Abroad and what to do....

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coffeecup333
Posts: 34
Joined: Wed May 17, 2017 9:00 pm

Abroad and what to do....

Post by coffeecup333 » Wed Jan 31, 2018 9:59 pm

Hi All,

We are looking at a 70/30 AA (with 30% international and 40% domestic) at 35 and 40 years old

We have the following breakdown for our accounts

Roth IRA -4.47%
Traditional IRA-1.60%
Husband's Roth-6.180%
Husband's annuity-3.97% (Vanguard Small Cap index Investor shares)-can not contribute anymore to this, only employer portion)
Husband's 401k-5.31%
Husband's 457b ( 55.5% in equity index which is benchmarked to the S &P 500 and 22.9% in Mid-cap equity index which is benchmarked to the S&P 400)

We only started really learning about investing with a plan seriously a year ago so do not have as much as we would have liked. But long story short...

1.Husband will be receiving a pension but we do not want to count this toward the bond portion. Should we use the IRAs monies to put this toward the bond AA?

2. I understand to mimic the Total Stock Market would mean 60/20/20 for Equity, Mid-cap and Small cap index options and we tried to mimic the Total Stock Market using the lowest expense ratio options available with the equity index fund (tracks S&P 500) and mid-cap equity index fund (tracks S&P 400) but are at 65%, 35%, 5% (annuity). These are the only index funds and the cheapest in the plan so I do not want to add anymore here though this is the plan that we will end up funding every year up to $36,000 (18,000 each).

So the question is should we use our IRAs to make up the shortfall for the small cap index option (at Vanguard with the lesser ERs) or use it to fill in the 30% AA for bonds? What is the best use?

3. Besides the IRAs, we can not contribute to the above accounts for the moment because my job has transferred us abroad for the next year or two. Should we open up a taxable and put money toward the Total International Stock Index or put more money into aggressively paying down our mortgage at 4.375% interest? If we use the taxable account and fund it with the Total International, I understand we can also use the foreign tax credit. Regarding the mortgage over the past years, we have been aggressively paying it down and now have about $60k left. Paying the mortgage off would mean we can save this money every month to put toward retirement. This home is a condo we will eventually outgrow but are not sure how long we will stay there but have played with the idea of renting it out eventually and moving to another home. However, property, school and maintenance costs come with it so with the mortgage free, we would be able to keep our expenses with just these items. We usually save close to 40-50% of our savings and live below our means but we would like the option to retire early together, if possible. I am really tired of the long commutes and long hours and want to spend more time with my children so the plan is to keep our options open.

4. If we don't go with the taxable account and skip the international portion (though not really comfortable about skipping this completely), we would like to open up a 529 or invest in some I-bonds for our son's education. Thoughts?

We have learned much on this forum and are open to any and all words of wisdom/perspectives/thoughts. Thank you fellow bogleheads!!

runner540
Posts: 736
Joined: Sun Feb 26, 2017 5:43 pm

Re: Abroad and what to do....

Post by runner540 » Wed Jan 31, 2018 10:15 pm

Congrats on the opportunity to work abroad. Before contributing to IRAs, please please consult with an expat tax specialist - it's very complicated.

Given the short tume frame, I'd pay down the mortgage.

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Tyler Aspect
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Re: Abroad and what to do....

Post by Tyler Aspect » Wed Jan 31, 2018 11:30 pm

Can we have a listing of the 457b investment options? That is the biggest portion, and a potential location of the bond.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

coffeecup333
Posts: 34
Joined: Wed May 17, 2017 9:00 pm

Re: Abroad and what to do....

Post by coffeecup333 » Fri Feb 02, 2018 7:42 am

runner540 wrote:
Wed Jan 31, 2018 10:15 pm
Congrats on the opportunity to work abroad. Before contributing to IRAs, please please consult with an expat tax specialist - it's very complicated.

Given the short tume frame, I'd pay down the mortgage.
We are actually talking to our accountant but we just wanted to get another perspective with everyone's different experiences. I just didn't want this unexpected move to derail our retirement plans or savings so if you have experience with it, when does a taxable account make sense? I've read the IRS documents and I'm assuming we may not be able to contribute to the IRAs if the income is not taxable. Thank you for your feedback!

runner540
Posts: 736
Joined: Sun Feb 26, 2017 5:43 pm

Re: Abroad and what to do....

Post by runner540 » Fri Feb 02, 2018 7:51 am

coffeecup333 wrote:
Fri Feb 02, 2018 7:42 am
runner540 wrote:
Wed Jan 31, 2018 10:15 pm
Congrats on the opportunity to work abroad. Before contributing to IRAs, please please consult with an expat tax specialist - it's very complicated.

Given the short tume frame, I'd pay down the mortgage.
We are actually talking to our accountant but we just wanted to get another perspective with everyone's different experiences. I just didn't want this unexpected move to derail our retirement plans or savings so if you have experience with it, when does a taxable account make sense? I've read the IRS documents and I'm assuming we may not be able to contribute to the IRAs if the income is not taxable. Thank you for your feedback!
Please, please make sure you get an accountant experienced with expat issues. You should negotiate that your employer cover tax preparation costs as part of your package. I worked abroad, was single and had one job: my US tax return was 50+ pages. I had friends who thought they could contribute to IRAs, and did for years, then had to figure out how to undo that.

runner540
Posts: 736
Joined: Sun Feb 26, 2017 5:43 pm

Re: Abroad and what to do....

Post by runner540 » Fri Feb 02, 2018 7:51 am

coffeecup333 wrote:
Fri Feb 02, 2018 7:42 am
runner540 wrote:
Wed Jan 31, 2018 10:15 pm
Congrats on the opportunity to work abroad. Before contributing to IRAs, please please consult with an expat tax specialist - it's very complicated.

Given the short tume frame, I'd pay down the mortgage.
We are actually talking to our accountant but we just wanted to get another perspective with everyone's different experiences. I just didn't want this unexpected move to derail our retirement plans or savings so if you have experience with it, when does a taxable account make sense? I've read the IRS documents and I'm assuming we may not be able to contribute to the IRAs if the income is not taxable. Thank you for your feedback!
Please, please make sure you get an accountant experienced with expat issues. You should negotiate that your employer cover tax preparation costs as part of your package. I worked abroad, was single and had one job: my US tax return was 50+ pages. I had friends who thought they could contribute to IRAs, and did for years, then had to figure out how to undo that.

coffeecup333
Posts: 34
Joined: Wed May 17, 2017 9:00 pm

Re: Abroad and what to do....

Post by coffeecup333 » Sat Feb 03, 2018 12:05 pm

runner540 wrote:
Fri Feb 02, 2018 7:51 am
coffeecup333 wrote:
Fri Feb 02, 2018 7:42 am
runner540 wrote:
Wed Jan 31, 2018 10:15 pm
Congrats on the opportunity to work abroad. Before contributing to IRAs, please please consult with an expat tax specialist - it's very complicated.

Given the short tume frame, I'd pay down the mortgage.
We are actually talking to our accountant but we just wanted to get another perspective with everyone's different experiences. I just didn't want this unexpected move to derail our retirement plans or savings so if you have experience with it, when does a taxable account make sense? I've read the IRS documents and I'm assuming we may not be able to contribute to the IRAs if the income is not taxable. Thank you for your feedback!
Please, please make sure you get an accountant experienced with expat issues. You should negotiate that your employer cover tax preparation costs as part of your package. I worked abroad, was single and had one job: my US tax return was 50+ pages. I had friends who thought they could contribute to IRAs, and did for years, then had to figure out how to undo that.

Yes, exactly our worries! All good points-thank you.

coffeecup333
Posts: 34
Joined: Wed May 17, 2017 9:00 pm

Re: Abroad and what to do....

Post by coffeecup333 » Sat Feb 03, 2018 3:56 pm

Tyler Aspect wrote:
Wed Jan 31, 2018 11:30 pm
Can we have a listing of the 457b investment options? That is the biggest portion, and a potential location of the bond.

Trying to post this again....We are trying to minimize the ERs across all the accounts so though they are not bad at all compared to other plans, they are more than Vanguard's. But the other options in the account are the international index at .39% ER, tracking the MSCI ACWI ex-US, bond fund (not index) at .17% ER tracking the Barclays US Aggregate, and the small cap index fund at .44% ER tracking the Russell 2000. Right now the equity index fund and the mid-cap are at .01% and .02% ER so this makes the best options. There is a quarterly administrative fee and a percentage fee for assets under management also. If we did go with opening the taxable account and use the total international index fund, would my thinking be right to say that any earnings would have to be above the 4.375% mortgage interest rate for this investment to make sense vs. paying off the mortgage? We were doing well back home and had a solid savings plan but with this move abroad, do not want to fall behind with the retirement savings since I think we can not contribute to the IRAs anymore. The more I think about this, I am leaning toward switching the balances to the IRAs and making them small-cap to round out mimicking Total Stock Market Index, opening up the taxable with the total International, and creating a "bonds portion" with some combo of bonds, cd ladders, ibonds, TIPS, etc. Any suggestions to this strategy? Thank you for the feedback!

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Tyler Aspect
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Re: Abroad and what to do....

Post by Tyler Aspect » Sat Feb 03, 2018 4:40 pm

coffeecup333 wrote:
Sat Feb 03, 2018 3:56 pm
(I did some editing for readability.)
Trying to post this again. We are trying to minimize the ERs across all the accounts. Although they are not bad at all compared to other plans, they are more than Vanguard's.

The other options in the 457b account are:
  • the international index at .39% ER, tracking the MSCI ACWI ex-US
  • bond fund (not index) at .17% ER tracking the Barclays US Aggregate
  • the small cap index fund at .44% ER tracking the Russell 2000.
Right now the equity index fund and the mid-cap are at .01% and .02% expense ratio. There is a quarterly administrative fee and a percentage fee for assets under management.
Even with the asset under management fee, since your 457b account is the largest account, you should have 30% of asset in the 0.17% ER bond fund.

If we did go with opening the taxable account and use the total international index fund, would my thinking be right to say that any earnings would have to be above the 4.375% mortgage interest rate for this investment to make sense vs. paying off the mortgage?
Future returns are not predictable. You can certainly put half of your after-expense savings into mortgage pre-payment, and the other half into a taxable account with a total international stock index fund.

We were doing well back home and had a solid savings plan but with this move abroad, we do not want to fall behind with the retirement savings since I think we can not contribute to the IRAs anymore.

The more I think about this, I am leaning toward switching the balances to the IRAs and making them small-cap to round out mimicking Total Stock Market Index, opening up the taxable with the total International, and creating a "bonds portion" with some combo of bonds, cd ladders, ibonds, TIPS, etc. Any suggestions to this strategy? Thank you for the feedback!
Utah or New York 529 educational programs are generally well regarded. IBonds can also be used for children's educational expenses. Bonds in the taxable account are less tax efficient.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

coffeecup333
Posts: 34
Joined: Wed May 17, 2017 9:00 pm

Re: Abroad and what to do....

Post by coffeecup333 » Tue Feb 13, 2018 8:48 am

Tyler Aspect wrote:
Sat Feb 03, 2018 4:40 pm
coffeecup333 wrote:
Sat Feb 03, 2018 3:56 pm
(I did some editing for readability.)
Trying to post this again. We are trying to minimize the ERs across all the accounts. Although they are not bad at all compared to other plans, they are more than Vanguard's.

The other options in the 457b account are:
  • the international index at .39% ER, tracking the MSCI ACWI ex-US
  • bond fund (not index) at .17% ER tracking the Barclays US Aggregate
  • the small cap index fund at .44% ER tracking the Russell 2000.
Right now the equity index fund and the mid-cap are at .01% and .02% expense ratio. There is a quarterly administrative fee and a percentage fee for assets under management.
Even with the asset under management fee, since your 457b account is the largest account, you should have 30% of asset in the 0.17% ER bond fund.

If we did go with opening the taxable account and use the total international index fund, would my thinking be right to say that any earnings would have to be above the 4.375% mortgage interest rate for this investment to make sense vs. paying off the mortgage?
Future returns are not predictable. You can certainly put half of your after-expense savings into mortgage pre-payment, and the other half into a taxable account with a total international stock index fund.

We were doing well back home and had a solid savings plan but with this move abroad, we do not want to fall behind with the retirement savings since I think we can not contribute to the IRAs anymore.

The more I think about this, I am leaning toward switching the balances to the IRAs and making them small-cap to round out mimicking Total Stock Market Index, opening up the taxable with the total International, and creating a "bonds portion" with some combo of bonds, cd ladders, ibonds, TIPS, etc. Any suggestions to this strategy? Thank you for the feedback!
Utah or New York 529 educational programs are generally well regarded. IBonds can also be used for children's educational expenses. Bonds in the taxable account are less tax efficient.
TylerAspect, thank you for these thoughtful suggestions! You have given us some good feedback

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