase a house for around 200,000-250,000. Put as much cash down as possible.
3. Create a college fund for our future children (3+ kids) Have first child by 2019? Have three kids spaced out over the next 5-7 years, longer if 3+ kids.
4. Make yearly contributions to retirement.
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Current assets

Savings in Credit union: $71K

IRA, Mutual Funds and Stocks through Waddell & Reed Advisors: https://www.waddell.com

Mutual Funds: WADDELL & REED ADVISORS SCI & TECH A (622) (UNSCX), $4,573.87, ER: 1.27%
Stocks Account: TOCQUEVILLE GOLD FUND (TGLDX), $3,164.58,
Her Rollover IRA: IVY MID CAP INCOME OPPORTUNITIES A (IVOAX), $5,092.13

His Thrift Savings Plan (He does not work for the feds anymore)

$9,517.71 TSP

C Fund Common Stock Index, $3,993.35
S Fund Small Cap Stock Index, $3,767.79
I Fund International Stock Index, $1,756.57

Her 401K, no match, through http://www.principal.com:

$4,494.88

JP Morgan SmartRetirement 2055 I Fund, $2,703.14, ER: 1.06%
Principal Global Investors, LargeCap S&P 500 Index R5 Fund, $1,127.56, ER: 0.42%
Principal Global Investors, MidCap S&P 400 Index R5 Fund, $664.18, ER: 0.42%
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Available funds

Has access to 3 voluntary savings plans (403B/401K/457B), can contribute a combined total maximum of $36K: http://www.cu.edu/employee-services/vol ... ings-plans

457 has a contribution limit of $18K

403(b) and 401(k) has contribution limit of $18K

His 403b ( best funds) is through TIAA-Cref: https://www.tiaa.org/public/tcm/cu/inve ... ions/plan2
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His 403B funds:

Vanguard Institutional Target Retirement 2010-2055 ER: 0.09% to 0.10% depending on year
Vanguard Institutional Index Fund Institutional, ER: 0.04%
Vanguard Mid-Cap Index Fund Institutional, ER: 0.05%
Vanguard Small-Cap Index Fund Institutional, ER: 0.05% / 0.05%
Vanguard Total Bond Market Index Fund Institutional, ER: 0.04%
Vanguard Total International Stock Index Fund Institutional, ER: 0.09%
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Funds available in her 403(b)

JP Morgan Smart Retirement Income (retirement dates 2015-2060) JSRSX, ER: 0.77% to 1.06%

Oppenheimer International Bond Y Fund, OIBYX, ER: 0.80%
Prudential Total Return Bond, PDBZX, 0.55%

Principal Global Investors, LargeCap S&P 500 Index R5 Fund, $1,127.56, ER: 0.42%
Principal Global Investors, MidCap S&P 400 Index R5 Fund, $664.18, ER: 0.42%
SmallCap S&P 600 Index R5 Fund, PSSPX , ER: 0.42%

American Funds Europacific Growth A Fund, AEPGX, ER: 0.85%
Oppenheimer Developing Markets Y Fund, ODVYX, ER: 1.07%
Oppenheimer Global Y Fund, OGLYX, ER: 0.90%
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Plan: (my brother would rather put down as much cash toward the house as possible, but is open to investment suggestions. I am trying to convince him to at least max out their Roth IRA each year)

1) Liquidate Rollover IRA from Waddell and Reed to Vanguard.
2) Sell Stocks/Mutual Funds from Waddell and Reed.
3) Rearrange TSP Funds
4) Rearrange her 401K through principal.com
a. Transfer JP Morgan SmartRetirement 2055 I Fund to Principal Global Investors to LargeCap S&P 500 Index R5 Fund
b. Approximate stock market with Principal Global Investors Large/Mid/Small Cap
c. Stop future contributions to her 401K
5) Max out 2017 Roth IRA ($11K) and balance overall portfolio to match desired AA.
6) Savings are now $60K;
a. put $24K in brick and mortar bank (6 month’s e-fund)
b. $36K in Ally Bank or CD that is liquid enough for house purchase.
7) Continue to max out Roth IRA each year.
8) Obtain mortgage and put as large of a down payment as possible.
9) Start to invest in best 401K plan.
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Questions

1) How to liquidate the funds in Waddell and Reed (IRA Rollover, Mutual Funds, Stocks) so that it will be easy to transfer to Vanguard?
2) Are there any tax ramifications or penalties through Waddell and Reed for liquidating the funds?
3) What would you do with the TSP funds?
4) Since my brother would rather put as much cash down for the house as possible, where would you hold the cash?
5) Should my brother start contributing to a 529?
6) Would you suggest saving extra for future children OR lost of wife's income (future homemaker)?
7) Would you suggest purchasing term insurance (30 year?)
8) Any other suggestions?
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Topic Author
sighchological
Posts: 186
Joined: Sat Feb 02, 2013 11:12 am

Re: PHD student (bro) needs help with financial planning

Post by sighchological »

any suggestions?
student
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Re: PHD student (bro) needs help with financial planning

Post by student »

The academic job market is tough especially for areas such as literature. (I am assuming that he wants an academic position.) At this point, I think the priority is to have a good enough emergency fund (which they have) in case it takes a while to get a position. If he is a couple of years from graduation, I would say wait until he has a full time job to have a comprehensive plan but continue to be frugal.
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The529guy
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Re: PHD student (bro) needs help with financial planning

Post by The529guy »

First and foremost, I second the concern about career potential for a PhD student in literature. Is his ultimate goal an academic position? It's not hard to find depressing stories about the oversupply of Humanities PhDs who must cobble together a living as adjuncts, simultaneously teaching courses at different institutions for a few thousand bucks each. Would his wife stop working in that scenario?

Hopefully his program has an above-average track record at placing students on the market, but I would start thinking about alternative post-graduation careers. It's my understanding that one could have a much more lucrative career as a high school Language Arts teacher vs. getting jerked around as a contingent faculty member (without benefits) with increasingly dismal chances at tenure-track positions.
sighchological wrote:any suggestions?
1) How to liquidate the funds in Waddell and Reed (IRA Rollover, Mutual Funds, Stocks) so that it will be easy to transfer to Vanguard?
2) Are there any tax ramifications or penalties through Waddell and Reed for liquidating the funds?
3) What would you do with the TSP funds?
4) Since my brother would rather put as much cash down for the house as possible, where would you hold the cash?
5) Should my brother start contributing to a 529?
6) Would you suggest saving extra for future children OR lost of wife's income (future homemaker)?
7) Would you suggest purchasing term insurance (30 year?)
8) Any other suggestions?
Here's what I would do:
1. Why not transfer the IRA into the TSP?
2. No tax ramifications. Does Waddell and Reed have an account closure fee? If so, who cares? Dump them anyway.
3. Never close the TSP account. Put everything into the appropriate Lifecycle Fund.
4. Do they like their credit union? What's it paying? If the Roth IRAs will be at Vanguard, consider Vanguard Money Market Fund.
5. No.
6. Save for career uncertainty, retirement, and down payment.
7. Maybe wait until they have kids?
8. Other suggestions:
- Recommend that your brother figure this stuff out himself
- Open the TIAA-CREF 403(b) account so he'll hopefully always have access to TIAA Traditional Annuity (Retirement Choice Plus)
- I agree: stop using JP Morgan SmartRetirement 2055 I Fund in wife's 403(b)

You say they save around 30k per year:
- 11k to Roth IRAs
- 19k to taxable savings for down payment and/or university's 403(b) - what do they want to do?
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sighchological
Posts: 186
Joined: Sat Feb 02, 2013 11:12 am

Re: PHD student (bro) needs help with financial planning

Post by sighchological »

Thank you guys for the help.

Some other questions/statements:

1) Can the Sister in Law’s (SIL) transfer her IRA to my bro’s TSP even though the TSP is not a joint account?
a. Is this preferable to transferring the IRA to Vanguard?

2) Can the SIL do a in service rollover from her 401K to my bro’s TSP?
a. Is this preferable to transferring the 401K to Vanguard?

3) My brother will likely choose Life Cycle Fund L 2040. Would you continue 80/20 stock bonds in all his other accounts?

4) What’s the best way to liquidate the funds in Waddell and Reed (IRA Rollover, Mutual Funds, Stocks) so that it will be easy to transfer to Vanguard?

5) The credit union is only paying 0.2%.

6) If the Roth IRA’s are at Vanguard and they have an adequate e-fund, why would you suggest Vanguard Money Market?

7) Would you contribute to TIAA cref traditional instead of total bond market?
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Earl Lemongrab
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Re: PHD student (bro) needs help with financial planning

Post by Earl Lemongrab »

Retirement accounts are individual, you can't move your assets into one belonging to anyone else. Also, at her age the only potential in-service rollovers would be from after-tax or employer contributions. Employee deferrals (traditional) or Roth contributions are restricted by law from rollover until age 59-1/2 (if the plan allows) or leaving employment.
Last edited by Earl Lemongrab on Sun Jul 09, 2017 10:17 am, edited 1 time in total.
Big Dog
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Re: PHD student (bro) needs help with financial planning

Post by Big Dog »

Does Waddell and Reed have an account closure fee? If so, who cares? Dump them anyway.
Second this recommendation. And get out of gold and tech funds. Instead, look to Total Stock and Total Bond.
aristotelian
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Re: PHD student (bro) needs help with financial planning

Post by aristotelian »

Roth IRA is best bet while income is low. I second advice above to reconsider career choice and/or have a backup plan. Even students from top programs are going to struggle to get tenure track jobs. If he does get one it will probably take longer than he thinks. Wife being stay at home may not be realistic. More likely she will be breadwinner for a while. By far their income will determine their investment portfolio. That is what they need to concentrate on. In the meantime, build a nest egg of cash to draw down during career transition.
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The529guy
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Re: PHD student (bro) needs help with financial planning

Post by The529guy »

sighchological wrote:Thank you guys for the help.

Some other questions/statements:

1) Can the Sister in Law’s (SIL) transfer her IRA to my bro’s TSP even though the TSP is not a joint account? No, see Earl's post - retirement accounts are individual.
a. Is this preferable to transferring the IRA to Vanguard?

2) Can the SIL do a in service rollover from her 401K to my bro’s TSP? No, see Earl's post - retirement accounts are individual.
a. Is this preferable to transferring the 401K to Vanguard?

3) My brother will likely choose Life Cycle Fund L 2040. Would you continue 80/20 stock bonds in all his other accounts? Depends on his risk tolerance. This sounds reasonable.

4) What’s the best way to liquidate the funds in Waddell and Reed (IRA Rollover, Mutual Funds, Stocks) so that it will be easy to transfer to Vanguard? He can just transfer them "in-kind," meaning they don't have to be liquidated immediately. The funds and stocks are moved to the new accounts without a sale. It's not any more or less difficult to transfer that way (if desired).

5) The credit union is only paying 0.2%. See next comment.

6) If the Roth IRA’s are at Vanguard and they have an adequate e-fund, why would you suggest Vanguard Money Market?
As an alternative to the credit union, they can open a taxable account at Vanguard (in addition to Roth IRA accounts) to hold cash. As of today, Vanguard Prime Money Market Fund is paying 1.08% interest on cash.


7) Would you contribute to TIAA cref traditional instead of total bond market? Yes. (I use TIAA Traditional Account.)
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