Help with planning

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rslmt
Posts: 2
Joined: Tue Mar 19, 2013 12:26 pm

Help with planning

Post by rslmt » Fri May 11, 2018 12:09 pm

Hello -

First post! Thank you for all of the information that you share. It gives us lots to think about. We are at a point where we wonder what we should be doing next.

Some information about us -- we are 54 (me) and 57 (husband). We both work for large companies and together earn about $235k/yr. We hope to work for another 10+ years. We would like to work for our current companies as we feel we are fairly compensated, the companies have good benefits, and allow us good flexibility. After Child #3 finishes college, we will probably continue working, but hopefully for more pleasant companies :). Both companies are reorganizing constantly and I sometimes wonder if we will get reorg'd out...

We have 3 children - the oldest has significant special needs that we will need to support in the future, the second is in college (2 years remaining) and the third will begin high school next year.

We don't deliberately save outside of our 401k accounts -- primarily because we are paying for Child #2's private college costs out of earnings. We had extra money last year and set up an ABLE account for our oldest child. We will probably try to contribute to that annually.

I will have a pension after retirement of about $1,200 /mo after retirement through my company. Since I left the company for a few years and then returned, the amount is frozen. my husband will not have a pension. We both will be eligible for social security.

We have visited 2 investment advisors in the last year -- both free services associated with our 401k plans - one through Vanguard and one through Fidelity. Neither provided any insight into retirement. Both saying that we have been good savers and should continue to do what we are doing. Both would be happy to manage our investments for a fee -- Vanguards was small, Fidelity was over 1%. We said we'd think about and left.

I play with an Excel spreadsheet to estimate our investments and expenses in retirement. Our current spending is $90k-ish a year (excluding college for Child #2). I assume a 3% inflation rate and use a 3% return on our investments. It looks like we'll be able to live to 100 -- not sure I really want to last that long!

Emergency funds: yes
Debt: Mortgage of $25,000 @ 3.875%, no other debt
Tax Filing Status: Married Filed Jointly
Tax Rate: xx% Federal, xx% State - ???
State of Residence: MA
Age: W - 54, H - 57
Desired Asset allocation: 60% stocks / 40% bonds
Desired International allocation: 10% of stocks

Current total portfolio $1.6m

Current assets -
Checking and savings accounts (includes tuition and emergency funds) $50k

Taxable/Other
Morgan Stanley - earmarked for Child #1 $81K
Fidelity - cash $42k -- not sure about spending this on home renovations or invest?
US Savings Bonds $22k
529 College Savings - Child #2 and #3 $99,000
ABLE - Child #1 $14k

His 401k
Fidelity - 2025 Target Retirement fund $133k

His Rollover IRA at Vanguard
VTHRX - Target Retirement 2030 $206k

His Rollover IRA at Fidelity - $322k
* Transferred money from a Morgan Stanley managed account to Fidelity. Plan to move $ from Money Mkt to Funds over 12 months - 20% FTIPX, 40% FSITX and 40% FSTVX. The majority is currently in CORE - FDIC Insured Deposit Sweep

Her Traditional IRA at Vanguard
VTHRX - Target Retirement 2030 $477k

Her Roth IRA -
VTIAX - Total International Stock Index Admiral $63k

Her 401k - Vanguard

Target Retirement 2025 $20k
Target Retirement 2030 $139k


New annual Contributions to our 401k
Maximum his 401k - yes, company contribution varies based on how the company performs
Maximum her 401k - yes, company contribution varies based on how the company performs
Both of our 401k plans allow for after tax contributions. We will need to get more information on exactly what this means

Questions:
1.  Should we continue to contribute the maximum amounts to 401k plans or should we be contributing to after tax accounts?
2.  Since we are currently able to pay for Child #2's college costs out of our current earnings, our plan is to move any remaining money from his 529 account to Child #3's account. If there is anything remaining, we will then move the money to Child #1's ABLE account. Does this make sense?
3.  I'm having a hard time determining what a "back door Roth IRA" account is and if we should be doing this. It seems very complicated and if we should be doing this, how we should do it?
3. What other questions should we be asking ourselves?
Last edited by rslmt on Fri May 11, 2018 8:21 pm, edited 1 time in total.

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ruralavalon
Posts: 13938
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Help with planning

Post by ruralavalon » Fri May 11, 2018 4:42 pm

Welcome to the forum :) .

Do the 401ks, or either of them, allow Roth contributions?

Will your husband also be eligible for a pension?

Will you both also be eligible for Social Security benefits?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

ExitStageLeft
Posts: 897
Joined: Sat Jan 20, 2018 4:02 pm

Re: Help with planning

Post by ExitStageLeft » Fri May 11, 2018 4:47 pm

Hi and welcome to the forum! Congrats on raising three children and being focused savers. It looks like you're in a great position financially.

On your questions...
1) Yes, continue maximum tax-deferred contributions rather than putting it in taxable. See Prioritizing Investments.

2) Makes sense, assuming those specific plans allow transferring the money.

3) For higher incomes like yours, the ability to contribute to a Roth IRA phases out at $199k. A back-door Roth is when you instead contribute to an IRA account and immediately convert that to a Roth IRA. Because of the pro-rata rule, you don't want to have any other traditional IRA accounts when you do a backdoor conversion. It sounds complicated, and I'm sure it can be. In your case however, your actual taxable income is probably low enough that you may be able to do direct Roth contributions.

Edit to add: Ah, looks like the phase-out is based on AGI, not taxable income. Depending on your tax filing you might still be able to do a Roth contribution.

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: Help with planning

Post by delamer » Fri May 11, 2018 6:48 pm

You have a significant amount of savings and a virtually paid off house. Those can probably get you through most scenarios.

But here is my response to your question #3 —

You are both in jobs that are at least somewhat in jeopardy, since you mentioned possibly being reorganized out of them.

So how would you handle the 6 years left of college and providing for the future of your special needs child in the worst-case scenario that you both lose your jobs at the same time and are unable to find comparable work?

You talk about moving money between 529 plans, but what if you can’t cash flow college like you are now? What if suddenly you need to pay for basuc expenses — including health insurance — out of your savings well before Social Security and Medicare?

Given the difficulties that I’ve seen friends laid off at your age have in finding new jobs that are similar in salary/benefits to their old positions, that is what I’d be worried about in your situation.

rslmt
Posts: 2
Joined: Tue Mar 19, 2013 12:26 pm

Re: Help with planning

Post by rslmt » Fri May 11, 2018 8:51 pm

Thank you for your responses -
Exitstageleft-will read this article and need to get a better understanding of the after tax contributions allowed by our plans. If the plans allow an after tax contribution option, is this the same as a Roth IRA?

Ruralavalon - updated original post to indicate that my husband will not have a pension and when that we will both be eligible for social security. Also I believe both plans. Allow after tax contributions

Delemer - this is the question that I keep coming back to. And keeps us going back to current jobs that are good jobs... but jobs that don't excite us anymore. Although we don't see our jobs being going away, 10 years is a long time and I don't expect that we would get jobs with similar salaries at our age.

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ruralavalon
Posts: 13938
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Help with planning

Post by ruralavalon » Sat May 12, 2018 9:05 am

rslmt wrote:
Fri May 11, 2018 8:51 pm
Thank you for your responses -
Exitstageleft-will read this article and need to get a better understanding of the after tax contributions allowed by our plans. If the plans allow an after tax contribution option, is this the same as a Roth IRA?

Ruralavalon - updated original post to indicate that my husband will not have a pension and when that we will both be eligible for social security. Also I believe both plans. Allow after tax contributions
Roth contributions and after tax contributions are different things.

If uncertain after reading the plan documents, ask HR or the plan manager.

. . . . .

Here is a general account funding priority that usually works well for many people (when there is no high interest debt or HSA use):
1) Contribute to the work-based plans (401k, 403b, 457, TSP, etc.) enough to get the full employer match (the match is like free money, your best possible investment);
2) Contribute the maximum to an IRA, traditional or Roth (or backdoor Roth technique), depending on eligibility and personal circumstances;
3) Contribute the remainder of the maximum employee contribution to the work-based accounts; and
4) Contribute to a taxable investing account.
Please see the wiki article "Prioritizing investments".

I suggest continuing with the maximum annual contributions to both 401ks, and doing backdoor Roth IRAs. Wiki article, "Backdoor Roth IRA".
Last edited by ruralavalon on Sat May 12, 2018 9:59 am, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Lafder
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Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: Help with planning

Post by Lafder » Sat May 12, 2018 9:57 am

Yes I would max pretax 401k's and yes I would do back door Roths.

You and your spouse can do back door Roths of 6500 each. But, you need to not have IRAs or it messes up the taxes owed due to a pro rata rule.

You would need to roll existing IRAs (including rollover IRAs) into your 401k's. You are allowed to have 401k's to do back door Roths, but no existing IRA balances by 12/31 of the year you do the back door Roth.

The nice thing about Roths is that you never pay taxes on them again and it will add up over the next 10 years.

Regarding 401k Roth, it counts towards your maximum allowable 401k contribution, and I think you would come out ahead to max your pretax contributions there.

It took me several years to roll IRAs into our 401ks to be able to do back door Roths, but I am glad we did.

lafder

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ruralavalon
Posts: 13938
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Help with planning

Post by ruralavalon » Sat May 12, 2018 10:03 am

What are the expense ratios on the target date funds you are using in the two 401ks? Is that a Fidelity Target Retirement Index Fund in his 401k?

Will the 401ks accept incoming rollovers from your traditional IRAs?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Sandtrap
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Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

Re: Help with planning

Post by Sandtrap » Sat May 12, 2018 11:28 am

Welcome
Congratulations on your successes.
3. What other questions should we be asking ourselves?
A few Random Questions to ponder:

1 If you were to retire in 10 years. . . . at your present savings rate, how much would you have in your portfolio?
2. at age 65, and both retired, what would your annual expenses be?
3. at age 65, what would your projected annual income be: pension, SS, etc.
4. if either of you or one spouse either retired early or left employment between now and age 65, how would you handle medical expenses?
5. would either of you have employee sponsored medical benefits when retiring before age 65 and eligible for Medicare?
6. what would happen to your retirement plans between now and age 70 if collecting SS then, if one spouse became unemployed?
7. if retiring at age 65, and the market sustains a downturn with portfolio equity halved, what would your financial scenario be?
8. if something were to happen to you and your spouse from now until age? . . do you have financial and logistical (trusts/wills) measures in place?
This is why it is important to have your IPS Statement Solidified, for yourself and your hares, trustees, etc.

Define General Investment Goals and Objectives (what is your plan?)
https://www.bogleheads.org/wiki/Invest ... statement

Here are some tools that may be useful to you for projections, managing funds across various accounts, and testing various fund and allocation scenarios.
ONLINE FINANCIAL TOOLS
PORFOLIO VISUALIZERS, PROJECTIONS, AND ANALYSIS
https://www.portfoliovisualizer.com
Firecalc. Retirement. How long will your money last?
https://www.firecalc.com
Morningstar Instant Xray
http://www.morningstar.com/portfolio.ht ... Entry.aspx
Optimal Retirement Planner (I-ORP)
https://www.i-orp.com/paper/index.html

aloha
j

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Earl Lemongrab
Posts: 5419
Joined: Tue Jun 10, 2014 1:14 am

Re: Help with planning

Post by Earl Lemongrab » Sat May 12, 2018 1:17 pm

rslmt wrote:
Fri May 11, 2018 12:09 pm

Both of our 401k plans allow for after tax contributions. We will need to get more information on exactly what this means
If this means that you can make non-Roth after-tax contributions, then you should also find out if the plan(s) allow in-service distribution of those. If so, this is a means to pump up your Roth IRA because these contributions are usually allowed in excess of the normal deferral/Roth limit.

See "Mega Backdoor Roth" in many threads in the forum.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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