Newbie and New Parent: Help w/ Retirement and 529

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AndyFromPennsylvania
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Joined: Sun Jul 16, 2017 6:15 pm

Newbie and New Parent: Help w/ Retirement and 529

Postby AndyFromPennsylvania » Sun Jul 16, 2017 9:34 pm

Hey Bogleheads! This is my first post. I apologize ahead of time if my etiquette is lacking. Trying to learn/develop a plan for retirement as well as start saving for college. My wife and I are new homeowners and new parents as of this year. Knowing very little about investing and when the June 2016 Brexit happened, I listened to all the noise, got scared and pulled all my investments into cash. Just a few days ago and I went through some of the "getting started" information on here and have decided to "jump into" a forum discussion to seek some guidance.

In short, looking for help on how to structure/allocate my retirement portfolio and how I should go about thinking about a 529 or education saving account. Does it make sense to start a college saving account, or is there another option worth considering? Thank you in advance.

Emergency Funds: $20,000 (6 months) @ 1.15% @ Ally bank
Debt:
1. Mortgage: $139,800 @ 4.125%, 30-yr loan, new home owners in 2017
2. Car: $10,600 @ 2.5%
3. School Loans: $26,000, interest free, $425/month minimum payment
4. Credit Cards: $0 debt, pay off each month.
Tax Filing Status: Married Filing Jointly, brand new parents this year, have 1 child dependent.
Tax Rate: 25% Federal, 3.07% State
State of Residence: Pennsylvania
Age: Me 31, Wife 25
Desired Asset Allocation: 65% stocks ? / 35% bonds ?
Desired International Allocation: 20-40% ?

His 401k (Prudential): $53,900 (Pru Stable Value FD 15 (STV15))
His Roth IRA (Vanguard): $29,600 (Federal Money Market (VMFXX))
Her Roth IRA (Vanguard): $8,500 (Federal Money Market (VMFXX))
Joint (Taxable) Brokerage (Vanguard): $0
Have $7,000 to invest.

His 401k (Prudential)
Fund Name Ticker Expense Ratio
Stable Value
PRU Stable Value FD 15 STV15 0.15%
Fixed Income Intermediate Bond
Prudential Total Return Bond Q PTRQX 0.43%
Balanced Target Date
Vanguard 2010 VTENX 0.13%
Vanguard 2015 VTXVX 0.14%
Vanguard 2020 VTWNX 0.14%
Vanguard 2025 VTTVX 0.14%
Vanguard 2030 VTHRX 0.15%
Vanguard 2035 VTTHX 0.15%
Vanguard 2040 VFORX 0.16%
Vanguard 2045 VTIVX 0.16%
Vanguard 2050 VFIFX 0.16%
Vanguard 2055 VFFVX 0.16%
Vanguard 2060 VTTSX 0.16%
Balanced Growth
Fidelity Puritan FPURX 0.56%
Balanced Specialty
Vanguard Target Retirement VTINX 0.13%
Large Cap Stock Value
Robeco BP Large Cap Value Equity Fund ??? 0.57%
Large Cap Stock Blend
Parnassus Core Equity Investor PRBLX 0.87%
Vanguard Institutional Index VINIX 0.04%
Large Cap Stock Growth
Fidelity Contrafund FCNTX 0.68%
Mid Cap Stock Value
JHancock Disciplined Value Mid Cap R6 JVMRX 0.77%
Mid Cap Stock Growth
Mid Cap Growth/Artisan Partners Fund ??? 0.77%

End of Post.

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prudent
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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby prudent » Mon Jul 17, 2017 11:27 am

Bump for a new member.

mortfree
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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby mortfree » Mon Jul 17, 2017 11:50 am

everything was looking good until I saw both Roth accounts in a money market fund and saw the Brexit remark...

anyways, it appears lesson learned.

for both Roth accounts,

have they been maxed for 2017?

Research Vanguard Lifestrategy Moderate Growth Fund (VSMGX min 3k; international exposure) or Vanguard Balanced Index Fund (VBIAX min 10k; or VBINX min 3k; no international).

Then there is always Wellesley or Wellington...

Since this is the Roth, you want tax inefficient funds, so that is why I am not listing Total US Stock (VTSAX/VTI).

I didn't bother with a 529 at this time - too many rules and restrictions for my liking.

I'm not sure you need to worry about a taxable investment account at this point.

Do you have an HSA?

Do you have term life insurance for you? for your wife?

mcraepat9
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Joined: Thu Jul 16, 2015 11:46 am

Re: Newbie and New Parent: Help w/ Retirement and 529

Postby mcraepat9 » Mon Jul 17, 2017 12:08 pm

The Brexit move I think signals an urgent need to get a well thought out investment plan in place to prevent those types of moves in the future. Your proposed asset allocation makes sense. Now is the time to come up with a rock solid plan that works for you (through thick and thin) and stick with it - Brexit-type events will happen many times over your lifetime, it is these types of impulsive decisions that can do serious damage to a portfolio.

I would start by reading this (made for beginners): https://www.etf.com/docs/IfYouCan.pdf

I would max your tax advantaged retirement accounts for both you and spouse before even thinking about putting any money aside for college (in a 529, ESA or taxable). If you have your entire portfolio in a tax advantaged account, you can either use a Three Fund Portfolio (https://www.bogleheads.org/wiki/Three-fund_portfolio) consistent with your asset allocation or find a good low-cost target date or LifeStrategy fund that has an asset allocation close to your preferred asset allocation. Once your portfolio spills over to taxable, then it usually makes sense to move to a Three Fund Portfolio to ensure tax efficiency.

Emergency fund - this seems a bit low. Is this just 6 months of day-to-day spending? I would think about bumping that up since you are new homeowners and new parents - houses and babies are things that tend to have expenses that can be large, unexpected and can wipe out a thinly-funded emergency fund fast.

bigred77
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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby bigred77 » Mon Jul 17, 2017 12:14 pm

Sounds like the target date retirement funds might be a good choice for you. You can pick one (maybe 2050) and just put all your investments into that (both traditional and Roth accounts).

Step one would be to max out the 401k and both Roth IRA's if possible. Can you save that much? Those should be prioritized before you do any taxable or 529 investing.

Good luck.

majiaknight
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Joined: Tue Jan 26, 2016 2:55 pm

Re: Newbie and New Parent: Help w/ Retirement and 529

Postby majiaknight » Mon Jul 17, 2017 5:19 pm

Congratulations on your baby and new home!

Looking at your numbers, you should focus more on asset allocation (e.g. you shouldn't put your IRA in money market fund) and max your retirement account (e.g. max your and spouse's Roth IRA first) before considering 529.

529 should be at the bottom of the list:
https://www.bogleheads.org/wiki/Priorit ... nvestments

3-fund portfolio w/ (Age-10)% in bond:
viewtopic.php?f=10&t=88005

Tax efficiency:
https://www.bogleheads.org/wiki/Tax-eff ... _placement

If you're extremely conservative on investment in taxable accounts, you could also think about buying I Bond or EE Bond.

miamivice
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Joined: Tue Jun 11, 2013 11:46 am

Re: Newbie and New Parent: Help w/ Retirement and 529

Postby miamivice » Mon Jul 17, 2017 7:33 pm

I really don't care for the expression "max your retirement accounts". For a two income family, that's $47,000 a year ($18,000 each for 401k plus 5500 each for Roth IRA). Few people can or need to put that much into retirement.

I would recommend opening a 529 account, putting nominal amount (say $100) to start, and setting up autocontributions of a nominal amount (maybe $50 or $100 a month)? To save for it, I'd like to cutting costs elsewhere.

Retirement is more important at this point than college, but at the same time the OP will have college expenses too and they cannot be ignored. If he were to put a $100 a month in for 18 years, that'd be about $50,000 for college which would be great. A little bit each month adds up over time.

Grt2bOutdoors
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Location: New York

Re: Newbie and New Parent: Help w/ Retirement and 529

Postby Grt2bOutdoors » Mon Jul 17, 2017 9:03 pm

AndyFromPennsylvania wrote:Hey Bogleheads! This is my first post. I apologize ahead of time if my etiquette is lacking. Trying to learn/develop a plan for retirement as well as start saving for college. My wife and I are new homeowners and new parents as of this year. Knowing very little about investing and when the June 2016 Brexit happened, I listened to all the noise, got scared and pulled all my investments into cash. Just a few days ago and I went through some of the "getting started" information on here and have decided to "jump into" a forum discussion to seek some guidance.

In short, looking for help on how to structure/allocate my retirement portfolio and how I should go about thinking about a 529 or education saving account. Does it make sense to start a college saving account, or is there another option worth considering? Thank you in advance.

End of Post.


Congratulations on house and your new baby.

Welcome to the forum! Rule #1 - nobody knows nothin!!! Ignore the noise, turn off CNBC, do not read Barrons, stop listening to the talking heads on the radio, cable, tv, the fellers at the water cooler, your boss, your brother in law, the shoeshine boy. Ignore them all. Over your combined lifetimes (average lifespan is 83, you are 31 - let's call it 50 years) there will be lots of ominous headlines almost all of which will not come to pass and if they do, it will be fleeting because of the natural rate of progression in mankind is onwards and upwards. Look at history, there have been famines, droughts, civil war, world wars, depressions, great economic recessions - the world still turns, those bad moments in time are mere blips over time, as will Brexit be.

When saving for retirement, focus on the future and how you are going to get there. Cash is earning 1%, do you think your savings at 1% with contributions are going to get you to your end goal? If not, then you must realize some level of risk must be incurred in the search for higher returns, no? Your 401k has the perfect fund for you to use - tailor made in fact, because the fund manager will do all of the necessary rebalancing for you, they know exactly when to sell equities, buy bonds and vice versa and you don't have to lift a finger, they do it all and seamlessly too! Use a Vanguard Target Retirement fund that most closely approximates the target year you plan to retire, all you have to do is continue to make contributions to it. Don't worry if the prices fluctuate - the markets fluctuate daily and when the markets are open, every second. You should be happy with joy if the markets crash, because then you'll be picking up more shares for less (a great sale!) now, when prices rise later you'll be just as happy because the value of your portfolio will increase right along with it.

You've received some great reading suggestions from other posters. I recommend you try to read a few if not all of them. Here are some other things to read ---> https://investor.vanguard.com/investing/how-to-invest/

https://personal.vanguard.com/us/insigh ... about-time

https://investor.vanguard.com/investing ... ompounding

https://investor.vanguard.com/investing/goals

https://investor.vanguard.com/retiremen ... ment-funds

Have fun reading. Come back and ask any and as many questions as you need to become comfortable with investing for you and your families future.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

majiaknight
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Joined: Tue Jan 26, 2016 2:55 pm

Re: Newbie and New Parent: Help w/ Retirement and 529

Postby majiaknight » Tue Jul 18, 2017 1:36 am

miamivice wrote:I really don't care for the expression "max your retirement accounts". For a two income family, that's $47,000 a year ($18,000 each for 401k plus 5500 each for Roth IRA). Few people can or need to put that much into retirement.

I would recommend opening a 529 account, putting nominal amount (say $100) to start, and setting up autocontributions of a nominal amount (maybe $50 or $100 a month)? To save for it, I'd like to cutting costs elsewhere.

Retirement is more important at this point than college, but at the same time the OP will have college expenses too and they cannot be ignored. If he were to put a $100 a month in for 18 years, that'd be about $50,000 for college which would be great. A little bit each month adds up over time.


I don't think you understand the key points behind the investment prioritization list which are also about tax efficiency and flexibility.

For example, obviously OP hasn't max spouse roth IRA which compares to 529 (assuming no state tax incentive):
1) Roth IRA at Vanguard/Fidelity has more options and lower cost MF/ETFs than even the best 529 which will save your money w/ the same investment;
2) Roth IRA can grow tax-free and are more flexible than 529. You can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. You may have to pay taxes and penalties on earnings in your Roth IRA.

Please note you should only place your investment to max your total return (post tax). To quote what people in this forum have said before, your kids could alway get a student loan for their college but you can't get one for your own retirement.

miamivice
Posts: 478
Joined: Tue Jun 11, 2013 11:46 am

Re: Newbie and New Parent: Help w/ Retirement and 529

Postby miamivice » Tue Jul 18, 2017 2:20 am

majiaknight wrote:
miamivice wrote:I really don't care for the expression "max your retirement accounts". For a two income family, that's $47,000 a year ($18,000 each for 401k plus 5500 each for Roth IRA). Few people can or need to put that much into retirement.

I would recommend opening a 529 account, putting nominal amount (say $100) to start, and setting up autocontributions of a nominal amount (maybe $50 or $100 a month)? To save for it, I'd like to cutting costs elsewhere.

Retirement is more important at this point than college, but at the same time the OP will have college expenses too and they cannot be ignored. If he were to put a $100 a month in for 18 years, that'd be about $50,000 for college which would be great. A little bit each month adds up over time.


I don't think you understand the key points behind the investment prioritization list which are also about tax efficiency and flexibility.

For example, obviously OP hasn't max spouse roth IRA which compares to 529 (assuming no state tax incentive):
1) Roth IRA at Vanguard/Fidelity has more options and lower cost MF/ETFs than even the best 529 which will save your money w/ the same investment;
2) Roth IRA can grow tax-free and are more flexible than 529. You can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. You may have to pay taxes and penalties on earnings in your Roth IRA.

Please note you should only place your investment to max your total return (post tax). To quote what people in this forum have said before, your kids could alway get a student loan for their college but you can't get one for your own retirement.


I understand personal finance just fine. We all look at finances at slightly different angles.

My basic philosophy toward college is I want my kids to at least try to go to college, and if they succeed, I don't want them to have $190,000 in debt when they graduate. I know I can't count on the government for help (nor would I want to), which leaves either scholarship or the bank of Mom & Dad. I believe the chance they will get $190k in scholarships is near zero, which means that my wife and I need to save up for them.

I believe many parents, especially moms (who typically don't visit the Boglehead forums) feel the same way.

It's important that we save for our own retirement and take care of ourselves. We don't need to "max" accounts in order to do that. But it's also important that we take care of our offspring. I think money given to kids for college is far more rewarding than leaving a fat inheritance for them to enjoy when we are dead.

fundseeker
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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby fundseeker » Tue Jul 18, 2017 4:16 am

+1 for this:
mortfree wrote:Do you have term life insurance for you? for your wife?

AndyFromPennsylvania
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Joined: Sun Jul 16, 2017 6:15 pm

Re: Newbie and New Parent: Help w/ Retirement and 529

Postby AndyFromPennsylvania » Tue Jul 18, 2017 7:03 am

At Mortfree:
1. Thank you for the fund suggestions, very helpful, need to look into these.
2. Yes, have a HAS. Started this year with just $500 to see how it goes, how much we spend.
3. I have life insurance for myself through my employer. My wife does not have life insurance as she works part time. You mentioned term life insurance; I didn’t realize there were different forms of life insurance, aside from the monetary amount you sign up for.

At mcraepat9:
1. Thanks for reading suggestion; will work this in.
2. I am making a 3% contribution to my 401k so I get the company match of 1.5%. Unfortunately my company only provides 1.5% at an employee contribution of 3%; no more. Then, I am maxing out my Roth IRA. I am not too experienced with 401ks, but I have an uneasy feeling maxing this out at $17,000 (I think that's what the limit it) because there are so many rules. Do you have concerns in your minimum distributions being high when you retire, and being in a higher than anticipated tax bracket?
3. Good point regarding the emergency fund.

At bigred77
1. Our maximum is putting in 3% into my 401k, me maximizing my Roth IRA and my wife putting in $2,500 per year into her Roth IRA. Do you have any concerns with what seems like a lot of rules with the 401k and potential for higher than expected tax bracket when making withdrawals from 401k in the future? Any guide guidance on paying income tax when you retire from 401k distributions versus capital gains tax (lower tax) from a taxable account?

At majiaknight:
1. Thanks for the well wishes! Thank you for the resources. You guys on here are awesome! I have some reading to do; very thankful.

At miamivice:
1. Love the blog name; thanks for the input. Very good point!

At Grt2bOutdoors:
1. Love the blog name. Thank you very much for your response and the resources; really appreciate it! Will take you up on coming back and asking more questions. :)

At fundseeker:
1. As my question to mortfree, are there variations in life insurance?

fundseeker
Posts: 562
Joined: Mon Dec 24, 2007 9:02 am

Re: Newbie and New Parent: Help w/ Retirement and 529

Postby fundseeker » Tue Jul 18, 2017 7:14 am

Yes, there are big differences. Term life insurance is the way to go, where you sign up and pay for say a 20 or 30 year level term, meaning you agree to pay say $500 per year for $1,000,000 coverage, or whatever it is for your age. It is very cheap while you are young, and it ends when you stop paying. You can consider buying half of your entire needs for 20 years, and maybe the other half for 30 years.

Anyway, whole life or universal life is a bad idea and huge waste of money. It is often sold to be an investment, and is pretty much a ripoff. If you have it, or that it what your employer offers, and you decide term is better, definitely DO NOT cancel the whole life until you have the term in place. You don't want to be without insurance in the meantime. Maybe others will chime in about the benefits of term. Good luck!

fundseeker
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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby fundseeker » Tue Jul 18, 2017 7:20 am

To further explain why two different terms are good, say 20 and 30 as we did years ago, I borrowed this from an article at lifeinsurance.org:

"You may think you need life insurance for your entire life, however that is not really true. That is why Term Life insurance is available in so many optional terms. So what is the ideal term? Like most things in insurance, the answer has very much to do with your life circumstances. When deciding on the term for a Term Life insurance policy the first thing to consider is how long do you expect your family members to be dependent on you? So lets say your kids are 3 and 5, you'd want at least a 20 year policy that covers them both until they are at least 23 and reasonably expected to be on their own. But what if you want to make sure your spouse is covered at least as long as if you lived to be retirement age. In that case, if you are 35 now, that would mean a 30-year term, to take her to when you'd be 65, and so on and so on. Just keep in mind that the older you are when you start your term the more expensive your premiums will be."

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Strayshot
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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby Strayshot » Tue Jul 18, 2017 7:31 am

Your desired AA looks OK. Age in bonds is generally thought to be reasonable.

Your 401k is just OK. VINIX is a great choice and is the best offering for your equity index fund (SP500). You only have one bond option so it is what it is. I don't see any international options. This means you can either skip international all together, or buy that part of your portfolio in your IRA. Given your balances I would be tempted to buy only VINIX in your 401k and use your IRA's to purchase low ER bond and international index funds to reach your desired AA for a three-fund portfolio (see the info in the wiki about what vanguard funds are used in the three fund).

Do not fund a 529 until you are maxing Roth IRA space. Roth contributions can be used without penalty towards educational expenses.

Purchase a 30 year term life insurance policy from an independent agent, term4sale.com will give you ballpark quotes. You need 10 times (or more) your annual expenses in total coverage. This will cover your spouse and new kiddo until he/she is an adult. Do not buy universal or whole life policies ever for any reason.

Get your estate in order, including wills, POA, beneficiary designations on your retirement accounts, etc. congrats on the new addition.

mcraepat9
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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby mcraepat9 » Tue Jul 18, 2017 8:49 am

AndyFromPennsylvania wrote:At mcraepat9:
2. I am making a 3% contribution to my 401k so I get the company match of 1.5%. Unfortunately my company only provides 1.5% at an employee contribution of 3%; no more. Then, I am maxing out my Roth IRA. I am not too experienced with 401ks, but I have an uneasy feeling maxing this out at $17,000 (I think that's what the limit it) because there are so many rules. Do you have concerns in your minimum distributions being high when you retire, and being in a higher than anticipated tax bracket? The number of Americans who will be in a higher tax bracket in retirement (a time when you have no wage income) is small - I would estimate fewer than 5%. And by the way, if that were to happen, that probably means that you are not worried about retirement at all. If it were me, I would increase my 401k contributions and rely on Roth IRA to fund college if needed. I would also read up on the many ways to access a 401k before age 59.5, you might be surprised that there are more ways to access that money than you think.

AndyFromPennsylvania
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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby AndyFromPennsylvania » Tue Jul 18, 2017 9:08 am

mcraepat9 wrote:
AndyFromPennsylvania wrote:At mcraepat9:
2. I am making a 3% contribution to my 401k so I get the company match of 1.5%. Unfortunately my company only provides 1.5% at an employee contribution of 3%; no more. Then, I am maxing out my Roth IRA. I am not too experienced with 401ks, but I have an uneasy feeling maxing this out at $17,000 (I think that's what the limit it) because there are so many rules. Do you have concerns in your minimum distributions being high when you retire, and being in a higher than anticipated tax bracket? The number of Americans who will be in a higher tax bracket in retirement (a time when you have no wage income) is small - I would estimate fewer than 5%. And by the way, if that were to happen, that probably means that you are not worried about retirement at all. If it were me, I would increase my 401k contributions and rely on Roth IRA to fund college if needed. I would also read up on the many ways to access a 401k before age 59.5, you might be surprised that there are more ways to access that money than you think.


Thank you; very helpful. Before purchasing our home, I looked at ways I can pull out my 401k to help purchase my first home. I ended up not doing that because of all the hoops I would have to jump through to get the money out, and not simply take a loan against my 401k. In your experience, do you know if the rules for 401k are standard "across the board" or if that changes from plan to plan?

Whats the best way on here to keep track on who responses to you and keep tab on other posts one is involved in?

majiaknight
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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby majiaknight » Tue Jul 18, 2017 2:00 pm

miamivice wrote:I understand personal finance just fine. We all look at finances at slightly different angles.

My basic philosophy toward college is I want my kids to at least try to go to college, and if they succeed, I don't want them to have $190,000 in debt when they graduate. I know I can't count on the government for help (nor would I want to), which leaves either scholarship or the bank of Mom & Dad. I believe the chance they will get $190k in scholarships is near zero, which means that my wife and I need to save up for them.

I believe many parents, especially moms (who typically don't visit the Boglehead forums) feel the same way.

It's important that we save for our own retirement and take care of ourselves. We don't need to "max" accounts in order to do that. But it's also important that we take care of our offspring. I think money given to kids for college is far more rewarding than leaving a fat inheritance for them to enjoy when we are dead.


I agree w/ your 1st half not your conclusions. It's not about "max retirement accounts" but the "priority" to achieve the best end results. Everyone could withdrawal their Roth IRA contributions to pay for their kids' college edu or other expenses at anytime, penalty-free.

I have setup 529 for my kid when he was born and a UTMA account when he turned to 2y old. However, I started these two accounts only because I had run out of spaces in other more tax-efficient investment vehicles (after maxing Traditional (Pre-tax) 401Ks, HSAs, (Back door) Roth IRAs, After-tax 401Ks w/ mega-backdoor to Roth IRAs, etc).

By following the tax efficient investment priority I could max my total return, and at the same time I could flexibly use my "so called retirement account - Roth IRA" to pay my kids' edu or use my kids' UTMA account to further optimize tax management (e.g. tax gain harvesting before hitting kiddie tax) to pay for his 1st car or even starter home down-payment by minimizing the impact to my own retirement investing:

https://www.whitecoatinvestor.com/use-y ... our-taxes/

AndyFromPennsylvania
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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby AndyFromPennsylvania » Tue Jul 18, 2017 3:33 pm

majiaknight wrote:
miamivice wrote:I understand personal finance just fine. We all look at finances at slightly different angles.

My basic philosophy toward college is I want my kids to at least try to go to college, and if they succeed, I don't want them to have $190,000 in debt when they graduate. I know I can't count on the government for help (nor would I want to), which leaves either scholarship or the bank of Mom & Dad. I believe the chance they will get $190k in scholarships is near zero, which means that my wife and I need to save up for them.

I believe many parents, especially moms (who typically don't visit the Boglehead forums) feel the same way.

It's important that we save for our own retirement and take care of ourselves. We don't need to "max" accounts in order to do that. But it's also important that we take care of our offspring. I think money given to kids for college is far more rewarding than leaving a fat inheritance for them to enjoy when we are dead.


I agree w/ your 1st half not your conclusions. It's not about "max retirement accounts" but the "priority" to achieve the best end results. Everyone could withdrawal their Roth IRA contributions to pay for their kids' college edu or other expenses at anytime, penalty-free.

I have setup 529 for my kid when he was born and a UTMA account when he turned to 2y old. However, I started these two accounts only because I had run out of spaces in other more tax-efficient investment vehicles (after maxing Traditional (Pre-tax) 401Ks, HSAs, (Back door) Roth IRAs, After-tax 401Ks w/ mega-backdoor to Roth IRAs, etc).

By following the tax efficient investment priority I could max my total return, and at the same time I could flexibly use my "so called retirement account - Roth IRA" to pay my kids' edu or use my kids' UTMA account to further optimize tax management (e.g. tax gain harvesting before hitting kiddie tax) to pay for his 1st car or even starter home down-payment by minimizing the impact to my own retirement investing:

https://www.whitecoatinvestor.com/use-y ... our-taxes/


Cool! First time hearing of a UTMA. Thanks for the education.

miamivice
Posts: 478
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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby miamivice » Tue Jul 18, 2017 7:35 pm

I just read that a child with a college savings account (dedicated to him/her) is seven times more likely to attend college than one without.

http://www.chartingyourfinancialfuture. ... o-college/

While we Bogleheads might talk about the theory of investing, we as parents want the best for our children. If we see college as part of path that we hope our children go down, I'd strongly encourage a college savings account (even if a small one) for your child.

Grt2bOutdoors
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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby Grt2bOutdoors » Tue Jul 18, 2017 7:43 pm

AndyFromPennsylvania wrote:
Cool! First time hearing of a UTMA. Thanks for the education.


The source on the in's and out's of UTMA's: http://fairmark.com/kids-college/utma/
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

mega317
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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby mega317 » Wed Jul 19, 2017 1:13 am

miamivice wrote:I just read that a child with a college savings account (dedicated to him/her) is seven times more likely to attend college than one without.

http://www.chartingyourfinancialfuture. ... o-college/

While we Bogleheads might talk about the theory of investing, we as parents want the best for our children. If we see college as part of path that we hope our children go down, I'd strongly encourage a college savings account (even if a small one) for your child.


What's the methodology of that study? Your link didn't provide. I'd like to know the median income of families who do and don't have a college savings account and the college attendance rates of kids from families at those income levels, regardless of having a college savings account.

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby bigred77 » Wed Jul 19, 2017 8:26 am

mega317 wrote:
miamivice wrote:I just read that a child with a college savings account (dedicated to him/her) is seven times more likely to attend college than one without.

http://www.chartingyourfinancialfuture. ... o-college/

While we Bogleheads might talk about the theory of investing, we as parents want the best for our children. If we see college as part of path that we hope our children go down, I'd strongly encourage a college savings account (even if a small one) for your child.


What's the methodology of that study? Your link didn't provide. I'd like to know the median income of families who do and don't have a college savings account and the college attendance rates of kids from families at those income levels, regardless of having a college savings account.


C'mon miamivice.. I'm very pro 529 plans but that statement is wildly misleading. It's parents with the resources to start a dedicated college savings account that are far more likely to have their kids attend college, not the act of having the account itself.

I'm sure I could prove the following correlations as well:
Parents who have 6 figures in their 401ks before the birth of their child are WAY more likely to see their kids go to college.
Parents who have made at least 1 post on bogleheads.org before their child turns 2 are WAY more likely to see their kids go to college.
Parents who are in the 28% tax bracket are WAY more likely to see their kids go to college than those who live below the poverty line.

It's all a measure of parental income and education.

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby Strayshot » Wed Jul 19, 2017 8:57 am

Why all the noise in this thread about 529's and UTMA's and such?

OP needs to get the basics taken care of. Dialog about saving funds in a taxable UTMA for a child is silly if all tax advantaged space in 401k and IRA's is not being utilized.

OP, 401k plans are all different. You need to read your plan documents to understand the specifics of your current plan. Using a 401k loan is not advised.

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby AndyFromPennsylvania » Thu Jul 20, 2017 6:15 am

Strayshot wrote:Why all the noise in this thread about 529's and UTMA's and such?

OP needs to get the basics taken care of. Dialog about saving funds in a taxable UTMA for a child is silly if all tax advantaged space in 401k and IRA's is not being utilized.

OP, 401k plans are all different. You need to read your plan documents to understand the specifics of your current plan. Using a 401k loan is not advised.


Thanks Strayshot. As I am new to the acronyms, I am assuming OP means Original Post?

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby harvestbook » Thu Jul 20, 2017 7:20 am

As suggested above, I would go with VINIX in my 401K to get that low expense ratio, then use Roth IRAs to add Total Bond Funds and Total International Stock Funds. (I also have no problem with using Target Retirement Funds in all of them, especially if you are prone to "taking action" on short-term noise like Brexit.)

I am a big fan of the HSAs because it's the only never-taxed place to invest (tax deduction going in, no taxes paid going out) and you are almost certainly going to spend money on health care for your family at some point. I'd research HSAs (there are plenty of threads about it here) and consider maxing it out with the money you have to invest. The max annual limit is $6,750 for a family.

I would also check to see if your state offers a tax break for a 529 investment. Again, that's free money. I wish I had invested earlier for the college fund, so that time could do more of the heavy lifting. College comes in 18 years, your retirement is still likely at least 30 years away. If no tax break, I'd still want to get a small contribution going but bump it down the priority list. You don't have to put all your extra investable money into one place.

That's just my view based on my own mistakes and late start. The fact you are pointed in the right direction is far more important than minor choices at the edges. Keep saving, live below your means, and be ready for emergencies and you'll do fine. Good luck.

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby Strayshot » Thu Jul 20, 2017 8:03 am

OP is for Original Poster. Easier to type on this iPad than your complete username :happy

If, in the spirit of your thread title, you need help with retirement, you need to tackle 3 things, none of which currently include worrying about 529's:
1) Determine how much you can invest. This requires budgeting. You mention you have $7000 now to invest as well as the sums currently in your accounts, but retirement investing is about the long haul and staying the course. You need a plan that creates a long term path and not just an immediate solution. You are contributing 3% to your 401k to get the match, but why not more? Rather than ending up with "saved" $7k to invest, up your 401k contribution so the $7k is dollar cost averaged into your 401k over time "saving" you the taxes on that money (at least for another 30 years). Another poster already put the link to the generally accepted account investing order, take a look at that. Saving 15% of your pre-tax income is a ballpark figure necessary for a reasonable nest egg. If you are not saving at least 15%, figure out how you will get closer every year.
2) Determine your asset allocation and investment plan. You took a cut at this initially but I have seen no followup. Much more important than some other topics that derailed this thread. Some people like me and Jack Boyle agree that intentional Ex-US international investing is not necessary and global exposure will come from owning large US companies. Only you can decide. Read about the three-fund portfolio. Once you know your desired AA you can create it in the most favorable (low expense) way across your tax advantaged (and taxable if needed) accounts using appropriate funds. I already offered my opinion, which is own VINIX in your 401k and tackle the remainder of your desired AA in your vanguard iras.
3) Act on your budget and investing plan. Time in the Market, not Timing the Market.

There is also a 4) for you which is get your estate in order. Wills, trusts (if needed), life and disability insurance to protect your income and possibly for your spouse as well. The absolute worst situation for your new addition right would be if both you and your spouse perish simultaneously. Appropriate insurance and legal structure are critical in that situation. Yes the risk is small, but also severe. Reminds me of medical residents with massive debt and no disability insurance.

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby Miriam2 » Fri Jul 21, 2017 2:31 am

AndyFromPennsylvania wrote:As I am new to the acronyms, I am assuming OP means Original Post?

There is a list of abbreviations and acronyms in our wiki.

Also, our wiki has an index for articles that may help you.

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby AndyFromPennsylvania » Mon Jul 24, 2017 8:50 pm

Strayshot wrote:OP is for Original Poster. Easier to type on this iPad than your complete username :happy

If, in the spirit of your thread title, you need help with retirement, you need to tackle 3 things, none of which currently include worrying about 529's:
1) Determine how much you can invest. This requires budgeting. You mention you have $7000 now to invest as well as the sums currently in your accounts, but retirement investing is about the long haul and staying the course. You need a plan that creates a long term path and not just an immediate solution. You are contributing 3% to your 401k to get the match, but why not more? Rather than ending up with "saved" $7k to invest, up your 401k contribution so the $7k is dollar cost averaged into your 401k over time "saving" you the taxes on that money (at least for another 30 years). Another poster already put the link to the generally accepted account investing order, take a look at that. Saving 15% of your pre-tax income is a ballpark figure necessary for a reasonable nest egg. If you are not saving at least 15%, figure out how you will get closer every year.
2) Determine your asset allocation and investment plan. You took a cut at this initially but I have seen no followup. Much more important than some other topics that derailed this thread. Some people like me and Jack Boyle agree that intentional Ex-US international investing is not necessary and global exposure will come from owning large US companies. Only you can decide. Read about the three-fund portfolio. Once you know your desired AA you can create it in the most favorable (low expense) way across your tax advantaged (and taxable if needed) accounts using appropriate funds. I already offered my opinion, which is own VINIX in your 401k and tackle the remainder of your desired AA in your vanguard iras.
3) Act on your budget and investing plan. Time in the Market, not Timing the Market.

There is also a 4) for you which is get your estate in order. Wills, trusts (if needed), life and disability insurance to protect your income and possibly for your spouse as well. The absolute worst situation for your new addition right would be if both you and your spouse perish simultaneously. Appropriate insurance and legal structure are critical in that situation. Yes the risk is small, but also severe. Reminds me of medical residents with massive debt and no disability insurance.


Good stuff; really appreciate the advice. "Time in the Market, not Timing the Market"; i love that! Yes, currently in the process of getting my portfolio in order (the entire portfolio) and determining my asset allocations. Also taking the time to do some reading, based on the recommendations I got here so far. Thank you all for the great information!

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby AndyFromPennsylvania » Tue Jul 25, 2017 7:39 pm

The asset allocation makes sense to me, the simplified approach (i.e. 3 fund portfolio), focusing on things I can control (tax efficiency) and sticking to my plan. To play "devil's advocate", is there "proof in the pudding" that this strategy works? In lieu of buying low and selling high (I know, it's not wise to time the market, nor do I want to devote my energy in doing so). I ask this sincerely because I have not yet seen it in the reading I have done. Grant it, still have lots to learn, but I wanted to ask.

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby mcraepat9 » Tue Jul 25, 2017 7:48 pm

AndyFromPennsylvania wrote:The asset allocation makes sense to me, the simplified approach (i.e. 3 fund portfolio), focusing on things I can control (tax efficiency) and sticking to my plan. To play "devil's advocate", is there "proof in the pudding" that this strategy works? In lieu of buying low and selling high (I know, it's not wise to time the market, nor do I want to devote my energy in doing so). I ask this sincerely because I have not yet seen it in the reading I have done. Grant it, still have lots to learn, but I wanted to ask.


You ask whether this strategy works - compared to what?

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby AndyFromPennsylvania » Tue Jul 25, 2017 9:37 pm

mcraepat9 wrote:
AndyFromPennsylvania wrote:The asset allocation makes sense to me, the simplified approach (i.e. 3 fund portfolio), focusing on things I can control (tax efficiency) and sticking to my plan. To play "devil's advocate", is there "proof in the pudding" that this strategy works? In lieu of buying low and selling high (I know, it's not wise to time the market, nor do I want to devote my energy in doing so). I ask this sincerely because I have not yet seen it in the reading I have done. Grant it, still have lots to learn, but I wanted to ask.


You ask whether this strategy works - compared to what?


I don''t know what to compare it to. I am just trying to build some assurance in my head that this is what I should be doing.

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby AndyFromPennsylvania » Tue Jul 25, 2017 9:58 pm

Asset allocation question:

Since my entire portfolio consists of:
1. His company 401k
2. His personal ROTH IRA
3. Wife's personal Roth IRA

Should I consider the total value of the portfolio in either pre-tax or post-tax monies? Would it be wrong to determine % of allocation based on face value? For example, I have approx $50,000 in my 401k (pre-tax value) and approx $38,000 in both Roth IRAs (post-tax value). Should I convert the $38,000 which I already paid tax in our Roth IRA accounts to an approximate pre-tax value to better match the $50,000 in my 401k? I hope that makes sense.

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby aristotelian » Wed Jul 26, 2017 7:26 am

miamivice wrote:
I understand personal finance just fine. We all look at finances at slightly different angles.

My basic philosophy toward college is I want my kids to at least try to go to college, and if they succeed, I don't want them to have $190,000 in debt when they graduate. I know I can't count on the government for help (nor would I want to), which leaves either scholarship or the bank of Mom & Dad. I believe the chance they will get $190k in scholarships is near zero, which means that my wife and I need to save up for them.

I believe many parents, especially moms (who typically don't visit the Boglehead forums) feel the same way.

It's important that we save for our own retirement and take care of ourselves. We don't need to "max" accounts in order to do that. But it's also important that we take care of our offspring. I think money given to kids for college is far more rewarding than leaving a fat inheritance for them to enjoy when we are dead.


I think that is true to a point, but I see a lot of new parents on here that are not on track for retirement but they are thinking about 529s, people who have no savings or perhaps even high interest debt. You can say the same things about Social Security and health care in the future as you are about higher education. It is a natural thing to want to take care of your kids first, but it is really six of one, half dozen of the other, if you do not have a retirement plan for yourself. Then you will be asking them to take care of you, likely at a time when they will be wanting to save for their kids to go to college.

There are other ways to help with kids education than saving in a 529 for college 20 years in the future. Better in my opinion to let it grow, see where you are in 10 or 15 years, and then decide if you are in a position to help or not. While conservative, I-Bonds are a nice investment that can get you return while deferring taxes, and then you have the flexibility to use the funds for yourself or tax free for college. If inflation normalizes, I Bonds become an even better investment.

That said, the good thing about 529s is the money is yours and you can get it back if needed without too much penalty.

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby Strayshot » Wed Jul 26, 2017 8:19 am

AndyFromPennsylvania wrote:Asset allocation question:

Since my entire portfolio consists of:
1. His company 401k
2. His personal ROTH IRA
3. Wife's personal Roth IRA

Should I consider the total value of the portfolio in either pre-tax or post-tax monies? Would it be wrong to determine % of allocation based on face value? For example, I have approx $50,000 in my 401k (pre-tax value) and approx $38,000 in both Roth IRAs (post-tax value). Should I convert the $38,000 which I already paid tax in our Roth IRA accounts to an approximate pre-tax value to better match the $50,000 in my 401k? I hope that makes sense.


No need to do that, although I can understand why you ask the question as it would seem you want to compare apples to apples. This is misleading however, because the accounts are already apples to apples in their current $$ values. Only when the money is accessed do they get treated differently, but the current dollars will grow or shrink based on the underlying investments and not based on how the money will eventually (or not) be taxed.

You only need to consider tax implications once you are formulating withdrawal strategies as they will be based on the tax law at the time you retire. You are determining an asset aloocation for the 98500 you have across all accounts (including the 7k ready to invest).

If you have not yet made your 5500 each Roth contributions for the year, those are the accounts I would put the 7k in rather than investing in a taxable (brokerage) account. You also have lots of space left in your 401k for additional saving (regardless of match) so shouldn't need to worry about taxable investing for a while.

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby miamivice » Wed Jul 26, 2017 8:39 am

Aristotelian wrote:I think that is true to a point, but I see a lot of new parents on here that are not on track for retirement but they are thinking about 529s, people who have no savings or perhaps even high interest debt. You can say the same things about Social Security and health care in the future as you are about higher education. It is a natural thing to want to take care of your kids first, but it is really six of one, half dozen of the other, if you do not have a retirement plan for yourself. Then you will be asking them to take care of you, likely at a time when they will be wanting to save for their kids to go to college.


I will disagree. I don't think there is a single person on the Bogleheads forum (who maybe 50 or more posts) that has not given their own retirement a lot of and consideration. But there are plenty of people here that try to say if you aren't maxing out your retirement accounts (remember that is $47,000 for a dual income family with income <$175,000 a year) you'll eat dog food in your retirement years. It's my opinion that saving $47,000 a year for retirement for 30 years of your working career will lead to way more in retirement savings that you'll ever need. The exception are very high earners that also have lavish lifestyles.

There are other ways to help with kids education than saving in a 529 for college 20 years in the future. Better in my opinion to let it grow, see where you are in 10 or 15 years, and then decide if you are in a position to help or not.


Again, I disagree. If you want to help your kid for college, a 529 is by far the most effective vehicle to save up for your kids college. Yes, you can withdraw contributions from a Roth IRA, but it's hard to make a big dent on education 15 - 18 years from now on $11,000 per year in savings. Most financial types don't recommend planning on using a Roth IRA but suggest that as a backup in case you are out of funding.

The other suggestion on here a lot is to simply not worry about it and cash flow college. I have a lot of coworkers who cash flow their children's education, and they complain about being broke all of the time. Again, not what I consider a solid plan.

While conservative, I-Bonds are a nice investment that can get you return while deferring taxes, and then you have the flexibility to use the funds for yourself or tax free for college. If inflation normalizes, I Bonds become an even better investment.


My 10 year return on investment in the stock market has been 8.8%. Much better than I-bonds.

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby aristotelian » Wed Jul 26, 2017 8:53 am

miamivice wrote:
I will disagree. I don't think there is a single person on the Bogleheads forum (who maybe 50 or more posts) that has not given their own retirement a lot of and consideration. But there are plenty of people here that try to say if you aren't maxing out your retirement accounts (remember that is $47,000 for a dual income family with income <$175,000 a year) you'll eat dog food in your retirement years. It's my opinion that saving $47,000 a year for retirement for 30 years of your working career will lead to way more in retirement savings that you'll ever need. The exception are very high earners that also have lavish lifestyles.

Again, I disagree. If you want to help your kid for college, a 529 is by far the most effective vehicle to save up for your kids college. Yes, you can withdraw contributions from a Roth IRA, but it's hard to make a big dent on education 15 - 18 years from now on $11,000 per year in savings. Most financial types don't recommend planning on using a Roth IRA but suggest that as a backup in case you are out of funding.

The other suggestion on here a lot is to simply not worry about it and cash flow college. I have a lot of coworkers who cash flow their children's education, and they complain about being broke all of the time. Again, not what I consider a solid plan.

My 10 year return on investment in the stock market has been 8.8%. Much better than I-bonds.


Not everyone who comes on Bogleheads to ask about 529s is already set for retirement. Here is an example of one who was not. I am not saying this is OP's situation, although OP does have student loans of her own as well as auto debt. I would at least pay your own loans before paying hypothetical kids loans!
viewtopic.php?t=218107

I am not advising against 529. I have them myself. I think they are far superior to UTMA's. I just would not advocate it unless you are already on track for retirement. Personally, I don't consider a 401k up to the match and an IRA to be enough.

The same logic behind your contributing to the 529 also works for retirement. You can make a bigger difference by saving a lot while young and you are wasting the opportunity if you are putting college first.

Regarding 10 year return, you are taking a lot of risk there. If you were sending your kid to college in 2011 or so, you would have lost money with 100% stock. If you go the 529 route, I caution strongly against 100% stock route. Even if you start early, kids have a 15-20 year timeframe. That would be like a 50 year old with 100% stock. Not a good idea.

If a responsbile 529 portfolio should be more like 60/40 or 70/30, that reduces the expected gap between I Bonds and 529. I would argue for "both/and" but prioritize I Bonds if they can serve other purposes in your portfolio too.

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby miamivice » Wed Jul 26, 2017 9:31 am

aristotelian wrote: I just would not advocate it unless you are already on track for retirement.


Yes, I agree. We're saying the same things.

For this thread, I suggested what I consider a token amount for college ($100 a month). That's not going to make or break the OP's retirement, but will let him set aside a bit for college, so he can feel good about helping his child with college. My impression is that he would likely help his child with college some no matter what, so I figure that putting a little bit into a 529 and receiving tax free gains sounded like a reasonable plan. We can argue about the dollar amounts, but that is my suggestion.

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby mcraepat9 » Wed Jul 26, 2017 10:02 am

AndyFromPennsylvania wrote:
mcraepat9 wrote:
AndyFromPennsylvania wrote:The asset allocation makes sense to me, the simplified approach (i.e. 3 fund portfolio), focusing on things I can control (tax efficiency) and sticking to my plan. To play "devil's advocate", is there "proof in the pudding" that this strategy works? In lieu of buying low and selling high (I know, it's not wise to time the market, nor do I want to devote my energy in doing so). I ask this sincerely because I have not yet seen it in the reading I have done. Grant it, still have lots to learn, but I wanted to ask.


You ask whether this strategy works - compared to what?


I don''t know what to compare it to. I am just trying to build some assurance in my head that this is what I should be doing.


My approach to this question went pretty much as follows:

1. The optimal portfolio is not knowable in advance (i.e. since 2005, holding just Apple would be the best portfolio, but there's no way to do that). Instead, try to find a reasonable portfolio that gives you a high probability of success.
2. Active/stockpicking vs. Passive index investing - Bill Schultheis' "Outfox the Box" game is a simple way of summarizing http://www.coffeehouseinvestor.com/coff ... x-the-box/ - John Bogle also simplifies this: "Why look for a needle in the haystack when you can buy the whole haystack?”
3. You cannot control performance of any investment. The main things you can control are costs (expense ratio and tax efficiency) and avoiding risks for which you are not adequately compensated (and getting fairly compensated for the risks you do take).
4. Diversification is one of the only free lunches out there - generally speaking, the more diversified you can be for minimal cost, the better.
5. KISS principle, 80/20 principle, Buffett's "Investing is simple but not easy", I am not a professional investor, the perfect is the enemy of the good - the takeaway from all of this is to look for the simplest portfolio that gets you most of the way there without stressing over minor things that add little value to your portfolio.
6. Enter the Three Fund Portfolio (viewtopic.php?t=88005) - simple, cheap, easy to understand, easy to manage, tax efficient, beats the average investor and professional investors (see, e.g. https://www.amazon.com/Second-Grader-Be ... 0470919035 (Allan Roth's son uses the three fund portfolio in this book)) and allows you to get on with your life.

Is the Three Fund Portfolio (with proper asset allocation and proper asset location) the best portfolio possible? No, but there are an infinite number of worse portfolios. Will it get you where you need to go? Surely. You will get your fair share of the market less costs.

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby AndyFromPennsylvania » Wed Jul 26, 2017 7:39 pm

mcraepat9 wrote:
AndyFromPennsylvania wrote:
mcraepat9 wrote:
AndyFromPennsylvania wrote:The asset allocation makes sense to me, the simplified approach (i.e. 3 fund portfolio), focusing on things I can control (tax efficiency) and sticking to my plan. To play "devil's advocate", is there "proof in the pudding" that this strategy works? In lieu of buying low and selling high (I know, it's not wise to time the market, nor do I want to devote my energy in doing so). I ask this sincerely because I have not yet seen it in the reading I have done. Grant it, still have lots to learn, but I wanted to ask.


You ask whether this strategy works - compared to what?


I don''t know what to compare it to. I am just trying to build some assurance in my head that this is what I should be doing.


My approach to this question went pretty much as follows:

1. The optimal portfolio is not knowable in advance (i.e. since 2005, holding just Apple would be the best portfolio, but there's no way to do that). Instead, try to find a reasonable portfolio that gives you a high probability of success.
2. Active/stockpicking vs. Passive index investing - Bill Schultheis' "Outfox the Box" game is a simple way of summarizing http://www.coffeehouseinvestor.com/coff ... x-the-box/ - John Bogle also simplifies this: "Why look for a needle in the haystack when you can buy the whole haystack?”
3. You cannot control performance of any investment. The main things you can control are costs (expense ratio and tax efficiency) and avoiding risks for which you are not adequately compensated (and getting fairly compensated for the risks you do take).
4. Diversification is one of the only free lunches out there - generally speaking, the more diversified you can be for minimal cost, the better.
5. KISS principle, 80/20 principle, Buffett's "Investing is simple but not easy", I am not a professional investor, the perfect is the enemy of the good - the takeaway from all of this is to look for the simplest portfolio that gets you most of the way there without stressing over minor things that add little value to your portfolio.
6. Enter the Three Fund Portfolio (viewtopic.php?t=88005) - simple, cheap, easy to understand, easy to manage, tax efficient, beats the average investor and professional investors (see, e.g. https://www.amazon.com/Second-Grader-Be ... 0470919035 (Allan Roth's son uses the three fund portfolio in this book)) and allows you to get on with your life.

Is the Three Fund Portfolio (with proper asset allocation and proper asset location) the best portfolio possible? No, but there are an infinite number of worse portfolios. Will it get you where you need to go? Surely. You will get your fair share of the market less costs.


Good stuff thank you! Late last night I downloaded the audiobook "The Little Book of Common Sense Investing" by John C. Bogle. It hit on some of the points you mentioned above.

@ Strayshot; thank you for the response. Very helpful.

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby JBTX » Wed Jul 26, 2017 8:18 pm

I'm new to the forum but have dealt with many of the issues the OP has dealt with over the years.

I agree with those that say deemphasize 529s. If you have everything else taken care of, like retirement, debt paid off (except mortgage) then sure look into them. I have one myself. But when you consider the expenses on 529s they really aren't much better than just investing in a balanced index funds in a non retirement and paying the fairly minimal taxes.

One other thing that people don't consider is some kids don't go to college. In my case one is special needs and won't go to a typical college anyway. My brother is a PHD and one of his kids may not go to college. Both of us assumed all our kids would go to college.

It can't be stressed enough that saving early makes a huge difference vs trying to make it all up later in life. I'm of the school of doing the following in the following order

1. Fund 401ks to the extent of company match
2. Pay off high interest debt (double digits or higher)
3. Invest in Roth IRA
4. Max out 401k
5. Pay off medium interest non mortgage debt
6. 529s.

Caveat: I think you can make a case for doing 3/4 and 5 above concurrently.

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Re: Newbie and New Parent: Help w/ Retirement and 529

Postby AndyFromPennsylvania » Wed Jul 26, 2017 9:45 pm

Hey Bogleheads!

So I took a stab at asset allocation tonight. I am pretty excited about it, but want your opinions/suggestions. Thus far the information you all have shared has been great; I really appreciate it.

Here is what I got:
Value Fund Name E/R
His 401k (Prudential) $53,900 Vanguard Institutional Index I VINIX 0.04%
His Roth IRA (Vanguard) $29,700 Vanguard LifeStrategy Conservative Growth VSCGX 0.13%
Her Roth IRA (Vanguard) $ 8,600 Vanguard LifeStrategy Income Fund VASIX 0.12%

Total $92,200 0.29%

Total Portfolio Stock (domestic 66.61% / non-us 6.43%) = 73%
Total Portfolio Bond/Cash (domestic 18.77% / non-us 8.00% / cash 0.19%) = 27%

Is my international stock percentage too low?
I am also thinking I may be a bit heavy on equities. I think I would be more comfortable closer to 30% for bonds. I am 31 years old and my wife is 25.

AndyFromPennsylvania
Posts: 16
Joined: Sun Jul 16, 2017 6:15 pm

Re: Newbie and New Parent: Help w/ Retirement and 529

Postby AndyFromPennsylvania » Wed Jul 26, 2017 10:01 pm

JBTX wrote:I'm new to the forum but have dealt with many of the issues the OP has dealt with over the years.

I agree with those that say deemphasize 529s. If you have everything else taken care of, like retirement, debt paid off (except mortgage) then sure look into them. I have one myself. But when you consider the expenses on 529s they really aren't much better than just investing in a balanced index funds in a non retirement and paying the fairly minimal taxes.

One other thing that people don't consider is some kids don't go to college. In my case one is special needs and won't go to a typical college anyway. My brother is a PHD and one of his kids may not go to college. Both of us assumed all our kids would go to college.

It can't be stressed enough that saving early makes a huge difference vs trying to make it all up later in life. I'm of the school of doing the following in the following order

1. Fund 401ks to the extent of company match
2. Pay off high interest debt (double digits or higher)
3. Invest in Roth IRA
4. Max out 401k
5. Pay off medium interest non mortgage debt
6. 529s.

Caveat: I think you can make a case for doing 3/4 and 5 above concurrently.


JBTX - With your Number 2, would you consider mortgage here? My wife and purchased our first home just 3 months ago, with a mortgage of $140,000 (4.125%). We were able to put 20% down, so no PMI. I was recently educated on how much future interest one can save in the early years by putting down extra money on principle. That being said, does the following make sense:

The following with a 6 month emergency fund of $24,000 in place:
1. Fund his 401k to extent of company match.
2. Max out his Roth IRA
3. Put down extra principle on mortgage $140,000 (4.125%)
4. Continue making minimum car loan payments $10,600 (2.49%)
5. Max out her Roth IRA
6. 529s

As I am working through our retirement plan (with the help from you all, which is really appreciated) my wife and I are also discussing the feasibility of her only working part time (2-3 days a week) as we have a newborn (6 weeks old).

mega317
Posts: 347
Joined: Tue Apr 19, 2016 10:55 am

Re: Newbie and New Parent: Help w/ Retirement and 529

Postby mega317 » Wed Jul 26, 2017 10:28 pm

AndyFromPennsylvania wrote:
Total $92,200 0.29%


I think more meaningful would be a weighted average of ER. I come up with 0.076%. Very respectable indeed.

JBTX
Posts: 44
Joined: Wed Jul 26, 2017 12:46 pm

Re: Newbie and New Parent: Help w/ Retirement and 529

Postby JBTX » Wed Jul 26, 2017 11:04 pm

AndyFromPennsylvania wrote:
JBTX wrote:I'm new to the forum but have dealt with many of the issues the OP has dealt with over the years.

I agree with those that say deemphasize 529s. If you have everything else taken care of, like retirement, debt paid off (except mortgage) then sure look into them. I have one myself. But when you consider the expenses on 529s they really aren't much better than just investing in a balanced index funds in a non retirement and paying the fairly minimal taxes.

One other thing that people don't consider is some kids don't go to college. In my case one is special needs and won't go to a typical college anyway. My brother is a PHD and one of his kids may not go to college. Both of us assumed all our kids would go to college.

It can't be stressed enough that saving early makes a huge difference vs trying to make it all up later in life. I'm of the school of doing the following in the following order

1. Fund 401ks to the extent of company match
2. Pay off high interest debt (double digits or higher)
3. Invest in Roth IRA
4. Max out 401k
5. Pay off medium interest non mortgage debt
6. 529s.

Caveat: I think you can make a case for doing 3/4 and 5 above concurrently.


JBTX - With your Number 2, would you consider mortgage here? My wife and purchased our first home just 3 months ago, with a mortgage of $140,000 (4.125%). We were able to put 20% down, so no PMI. I was recently educated on how much future interest one can save in the early years by putting down extra money on principle. That being said, does the following make sense:

The following with a 6 month emergency fund of $24,000 in place:
1. Fund his 401k to extent of company match.
2. Max out his Roth IRA
3. Put down extra principle on mortgage $140,000 (4.125%)
4. Continue making minimum car loan payments $10,600 (2.49%)
5. Max out her Roth IRA
6. 529s

As I am working through our retirement plan (with the help from you all, which is really appreciated) my wife and I are also discussing the feasibility of her only working part time (2-3 days a week) as we have a newborn (6 weeks old).


From my perspective paying off a 4% mortgage would be number 7 or higher. If you are able to itemize your deductions you can deduct your mortgage interest so your after tax rate would be lower than 4.25%. In my case I had refi'd to 3.00% on 15 year. I was down to about $90k of mortgage but just refi'd again to $160k to get cash out to pay for major home improvements. I could have paid for some of it with cash reserves but I like to keep significant liquidity.

Sure you can pay more down early and pay it faster. But would you rather take that money and " invest " it at 4.25% or put it in a tax advantaged account that hopefully earns more than 4.25% over the long term. You could make an argument that at my age, 54, paying off a 4.25% guaranteed rate may be better than a risky mid to upper single digit stock returns or bond returns that barely keep up with inflation. But at your age seems to me you invest it for the long term and take some risk.

As to spouse working part time a lot goes into that. Really a personal choice as much as a financial decision. Obviously you can't put a value on being home with the kids more. However in this day and age when you can get laid off at the drop of a hat there is some security in having two incomes. Imagine both of you being unemployed. Also if she takes herself out of the workforce long term it decreases her long term career value. My wife had no stomach for being a stay at home mom so she continued to work. Luckily she was able to work part time for a spell and partially at home.

JBTX
Posts: 44
Joined: Wed Jul 26, 2017 12:46 pm

Re: Newbie and New Parent: Help w/ Retirement and 529

Postby JBTX » Wed Jul 26, 2017 11:13 pm

AndyFromPennsylvania wrote:Hey Bogleheads!

So I took a stab at asset allocation tonight. I am pretty excited about it, but want your opinions/suggestions. Thus far the information you all have shared has been great; I really appreciate it.

Here is what I got:
Value Fund Name E/R
His 401k (Prudential) $53,900 Vanguard Institutional Index I VINIX 0.04%
His Roth IRA (Vanguard) $29,700 Vanguard LifeStrategy Conservative Growth VSCGX 0.13%
Her Roth IRA (Vanguard) $ 8,600 Vanguard LifeStrategy Income Fund VASIX 0.12%

Total $92,200 0.29%

Total Portfolio Stock (domestic 66.61% / non-us 6.43%) = 73%
Total Portfolio Bond/Cash (domestic 18.77% / non-us 8.00% / cash 0.19%) = 27%

Is my international stock percentage too low?
I am also thinking I may be a bit heavy on equities. I think I would be more comfortable closer to 30% for bonds. I am 31 years old and my wife is 25.


73% equities is not overly aggressive. Using 100- your age is a conservative allocation and that is about where you are at using the average of you and your wife's age. With stocks valuations relatively high I think 70-73% is reasonable. If the stock market tanks in the future maybe up it to 75-80%. As to international there are a lot different opinions on that in here. Many will agree with your approach to keep it light including Bogle. I am of the philosophy of being more diversified than the US. I probably have 35% to 40% of equities in international. But where you are right now is fine and right now probably won't make that much difference.

wrongfunds
Posts: 474
Joined: Tue Dec 21, 2010 3:55 pm

Re: Newbie and New Parent: Help w/ Retirement and 529

Postby wrongfunds » Wed Jul 26, 2017 11:25 pm

But when you consider the expenses on 529s they really aren't much better than just investing in a balanced index funds in a non retirement and paying the fairly minimal taxes.

Why do you believe that? It does not matter if the fund is balanced or indexed; you will be paying taxes on the gain either every year or if you minimize that, at the end in full when you take out the money for the college. The advantage of 529 is the possibility of tax free growth over 15 years.

AndyFromPennsylvania
Posts: 16
Joined: Sun Jul 16, 2017 6:15 pm

Re: Newbie and New Parent: Help w/ Retirement and 529

Postby AndyFromPennsylvania » Thu Jul 27, 2017 1:12 pm

mega317 wrote:
AndyFromPennsylvania wrote:
Total $92,200 0.29%


I think more meaningful would be a weighted average of ER. I come up with 0.076%. Very respectable indeed.


Good point! I got the same value; thanks!

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Strayshot
Posts: 232
Joined: Thu Mar 05, 2015 8:04 am
Location: New Mexico

Re: Newbie and New Parent: Help w/ Retirement and 529

Postby Strayshot » Thu Jul 27, 2017 5:37 pm

AndyFromPennsylvania wrote:Hey Bogleheads!

So I took a stab at asset allocation tonight. I am pretty excited about it, but want your opinions/suggestions. Thus far the information you all have shared has been great; I really appreciate it.

Here is what I got:
Value Fund Name E/R
His 401k (Prudential) $53,900 Vanguard Institutional Index I VINIX 0.04%
His Roth IRA (Vanguard) $29,700 Vanguard LifeStrategy Conservative Growth VSCGX 0.13%
Her Roth IRA (Vanguard) $ 8,600 Vanguard LifeStrategy Income Fund VASIX 0.12%

Total $92,200 0.29%

Total Portfolio Stock (domestic 66.61% / non-us 6.43%) = 73%
Total Portfolio Bond/Cash (domestic 18.77% / non-us 8.00% / cash 0.19%) = 27%

Is my international stock percentage too low?
I am also thinking I may be a bit heavy on equities. I think I would be more comfortable closer to 30% for bonds. I am 31 years old and my wife is 25.


Is there a particular reason you have chosen VSCGX and VASIX rather than just going directly to the asset classes you need via a three-fund portfolio? Or even a two-fund portfolio (if ignoring ex-us investing like I do along with Jack Bogle and Warren Buffett)?

I would make my life easy and buy all VBTLX in his Roth with a .05 expense ratio and buy all VTSMX in her Roth with a .15 expense ratio. As soon as another $1400 makes it into her Roth change over to admiral shares. That puts you at about age in bonds for AA and makes things really easy.

AndyFromPennsylvania
Posts: 16
Joined: Sun Jul 16, 2017 6:15 pm

Re: Newbie and New Parent: Help w/ Retirement and 529

Postby AndyFromPennsylvania » Thu Jul 27, 2017 5:58 pm

Strayshot wrote:
AndyFromPennsylvania wrote:Hey Bogleheads!

So I took a stab at asset allocation tonight. I am pretty excited about it, but want your opinions/suggestions. Thus far the information you all have shared has been great; I really appreciate it.

Here is what I got:
Value Fund Name E/R
His 401k (Prudential) $53,900 Vanguard Institutional Index I VINIX 0.04%
His Roth IRA (Vanguard) $29,700 Vanguard LifeStrategy Conservative Growth VSCGX 0.13%
Her Roth IRA (Vanguard) $ 8,600 Vanguard LifeStrategy Income Fund VASIX 0.12%

Total $92,200 0.29%

Total Portfolio Stock (domestic 66.61% / non-us 6.43%) = 73%
Total Portfolio Bond/Cash (domestic 18.77% / non-us 8.00% / cash 0.19%) = 27%

Is my international stock percentage too low?
I am also thinking I may be a bit heavy on equities. I think I would be more comfortable closer to 30% for bonds. I am 31 years old and my wife is 25.


Is there a particular reason you have chosen VSCGX and VASIX rather than just going directly to the asset classes you need via a three-fund portfolio? Or even a two-fund portfolio (if ignoring ex-us investing like I do along with Jack Bogle and Warren Buffett)?

I would make my life easy and buy all VBTLX in his Roth with a .05 expense ratio and buy all VTSMX in her Roth with a .15 expense ratio. As soon as another $1400 makes it into her Roth change over to admiral shares. That puts you at about age in bonds for AA and makes things really easy.


I was struggling to find something like what you recommended because of the $10,000 minimum investment limit. Thank you so much for suggesting this! Also, when you said "ignoring ex-us" what does that mean? Did you happen to mean VTSAX instead of VTSMX?


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