seeking financial advice

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Gr819406
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Joined: Wed Dec 13, 2017 2:58 pm

seeking financial advice

Post by Gr819406 » Wed Dec 13, 2017 3:31 pm

I have been browsing the boards and just wanted to lay out my financial situation and seek advice/thoughts.

Married couple both 34 years old with 2 children around 3 years old.

Salaries are 150K and 75K

Mortgage is 12 years left at 215K(refi'd to 15 yr in 2014..bought in 2010). One of us is potentially thinking of upgrading our house while the other(1 posting asking for advice) thinks it would be nice to just pay the mortgage off over the next 11 years and have no mortgage.

The investments are below
Vanguard non-retirement $57,000
Vanguard Roth $7,000
Vangurd 529s - 2 both at $16,000
401k(contribute 14%) - $92,000
Fidelity IRA(rollover 401k) - $215,000
Fidelity Roth - $17,500
Fidelity non-retirement - $19,000
checking accounts - typically 10,000 to 20,000 at any given time
Only 1 401K due to 1 person changing jobs and just starting new 401K.

Life insurance - 30 year terms of 750,000 with 25 years remaining. Both preferred ratings.

My investment philosophy is low fees index funds, but for whatever reason the past year I have really been worried about a market crash of 30+% as I have not really lived thru one personally when I had investable money. It happened right about when I started out which turned out to be the best time to start.

Anything to further mention on the above?
What are some things you guys focus on to achieve?

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Duckie
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Re: seeking financial advice

Post by Duckie » Wed Dec 13, 2017 6:04 pm

Gr819406, welcome to the forum.
Gr819406 wrote:My investment philosophy is low fees index funds, but for whatever reason the past year I have really been worried about a market crash of 30+% as I have not really lived thru one personally when I had investable money.
In that case you might want more bonds in your AA.
Anything to further mention on the above?
What is your Asset allocation? Are the two non-retirement accounts earmarked for retirement or for something else? Are you maxing your employer plans? Have you read the Asking Portfolio Questions thread?
What are some things you guys focus on to achieve?
At your income you can't contribute directly to Roth IRAs but can if you use the Backdoor Roth IRA method. That Fidelity Rollover IRA gets in the way of the backdoor method. Can that IRA be rolled to a current 401k?

Gr819406
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Joined: Wed Dec 13, 2017 2:58 pm

Re: seeking financial advice

Post by Gr819406 » Thu Dec 14, 2017 8:42 am

In that case you might want more bonds in your AA.
- my 1st job out of college was as an investment advisor...I have it drilled into my head that stocks beat bonds and I'm young though nobody likes seeing money go down.
What is your Asset allocation? Are the two non-retirement accounts earmarked for retirement or for something else? Are you maxing your employer plans? Have you read the Asking Portfolio Questions thread?
Allocations below. Not maxing 401ks and it never really was our intent. We both contribute a decent % I believe well above the average. I typically bump my % up 1 or 2 every year. The wife has brought up a new house, so I guess they may be earmarked for that, but honestly they are not earmarked for anything other than producing better returns than a savings account. At this point w/ savings acct returns the market could crash and I'd imagine we would have done better than the .5-1.5% returns this money would have received.

At your income you can't contribute directly to Roth IRAs but can if you use the Backdoor Roth IRA method. That Fidelity Rollover IRA gets in the way of the backdoor method. Can that IRA be rolled to a current 401k?
Beyond what I would know and we'd need to speak with someone from Fidelity, but I wholeheartedly do not trust anyone in the financial industry regardless of fee only, commission, just a fidelity rep. See my initial post about working as an "advisor" for a few years. Also I assist with my in-laws money as the dad had a stroke in 2011 and he used to do everything, but cannot anymore. I picked this up earlier in 2017 after years of pleading with my wife, her siblings, and the mother. The fidelity "advisor" sold the mother a 300K deferred annuity that had the downside protection which as I'm sure we all know only kicks in if she were to then turn it into an income stream which was never her intent. On top of that they charged a mgt fee of 1% for a 450K portfolio which is what was left from the 300K annuity and the annuity is out of the penalty period June 2018, so I saw the writing on the wall they would then talk her out of the annuity and stick it in the 1% fee. Beyond that they picked 20 funds to split the 450K up into. They also tried talking her into moving the 300K from vanguard to fidelity they have. In doing all of this with them it has me really thinking about our finances, wills, trusts, etc as I see 1st hand the sh!t to put it bluntly they are going through.

Good questions. We can contribute to roth 401ks which we both are doing.

To further clarify my investments
The 1 401K is split between roth and pretax
be4 tax is ~67,000 and roth is ~25,000
investment break down is Vanguard total bond index 10%
vanguard primecap 50%
vanguard total international index 20%
vanguard balanced 20%
The 2 529(16k each) plans at vanguard are allocated to the aggressive growth
The roth ira(7K) at vanguard is split between VHT - 80% and VCR 20%
Vanguard non-retirement - 57K total
16K vanguard 500 index
6.6K vanguard emerging markets index
12.6K vanguard small cap growth index
7K a piece in vanguard wellesley and vanguard windsor 2
7.7K in VHT

Fidelity is as follows

Non - retirement ~19K
cash 13.6K
FTEC 5.6K
Roth IRA
just rolled over in Oct 9.2K in FARNX and 8.3K in cash(need to pick something)
rollover IRA (127K)- rolled over in Oct
cash - 78.5K(need to pick something)
BOTZ - 6K
FCNTX - 30.5K
IVV - 12.5K

IRA - could not combine rollover to this one as started too long ago...whatever reason fidelity gave(88K)
FDGFX(dividend growth) - 32K
FEXPX(export & multinational) - 18.5K - not a huge fan of this fund
FFFHX(2050 target) - 37.2K

livesoft
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Re: seeking financial advice

Post by livesoft » Thu Dec 14, 2017 8:55 am

I would contribute maximums to 401(k) and to Roths before contributing one dime to a 529 plan.

See also: viewtopic.php?t=79510 to get your income taxes extremely low which will of course save you money for investing in the long term.

I would NOT be doing Roth 401(k) at all. You seem to have a hodgepodge of funds. Is that what you want? If you could get down to 3 funds, how would you do it?
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Gr819406
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Re: seeking financial advice

Post by Gr819406 » Thu Dec 14, 2017 9:07 am

I would NOT be doing Roth 401(k) at all
Can you explain this one to me? Here is my thinking behind this after seeing 1st hand how much money is taken out of withdrawals. My inlaws had roughly $3M in their retirement accounts, but had to take money out to buy a house, start a trust, etc in case the father ever went to a nursing home due to a stroke. This is all what a fee only trust lawyer mentioned to do. In doing that the house was 700,000, so she had to take out over $1M spread out over 2 years for tax purposes. To me it would have made a whole lot more sense to pay the taxes years ago on say the 15k per year or whatever the put in. We are at historic lows in terms of tax rates(could they just keep going down down down who knows). Also to me this whole you will be in a lower tax bracket when you retire seems foolish to me based upon my experience and seeing multiple people not being in lower tax brackets.

Could you explain why that is or point me to something in case I am missing something obvious?
I would contribute maximums to 401(k) and to Roths before contributing one dime to a 529 plan.
Roughly half the 529 plans were funded via gifts from grandparents. My wife likes the idea of fully paying for kids colleges. Her father on a max 105K salary when he had his stroke(so I imagine far less when he was 30/40/etc) fully paid for his 4 kids colleges on 1 salary. I myself had loans and finished paying them off about 3 years back. I like the idea of paying for my kids colleges, but am open to the reasoning behind this. Would you suggest taking money out of the retirement for kids colleges if needed(highly doubt but wanted to check)?

livesoft
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Re: seeking financial advice

Post by livesoft » Thu Dec 14, 2017 9:11 am

You make so much money now that you will have no problem with contributing the maximums to your 401(k)s, your Roths, and have money left over for your college expenses. You will not get any financial aid since you are so wealthy.

If you do not contribute to Roth 401(k) and instead contribute to traditional 401(k), that does not mean spend the tax savings. It means invest the tax savings in passively-managed low-expense ratio index funds that are extremely tax-efficient. Those could be in a 529 plan or in a so-called taxable account.
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Gr819406
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Re: seeking financial advice

Post by Gr819406 » Thu Dec 14, 2017 9:20 am

You make so much money now that you will have no problem with contributing the maximums to your 401(k)s, your Roths, and have money left over for your college expenses. You will not get any financial aid since you are so wealthy.

If you do not contribute to Roth 401(k) and instead contribute to traditional 401(k), that does not mean spend the tax savings. It means invest the tax savings in passively-managed low-expense ratio index funds that are extremely tax-efficient. Those could be in a 529 plan or in a so-called taxable account.
Got it - I think we definitely could/should max at least 1 of the 401ks and its something we would need to discuss. We do have a nanny which is about 27K a year in expenses(will go away over next few years) on top of the mortgage which is our only 2 expenses at the moment beyond food/vacations/typical living expenses. I never planned on getting any financial aid - I did plan on them becoming tennis pros and forgoing college!

My ultimate goal would be to retire in my 50s and do some sort of part time work, but not really sure how that would turn out with needing health insurance and if we did not have enough in taxable accts. I know you can do some sort of step withdrawal from retirement accounts if you withdraw the same % per year. Would need to look up exactly how it works, but know it can be done.

livesoft
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Re: seeking financial advice

Post by livesoft » Thu Dec 14, 2017 10:26 am

Retire in your 50's and pay no income taxes:
viewtopic.php?t=87471

Given that you intend to be in a much lower tax bracket in retirement, then the traditional 401(k) is even more compelling.
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Gr819406
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Re: seeking financial advice

Post by Gr819406 » Thu Dec 14, 2017 11:12 am

Given that you intend to be in a much lower tax bracket in retirement, then the traditional 401(k) is even more compelling.
I guess what is throwing me off is the wifes parents who had everything in pretax savings thus having huge tax consequences due to their unique scenario of needing to "hide" the money from being collected if the husband who had a stroke would need hospital care rather than at home care which he now has. They are even considering divorce due to trying to set up the best possibly scenario for the wife money wise. Example would be we are trying to figure out the amount to take from IRA to put in the trust this year.

All good problems to have as it could be much worse and you have $0 in savings.

TheHouse7
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Re: seeking financial advice

Post by TheHouse7 » Thu Dec 14, 2017 11:35 am

Focus on what you have control over.

You want to buy low? Your going to need a meaningful crash.

If your worried about a major correction at this point in your accumulation phase, you must think you can market time (you can't).

Focus on paying off the mortgage early and then you won't feel so bad putting all your eggs in one basket (u.s. stock)
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

Gr819406
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Re: seeking financial advice

Post by Gr819406 » Thu Dec 14, 2017 11:46 am

Focus on what you have control over.

You want to buy low? Your going to need a meaningful crash.

If your worried about a major correction at this point in your accumulation phase, you must think you can market time (you can't).
I know what you say is the right approach. Just hard to do in practice! Which is why I came here. Not sure I said I wanted to buy low though think everyone would want to buy low. I know in 20yrs from now it doesnt matter when you buy as much. Somehow its easier to do the monthly 401k investment type approach rather than dropping 50-100k in an investment.

livesoft
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Re: seeking financial advice

Post by livesoft » Thu Dec 14, 2017 12:25 pm

The problem with the in-laws is that they were sold a deferred annuity. Where did they get the money for that? I will say that it is pretty difficult to have $3 MM from normal contributions to a traditional 401(k) or traditional IRA because (a) they haven't been around that long and (b) in the early days contributions were limited.

And if you retire in your 50's, that's another way to limit tax-deferred contributions. :)
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Sandtrap
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Re: seeking financial advice

Post by Sandtrap » Thu Dec 14, 2017 1:14 pm

Gr819406 wrote: ā†‘
Thu Dec 14, 2017 11:46 am
Focus on what you have control over.

You want to buy low? Your going to need a meaningful crash.

If your worried about a major correction at this point in your accumulation phase, you must think you can market time (you can't).
I know what you say is the right approach. Just hard to do in practice! Which is why I came here. Not sure I said I wanted to buy low though think everyone would want to buy low. I know in 20yrs from now it doesnt matter when you buy as much. Somehow its easier to do the monthly 401k investment type approach rather than dropping 50-100k in an investment.
You've gotten great advice and have the skillset to manage your own finances without paying anyone else to do so.
Review the following to chart a realistic path that you are comfortable with and stick to it.
Define General Investment Goals and Objectives
https://www.bogleheads.org/wiki/Invest ... statement

Then review the following as needed:
Bogle Philosophy
https://www.bogleheads.org/wiki/Bogleh ... hilosophy
Here are links to the wiki's "Getting Started" and "Investing Startup Kit" pages:
https://www.bogleheads.org/wiki/Getting_started
https://www.bogleheads.org/wiki/Bogleh ... rt-up_kit
Outline of Investing
https://www.bogleheads.org/wiki/Outline_of_investing
Outline of Financial Planning (with links)
https://www.bogleheads.org/wiki/Outlin ... _planning
Funding Priority
https://www.bogleheads.org/wiki/Priori ... vestments
Tax Efficient Fund Placement
https://www.bogleheads.org/wiki/Tax-ef ... _placement
Asset allocation in multiple accounts
[url] https://www.bogleheadsSuggested Reading List
https://www.bogleheads.org/RecommendedReading.php
Forum Library of Investing Advice with links
https://www.bogleheads.org/wiki/Main_Page

Free Reading: "If You Can" by Bernstein
https://www.google.com/url?sa=t&rct=j& ... -SB3S580I5

j :D

Gr819406
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Re: seeking financial advice

Post by Gr819406 » Thu Dec 14, 2017 3:22 pm

You've gotten great advice and have the skillset to manage your own finances without paying anyone else to do so.
Review the following to chart a realistic path that you are comfortable with and stick to it.
Thanks will definitely check these links out over the next few weeks.

Gr819406
Posts: 12
Joined: Wed Dec 13, 2017 2:58 pm

Re: seeking financial advice

Post by Gr819406 » Thu Dec 14, 2017 3:41 pm

The problem with the in-laws is that they were sold a deferred annuity. Where did they get the money for that? I will say that it is pretty difficult to have $3 MM from normal contributions to a traditional 401(k) or traditional IRA because (a) they haven't been around that long and (b) in the early days contributions were limited.
And if you retire in your 50's, that's another way to limit tax-deferred contributions.
It was from their IRA which was a few million at the time the advisor said it'd be a safe way to be a bit more riskier with the 300,000 so he liquidated the fidelity contrafund which was the only mutual fund holding at the time besides individual stocks and purchased a metlife deferred annuity with the 4% guarantee rider. I already showed her the fee differences as its now sitting at 2.05% per year vs what could be under .4% with other funds and she agreed she would never turn it into an income stream as that would give up the full amount.

He was not a traditional index investor. He invested in individual stocks and unlike the norm greatly out performed the market. I can see it going back 15 years in their FIDELITY account and its quite amazing to see and I shake my head w/ how this fidelity advisor screwed her over. Furthest back I see is 2003 and the starting value is $425,000 which would have been from whatever job he had prior to me knowing him.

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Meg77
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Re: seeking financial advice

Post by Meg77 » Thu Dec 14, 2017 4:01 pm

Gr819406 wrote: ā†‘
Thu Dec 14, 2017 11:12 am
Given that you intend to be in a much lower tax bracket in retirement, then the traditional 401(k) is even more compelling.
I guess what is throwing me off is the wifes parents who had everything in pretax savings thus having huge tax consequences due to their unique scenario of needing to "hide" the money from being collected if the husband who had a stroke would need hospital care rather than at home care which he now has. They are even considering divorce due to trying to set up the best possibly scenario for the wife money wise. Example would be we are trying to figure out the amount to take from IRA to put in the trust this year.

All good problems to have as it could be much worse and you have $0 in savings.
If they'd contributed to Roths instead of Traditional, they could have pulled the money out tax free, but the balances would have been about 30% lower if you compare apples to apples. For example maybe this year you can afford to save $14K in that Roth 401k. But if you switch to Traditional, you can afford to max it out without impacting your take home pay, because you'd get a big tax savings by deducting your traditional contribution. You pay the taxes now, or you pay them later. If you assume you are investing the tax savings each year (which to be fair not everyone does, especially once they are maxing out the accounts), there is NO DIFFERENCE between a Traditional and a Roth except for the tax rate when you pay the tax - which tends to be higher when you're working EXCEPT in cases like your in-laws where they are pulling out a massive amount at one time which of course will put them into a higher tax bracket. But that's rare. Most people already own a house and/or accumulate taxable savings too. Few people end up with 100% of their money in traditional retirement accounts.

Edited to add - what you're describing above regarding "hiding" money and divorcing to hide assets is not a financial problem related to having money in one type of account or another. They don't qualify for state care (or whatever they are trying to do) because they aren't actually poor. They have the money to spend on your FIL's care, and that's what it's there for. Yes their taxable income would be lower if they were pulling money out of a Roth versus a Traditional account each year to live, but most welfare programs are means tested for that reason not just based on income but on investment assets. Welfare programs aren't meant for millionaires who happen to have their money sheltered in tax free accounts.
"An investment in knowledge pays the best interest." - Benjamin Franklin

Gr819406
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Re: seeking financial advice

Post by Gr819406 » Thu Dec 14, 2017 4:11 pm

which tends to be higher when you're working EXCEPT in cases like your in-laws where they are pulling out a massive amount at one time which of course will put them into a higher tax bracket.
Thanks and I know that is the norm. Just seeing it 1st hand kinda makes you want to have partial in a roth. We made the mom buy LTC insurance as well. Turns out the number of providers in that business is going down as well. I worked for metlife in 2006-2008 time frame and they sold LTC and at the time the selling point was never raised the rates and now they do not even offer it anymore.

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