portfolio review - where to put my next dollar of savings?

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BeerTooth
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Joined: Wed Nov 24, 2010 3:07 pm

portfolio review - where to put my next dollar of savings?

Post by BeerTooth » Thu Apr 05, 2018 7:26 pm

Looking for advice primarily on “where to put my next dollar of savings” but I’m open to any feedback, positive or negative. With my most recent raise, I am now able to max out my 401k and HSA for the first time. Should I begin contributing to an IRA…pay down mortgage faster…529 savings for college….open Roth 401k? Do I still have time to open IRA and fund $5500 for 2017?

Emergency funds: 1 year of living expenses ($72k per YNAB), mostly held @ Ally bank CDs and savings ~2% interest. Would be open to paring back the cash and getting more invested as my wife could quickly go back to work if I were to lose my job.

Debt: 3 years into 30-year mortgage - $280k @ 4.75% fixed. $70k equity

Tax Rate: 15% marginal Federal, 0% state (Live Free or Die). Editorial: my effective tax rate is under 5% and I find it hard to believe it will remain this low in the long term. Take advantage of low rate and contribute to taxable account?

State of Residence: New Hampshire

Age: 36

Tax filing status: MFJ, three little tax credits under the age of 10

Retirement portfolio: ~$200k

Investment Type Current Mix
Bond 30%
Large U.S. Equity 30%
Small/Mid Equity 15%
International 25%


Current Retirement Accounts:
His 401k: $180k
$20k her 401k (SAHM last 8 years)
$25k 529 plan #1
$20k 529 plan #2
$2k 529 plan #3

New Annual Contributions:
$18.5k his 401k (plus 6% employer match). Range of low cost Vangard funds…I can detail if needed
$6750 his HSA
…what next?

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David Jay
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Location: Michigan

Re: portfolio review - where to put my next dollar of savings?

Post by David Jay » Thu Apr 05, 2018 7:37 pm

If you qualify for a Roth, put the next $5500 there.

If you don’t qualify, consider a backdoor Roth, wiki here: https://www.bogleheads.org/wiki/Backdoor_Roth_IRA
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

TravelforFun
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Joined: Tue Dec 04, 2012 11:05 pm

Re: portfolio review - where to put my next dollar of savings?

Post by TravelforFun » Thu Apr 05, 2018 7:42 pm

BeerTooth wrote:
Thu Apr 05, 2018 7:26 pm
Looking for advice primarily on “where to put my next dollar of savings” but I’m open to any feedback, positive or negative. With my most recent raise, I am now able to max out my 401k and HSA for the first time. Should I begin contributing to an IRA…pay down mortgage faster…529 savings for college….open Roth 401k? Do I still have time to open IRA and fund $5500 for 2017?

Tax Rate: 15% marginal Federal, 0% state (Live Free or Die). Editorial: my effective tax rate is under 5% and I find it hard to believe it will remain this low in the long term. Take advantage of low rate and contribute to taxable account?
With your tax rate, I would:

1) contribute enough to my 401k to get the maximum match. No match, no contribution
2) contribute max to a Roth if you can
3) contribute max to an HSA
4) contribute to 529
5) put the rest in a taxable

In that order.

TravelforFun

gclancer
Posts: 501
Joined: Sat Apr 27, 2013 10:34 am

Re: portfolio review - where to put my next dollar of savings?

Post by gclancer » Thu Apr 05, 2018 8:11 pm

Since you’re in the 15% tax bracket you’re eligible to contribute to a Roth. I would move $11k from your Ally Savings into a Roth IRAs for you and your spouse for 2017 (open a Roth at Ally if you want - it can remain part of your emergency fund since you can withdraw contributions tax and penalty free at any time). Since you’re mentioning your low tax bracket I would order the priority as: 1) 401(k) up to match 2) HSA up to max 3) Roth for you and your spouse 4) 401(k) to max. Under that order or priority you’re currently at step 4 and don’t need to make any decisions as it pertains to your next dollar.

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BL
Posts: 8287
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Re: portfolio review - where to put my next dollar of savings?

Post by BL » Thu Apr 05, 2018 11:12 pm

gclancer wrote:
Thu Apr 05, 2018 8:11 pm
Since you’re in the 15% tax bracket you’re eligible to contribute to a Roth. I would move $11k from your Ally Savings into a Roth IRAs for you and your spouse for 2017 (open a Roth at Ally if you want - it can remain part of your emergency fund since you can withdraw contributions tax and penalty free at any time). Since you’re mentioning your low tax bracket I would order the priority as: 1) 401(k) up to match 2) HSA up to max 3) Roth for you and your spouse 4) 401(k) to max. Under that order or priority you’re currently at step 4 and don’t need to make any decisions as it pertains to your next dollar.
+1
Maybe some/all of 401k in Roth 401k, depending on how much 12% tax you will owe after 24k Standard deduction and up to 6k child tax credit. Perhaps you can find a tax estimator or program with new tax program numbers.

BeerTooth
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Joined: Wed Nov 24, 2010 3:07 pm

Re: portfolio review - where to put my next dollar of savings?

Post by BeerTooth » Fri Apr 06, 2018 10:13 am

thanks for the quick feedback!

I will open 2 Traditional IRAs at Ally Bank and contribute $5500 to each before the April 17th deadline for 2017.

I used the TaxAct calculator to estimate 2018 federal taxes. Looks to be about $3000.
The leaves me with $30,000 savings capacity, with some conservatism.

So my savings priority list for 2018 will be:

Traditional 401k up to employer match: $7,320
HSA max: $6,850
His Roth 401k (inside retirement plan): $11,180
Her Roth IRA: $5,500

Total: $30,850

Does that sound right?

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ruralavalon
Posts: 13968
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: portfolio review - where to put my next dollar of savings?

Post by ruralavalon » Fri Apr 06, 2018 10:28 am

BeerTooth wrote:
Thu Apr 05, 2018 7:26 pm
Looking for advice primarily on “where to put my next dollar of savings” but I’m open to any feedback, positive or negative. With my most recent raise, I am now able to max out my 401k and HSA for the first time. Should I begin contributing to an IRA…pay down mortgage faster…529 savings for college….open Roth 401k? Do I still have time to open IRA and fund $5500 for 2017?

Emergency funds: 1 year of living expenses ($72k per YNAB), mostly held @ Ally bank CDs and savings ~2% interest. Would be open to paring back the cash and getting more invested as my wife could quickly go back to work if I were to lose my job.

Debt: 3 years into 30-year mortgage - $280k @ 4.75% fixed. $70k equity

Tax Rate: 15% marginal Federal, 0% state (Live Free or Die). Editorial: my effective tax rate is under 5% and I find it hard to believe it will remain this low in the long term. Take advantage of low rate and contribute to taxable account?

State of Residence: New Hampshire

Age: 36

Tax filing status: MFJ, three little tax credits under the age of 10

Retirement portfolio: ~$200k

Investment Type Current Mix
Bond 30%
Large U.S. Equity 30%
Small/Mid Equity 15%
International 25%


Current Retirement Accounts:
His 401k: $180k
$20k her 401k (SAHM last 8 years)
$25k 529 plan #1
$20k 529 plan #2
$2k 529 plan #3

New Annual Contributions:
$18.5k his 401k (plus 6% employer match). Range of low cost Vangard funds…I can detail if needed
$6750 his HSA
…what next?
In addition to the maximum $18.5k to your 401k and the HSA, this investing priority --
1) $5.5k to Roth IRAs for both you and wife
2) 529s
3) pay extra on 4.75% mortgage note.

If you act immediately you can open and contribute to Roth IRAs for 2017.

I think it's reasonable to reduce the size of your emergency fund.

You asset allocation is within the range of what is reasonable in my opinion.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

gclancer
Posts: 501
Joined: Sat Apr 27, 2013 10:34 am

Re: portfolio review - where to put my next dollar of savings?

Post by gclancer » Fri Apr 06, 2018 12:12 pm

BeerTooth wrote:
Fri Apr 06, 2018 10:13 am
I will open 2 Traditional IRAs at Ally Bank and contribute $5500 to each before the April 17th deadline for 2017.

His Roth 401k (inside retirement plan): $11,180
Her Roth IRA: $5,500


Does that sound right?
No. First I would do Roth IRAs for 2017 for you and your spouse instead of Traditional. Especially if you’re planning to leave the money at Ally as part of your emergency fund (Traditional IRAs shouldn’t be used as an emergency fund because there are early withdrawal penalties and income taxes on withdrawals). You should also prioritize funding $5.5k in a Roth IRA outside of your 401(k) instead of $5.5k to your Roth 401(k). A Roth IRA (compared to Roth 401(k)) offers lower fees, more flexibility and better investment options.

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ruralavalon
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Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: portfolio review - where to put my next dollar of savings?

Post by ruralavalon » Fri Apr 06, 2018 2:58 pm

BeerTooth wrote: Tax Rate: 15% marginal Federal, 0% state (Live Free or Die). Editorial: my effective tax rate is under 5% and I find it hard to believe it will remain this low in the long term. Take advantage of low rate and contribute to taxable account?

State of Residence: New Hampshire

Age: 36
In my opinion Roth IRAs will likely be better than traditional IRAs at age 36, in the 12 or 15% tax bracket, with expected higher future earnings.

Wiki article, "Traditional vs Roth".
"Tax considerations:
* If your current marginal tax rate is 15% or less, prefer a Roth.
* If you expect to have higher marginal rates than your current marginal rate for most of your career, prefer a Roth.
* If you will have a traditional account or a pension large enough to meet your expected retirement expenses (and you expect to take that pension shortly after retiring), prefer a Roth.
* Otherwise, prefer a traditional account."
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

TwstdSista
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Joined: Thu Nov 16, 2017 4:03 am

Re: portfolio review - where to put my next dollar of savings?

Post by TwstdSista » Fri Apr 06, 2018 3:01 pm

Another vote for Roth IRAs (2017 + 2018).

BeerTooth
Posts: 228
Joined: Wed Nov 24, 2010 3:07 pm

Re: portfolio review - where to put my next dollar of savings?

Post by BeerTooth » Mon Apr 09, 2018 9:39 am

OK I'm onboard with two Roth IRAs

two questions:
1. looking at the IRA investment options at Ally Bank, all I see are CDs and savings account stuff. Should I be seeing an option with stocks and bonds?

2. Do I open a spousal Roth IRA under my account, or do I need to create a separate Ally Bank login account for my wife, and transfer money to her to open her Roth IRA?

Image

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ruralavalon
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Location: Illinois

Re: portfolio review - where to put my next dollar of savings?

Post by ruralavalon » Mon Apr 09, 2018 11:36 am

BeerTooth wrote:
Mon Apr 09, 2018 9:39 am
OK I'm onboard with two Roth IRAs

two questions:
1. looking at the IRA investment options at Ally Bank, all I see are CDs and savings account stuff. Should I be seeing an option with stocks and bonds?

2. Do I open a spousal Roth IRA under my account, or do I need to create a separate Ally Bank login account for my wife, and transfer money to her to open her Roth
1) Rather than bank IRAs with very limited choices, I suggest opening the two Roth IRAs at a fund company offering low expense mutual funds.

My suggestion is opening the two Roth IRAs at --
Vanguard, or
Fidelity, or
Schwab
in that order of preference. My own personal preference for Vanguard is because they offer by far the largest array of low expense funds offered anywhere.

2) You will need to open two IRAs, one for yourself and, one for your wife.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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BL
Posts: 8287
Joined: Sun Mar 01, 2009 2:28 pm

Re: portfolio review - where to put my next dollar of savings?

Post by BL » Tue Apr 10, 2018 8:42 am

You have this week to set up Roth IRA for 2017 (be sure to choose 2017, it should ask), so that should be plenty of time if you get it done now. Here are directions from Vanguard on how to set them up:
https://investor.vanguard.com/ira/how-to-open-an-ira

A spousal Roth just means opening a Roth IRA for your spouse even if spouse has no income but you have enough income for both of you. Actually, she is the one opening it, but she can authorize you to have access and make changes. You should each have a separate password.

You will need to transfer money from your account and either buy a Money Market fund or choose a fund such as a Target Date fund. The important part is getting the money into the accounts by tax day! Decisions or changes can be made later. Vanguard will pull money from your bank using your routing number and account number (double check your numbers!). It will show up in your bank's transactions a couple days later. Not sure if they test it by withdrawing a few dollars the first go-around.

Banks are great for FDIC cash products but expensive for investments of stocks and bonds.

After this is done, next step might be to figure out how much or if all of your 401k should be Roth 401k. For 2018, your child tax credits may double up to 2k each, standard deduction is 24k, no personal exemptions. Your income is needed to calculate some of this, and I am just guessing you are near the top of the 12% bracket, but that is affected by whether you use traditional 401k or not. Your 6000 child tax credit will off-set how much income at 12%? The trad. 401k might help with getting or increasing savers and earned income credit. It will take a lot of calculating to get the perfect choice. Hopefully there will soon be a tax estimator for 2018.
https://www.irs.gov/retirement-plans/pl ... ers-credit
https://www.irs.gov/credits-deductions/ ... tax-credit for 2017.

Perhaps looking at 2017 1040 will be useful. Do you do your own taxes?
https://www.irs.gov/pub/irs-pdf/f1040.pdf

inbox788
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Joined: Thu Mar 15, 2012 5:24 pm

Re: portfolio review - where to put my next dollar of savings?

Post by inbox788 » Tue Apr 10, 2018 7:18 pm

TravelforFun wrote:
Thu Apr 05, 2018 7:42 pm
With your tax rate, I would:

1) contribute enough to my 401k to get the maximum match. No match, no contribution
2) contribute max to a Roth if you can
3) contribute max to an HSA
4) contribute to 529
5) put the rest in a taxable

In that order.

TravelforFun
I'd rank the HSA above the Roth for a health emergency fund. [15% marginal tax rate]
ruralavalon wrote:
Fri Apr 06, 2018 10:28 am
In addition to the maximum $18.5k to your 401k and the HSA, this investing priority --
1) $5.5k to Roth IRAs for both you and wife
2) 529s
3) pay extra on 4.75% mortgage note.

If you act immediately you can open and contribute to Roth IRAs for 2017.

I think it's reasonable to reduce the size of your emergency fund.

You asset allocation is within the range of what is reasonable in my opinion.
I'd also raise the mortgage payment since 4.75% is high. That 30% bond isn't returning much. Are you itemizing next year?
You can pay extra to mortgage and count it as bonds, and increase the AA towards more equities in the retirement funds. This assumes you have sufficient liquidity, so be cautious as to how much you reduce your emergency fund if you do this. Also, do you count your emergency fund in your AA? Some do, but probably most don't, but it can make a big difference given the number I'm seeing here.

Roth is also a good choice. I'd say the 529 can wait. Tax bracket/income and bond returns and expectations may change priorities.

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BL
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Re: portfolio review - where to put my next dollar of savings?

Post by BL » Wed Apr 11, 2018 9:03 am

To correct my previous comment, you have through April 17, 2018 to complete Roth IRA contributions for 2017. That is probably the only 2017 act you can still make. Then start maximizing for 2018.

BeerTooth
Posts: 228
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Re: portfolio review - where to put my next dollar of savings?

Post by BeerTooth » Wed Apr 11, 2018 11:26 am

OK, I opened Roth IRAs for my self and wife. maxed 2017 and 2018 contributions ($5500 * 2 * 2)
After this is done, next step might be to figure out how much or if all of your 401k should be Roth 401k. For 2018, your child tax credits may double up to 2k each, standard deduction is 24k, no personal exemptions. Your income is needed to calculate some of this, and I am just guessing you are near the top of the 12% bracket, but that is affected by whether you use traditional 401k or not. Your 6000 child tax credit will off-set how much income at 12%? The trad. 401k might help with getting or increasing savers and earned income credit. It will take a lot of calculating to get the perfect choice. Hopefully there will soon be a tax estimator for 2018.
https://www.irs.gov/retirement-plans/pl ... ers-credit
https://www.irs.gov/credits-deductions/ ... tax-credit for 2017.
Yes, I do my own taxes. I have itemized in the past, but with recent tax law changes, may not itemize in the future.

My large deductions are $13k mortgage interest + $10k SALT (property tax). Given that I can't bunch deductions due to $10k SALT limit, I may be taking the standard $24k deduction, plus $2k * 3 child tax credits and calling it a day. TaxAct 2018 calculator indicated I would owe ~$3k in federal tax for 2018.

Given that info, it seems the tax advantage of my mortgage is severely reduced, so I may put additional savings towards paying down 4.75% note.

Any guidance on what % of my 401k contributions should be traditional vs. Roth 401k?

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