58% raise; Need Portfolio and Overall Advice

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vaught
Posts: 64
Joined: Fri Aug 11, 2017 2:00 pm

58% raise; Need Portfolio and Overall Advice

Post by vaught » Tue Nov 28, 2017 11:39 am

I would like some overall advice as to what if anything needs changed below. I only began being serious about saving a few years ago. And only very recently (August '17) got a substantial raise (58%) that allows me more options on how to go from here.

Debt - 200,000 mortgage @ 4.25% (29.5 years left) $1,308 payment which includes escrow. I expect this to go up slightly due to taxes as I got to utilize the current owner's over 65 exemption for the remainder of 2017 and that will be reduced to just normal homestead exemption in 2018 and forward. Home is worth 275k conservatively. No auto debt. No credit card debt. Spouse has student loan of 40k but is a public school teacher and is repaying it under the Public Service Student Loan Forgiveness program. We are close to half way through the requisite 120 payments to have the balance forgiven.
Tax Filing Status - married filing separately (this is to qualify for the PSSLF. this does hurt us come tax time but not near as much as the benefit of the PSSLF)
Tax rate - Federal - I hate to admit I don't know this number but have always utilized an accountant. State - 5%.
Age - 33, spouse 30, 1st child 2.5, 2nd child 8 months
Desired AA - 90/10 stocks.
Desired International - 15% ??? -
Income - mine 120k, spouse 48k
We live in a pretty LCOL. Housing is not very expensive. Public schools are currently very good. Good enough that there aren't even any real private schools in our county.

Assets:

60,000 - Emergency Fund (12-15 months - higher than I would like right now but I have some expenses coming, namely, about 10k (max) to finish last bit of home we bought in April and we will need a new vehicle. Our second vehicle is a 2004 with 160k+ miles on it that is no longer dependable and certainly not highway worthy).

Taxable - not currently contributing to these.
18,195 - Vanguard Extended Market Index Fund Admiral - VEXAX - 0.08 ER
25,277 - Vanguard Target Retirement 2055 Fund - VFFVX - 0.16 ER
9,991 - Vanguard Target Retirement 2050 Fund - VFIFX - 0.16 ER
1,512 - one random stock I've had for awhile

His OLD 401k - need to know what to do with this. Currently still at my former employer's provider.
22,373 - Vanguard Total Stock Market Index Fund Admiral - VTSAX - 0.04 ER
21,316 - Vanguard Mid Cap Index Fund Admiral - VIMAX - 0.06 ER
20,968 - Vanguard Small Cap Index Fund Admiral - VSMAX - 0.06 ER

His CURRENT 401k - contribute $1,500/month. Coordinated with previous 401k contributions to contribute 18k. Dollar for dollar match on first 4%.
1,840 - Vanguard Small Cap Index Fund Admiral - VSMAX - 0.06 ER
1,891 - Vanguard Mid Cap Index Fund Admiral - VIMAX - 0.06 ER
1,085 - Vanguard Large Cap Index Fund Admiral - VLCAX - 0.06 ER
1,967 - Vanguard Total Stock Market Index Fund Admiral - VTSAX - 0.04 ER

His Roth IRA - contribute $458/month.
42,631 - Vanguard Life Strategy Growth Fund - VASGX - 0.16 ER

Her 457b - contribute $1,500/month. Just started as a result of my raise.
4,540 - Vanguard Target Retirement 2060 Institutional Fund - VILVX - 0.09 ER

Her ROTH IRA - contribute $458/month.
21,716 - Vanguard Target Retirement 2060 Fund - VTTSX

Her PERS account - mandatory contribution of $300ish a month deducted from her paycheck.
26,500 - I don't pay much attention to this number. And we have no ability to decide how it is invested. The lump sum number is really only relevant if she were to quit her job or pass away. So long as she works 28 or more years, she will receive a pension of 80% of the average of her five highest salaried years.

First 529 - contribute $100/month plus any gifts from family.
5,712 - further research will be needed to determine fund. On statements, I can only see that I chose the "Aggressive Allocation."

Second 529
Yet to start. Plan on starting before year end. Will immediately transfer $700ish that I've accrued from my Citi Double Cash card. That will be meant to make up for the $100/month that I should have been contributing since birth. Will add a little extra to give full amount. Plus I expect some monetary gifts at Christmas for the children. Nothing substantial though.

HSAs
0.00 - would like to start one or two.

As indicated previously, I started "saving" a few years ago but I only had a very general knowledge (try to save a lot and pick cheap index funds). And these funds were obviously started at different times. This is the first time I've written them down and see some obvious overlap though I don't know if that is necessarily bad or not. I welcome any and all feedback on the above. But some specific questions I have are:

1. What to do with old 401k? I'd like to transfer/roll over to Vanguard unless advised otherwise. Even though the ERs I show are cheap, I have been unable to tell if there are any additional administrative fees charged to the account so I'd rather transfer it somewhere that I have more certainty.

2. HSAs. I don't think I'd ever heard of an HSA until I joined Bogleheads a few months ago. I've always had a cheap individual HDHP. Any reason not to go ahead and start an HSA and max it out for 2017? Any recommended providers? I would plan on utilizing it like an extra IRA. Max it out and pay medical expenses out of pocket. My wife has her health insurance through her employer and the kids are included on this. She does not currently have HDHP but I am considering having her change her policy as well so we could have two HSAs (one for me, and one for her/kids). Any thoughts? Her "year" for insurance purposes ends 3/31/18. If we switched her to HDHP at that time would she just be allowed to invest a prorated portion into the HSA for 2018?

3. We currently contribute $1,500 to spouse's 457b deferred compensation plan. She also has access to a 403b. However, the only option available in that 403b is an annuity with somewhere around 2.5% ER (after factoring in death benefit, etc...). Any reason to invest in that 403b despite the high ER? Her paycheck is already reduced substantially because of the max 457b so I decided to not do more for the time being but could be convinced otherwise.
Last edited by vaught on Thu Nov 30, 2017 11:12 am, edited 1 time in total.

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Watty
Posts: 13850
Joined: Wed Oct 10, 2007 3:55 pm

Re: Portfolio and Overall Advice

Post by Watty » Tue Nov 28, 2017 8:57 pm

vaught wrote:
Tue Nov 28, 2017 11:39 am
1. What to do with old 401k? I'd like to transfer/roll over to Vanguard unless advised otherwise. Even though the ERs I show are cheap, I have been unable to tell if there are any additional administrative fees charged to the account so I'd rather transfer it somewhere that I have more certainty.
A couple of reasons that people keep money in an old 401k are;
1) It is pre-marriage money and they don't want to mix with with post marriage money in case of a divorce.
2) In some states a 401k provides more protection than an IRA if you are sued.
3) They have a high income(like a doctor) and want to do what is called a "back door Roth" to get money into a Roth when there income is too high to make Roth contributions. There are a couple steps to do this and having money in a IRA will cause problems.

If none of these is a big deal for you then rolling money out to an IRA would be reasonable.
vaught wrote:
Tue Nov 28, 2017 11:39 am
Taxable - not currently contributing to these.
18,195 - Vanguard Extended Market Index Fund Admiral - VEXAX - 0.08 ER
25,277 - Vanguard Target Retirement 2055 Fund - VFFVX - 0.16 ER
9,991 - Vanguard Target Retirement 2050 Fund - VFIFX - 0.16 ER

1,512 - one random stock I've had for awhile
The target date funds are not very tax efficient so your normally don't want to own them in a taxable account. If you have significant capital gains in them it likely is not worth selling then but it would be good to change then them to not automatically reinvest dividends and capital gains distributions so that you are not buying more of them.

vaught
Posts: 64
Joined: Fri Aug 11, 2017 2:00 pm

Re: Portfolio and Overall Advice

Post by vaught » Wed Nov 29, 2017 2:17 pm

Watty wrote:
Tue Nov 28, 2017 8:57 pm
vaught wrote:
Tue Nov 28, 2017 11:39 am
1. What to do with old 401k? I'd like to transfer/roll over to Vanguard unless advised otherwise. Even though the ERs I show are cheap, I have been unable to tell if there are any additional administrative fees charged to the account so I'd rather transfer it somewhere that I have more certainty.
A couple of reasons that people keep money in an old 401k are;
1) It is pre-marriage money and they don't want to mix with with post marriage money in case of a divorce.
2) In some states a 401k provides more protection than an IRA if you are sued.
3) They have a high income(like a doctor) and want to do what is called a "back door Roth" to get money into a Roth when there income is too high to make Roth contributions. There are a couple steps to do this and having money in a IRA will cause problems.

If none of these is a big deal for you then rolling money out to an IRA would be reasonable.
vaught wrote:
Tue Nov 28, 2017 11:39 am
Taxable - not currently contributing to these.
18,195 - Vanguard Extended Market Index Fund Admiral - VEXAX - 0.08 ER
25,277 - Vanguard Target Retirement 2055 Fund - VFFVX - 0.16 ER
9,991 - Vanguard Target Retirement 2050 Fund - VFIFX - 0.16 ER

1,512 - one random stock I've had for awhile
The target date funds are not very tax efficient so your normally don't want to own them in a taxable account. If you have significant capital gains in them it likely is not worth selling then but it would be good to change then them to not automatically reinvest dividends and capital gains distributions so that you are not buying more of them.
Regarding old 401k, your points in 2 and 3 are interesting and something I had not considered. It is certainly possible that I might want to do a backdoor roth in the future. I will investigate the "other" costs in that 401k and plan on keeping it there is not cost prohibitive.

Regarding target date funds, I had never heard that. I don't recall when I picked those funds but I'm sure I picked them simply because I didn't know what else to pick. I think they call that the stupid tax.

vaught
Posts: 64
Joined: Fri Aug 11, 2017 2:00 pm

Re: 58% raise; Need Portfolio and Overall Advice

Post by vaught » Thu Nov 30, 2017 11:13 am

Should I sell target retirement funds now and pay the requisite tax as opposed to having to deal with this in 30 years? Any funds that would be better suited for a taxable account?

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