I just made the switch from a higher pay/stress private sector job to a lower pay/stress public sector (federal) job. As part of that switch, I am currently making decisions about whether to keep or roll over my old 401(k), whether to change my AA, etc.
6 month EF, plus funds for anticipated car purchase later this year
$1MM umbrella policy
Mortgage: 5/5 PenFed ARM, $114k balance @ 2.625%. Rate resets Feb 2019, likely to 4.625%. Could immediately reset rate for 5 years to (as of today) 3.9375% for a $250 fee.
No other debt
Age: late 30s
Single, no dependents
Tax rate (2019 & beyond): 22% federal, 8% state; (2018): 32% federal, 8.5% state
Deployable cash (checking minus EF and car fund): $27k (not included in % totals below - if it was, all percentages below would drop a bit and the cash position would be around 6% of the total)
Current total of all accounts below is a little under $400k
Taxable (Vanguard) 22% of total
$86k mix of Total International and FTSE ex-US due to tax-loss harvesting (VTIAX and VFWAX) (both ERs 0.11%)
If I were to sell these today, there would be a net ~$450 ST gain and ~$4500 LT gain. (I will have a ~$400 capital loss carryover from my 2017 taxes.)
Roth IRA (Vanguard) 25% of total
$49.5k Total Int’l (VTIAX) (0.11%)
$47k Total Int’l Bond (VTABX) (0.11%)
Old 401(k) (traditional, not Roth) (Schwab - ERs include the base ER of the fund, plus plan administrative fees) 40% of total
$21k Vanguard S&P 500 (VINIX) (0.07%)
$34.5k Vanguard (Large-Cap) Value (VIVIX) (0.07%)
$73k Vanguard Small-Cap Value (VSIIX) (0.09%)
$7.5k Vanguard Developed Mkts (VTMNX) (0.09%)
$2.5k Vanguard Emerging Mkts (VEMIX) (0.14%)
$21.5k Vanguard Total Bond (VBTIX) (0.07%)
Other available Vanguard funds in Schwab 401(k) (similar ERs)
Large-Cap Growth (VIGIX)
Mid-Cap Growth, Blend, Value (VMCIX, VMGAX, VMVAX)
Small-Cap Growth, Blend (VSGIX, VSCIX)
TSP (Federal gov’t 401(k)) 9% of total
$36.5k G Fund (bond/stable value/money market hybrid unique to the TSP) (0.03%)
Other available TSP funds (all 0.03% ER)
C Fund (S&P 500)
S Fund (small/mid cap; Dow Jones Completion Index)
F Fund (total bond index)
I Fund (Basically large-cap developed markets ex-US and Canada; supposedly changing index to something more like Total International in a year or two)
HSA (HSA Bank) 4% of total
$14k JP Morgan S&P 500 Index (HLEIX) (0.41%)
Other available HSA funds - Hundreds; here is a summary of the commission-free list:
SPDR and iShares ETFs with ERs from 0.03% to 0.20%, including domestic equity in large/mid/small & blend/growth/value slices, developed/emerging markets, and numerous bond funds
SPDR Small-Cap International (GWX) (0.40%)
SPDR Small-Cap Emerging Markets (EWX) (0.65%)
Current target allocation (a little drift over the last few months, but my actual AA is close)
73/27 stocks/bonds (shifting 1-2% to bonds each year)
50/50 domestic international split for both equity and fixed income
25/25/50 domestic large cap blend, domestic large value, domestic small value
Doing the arithmetic on the above (with some rounding) yields:
9% S&P 500/Large-Cap Blend
9% Large Value
18% Small-Cap Value
14% US Bond
14% Int’l Bond
1) It will take me a few months getting used to the new salary to make sure, but I think I will still be able to max my TSP, Roth IRA (I should be able to start making direct rather than backdoor contributions starting next year), and HSA. Assuming I do not pay off my mortgage (see first question below), after maxing tax-advantaged accounts I do not anticipate having enough to make significant contributions to taxable going forward. When factoring in the employer match, nearly 75% of my future contributions will be to the TSP (I am planning to make all traditional, no Roth TSP contributions).
2) Some of my positions are artifacts of the low-cost fund choices I had available when I last redid my AA a few years ago. For example, the domestic equity split is similar to that of a Coffeehouse portfolio, except that the small portion is all value, rather than a value/blend split (I don’t remember exactly, but I might not have had access to a small blend fund at the time), and has no REITs (never been convinced they were worth the extra complexity). The only reason I have both developed and EM in the Schwab 401(k) is that total international is not available in that account.
3) I’m considering making the charitable donations that I was planning for 2019 in December 2018 instead because of my higher marginal tax rate this year.
1) I told myself I did not want to have the majority of my net worth tied up in my home, and so over the last few years I favored contributing to taxable over paying down my mortgage (though I did some of both). And even after the rate hike, my mortgage rate will still be low by historical standards. But I have to say, seeing that my remaining mortgage balance is within $1k of my deployable cash + taxable holdings (at least as of today, who knows what asset prices will be next week), I am certainly tempted to burn the mortgage, and then start to rebuild the taxable account from the newly freed cash flow. Thoughts?
2) What to do with the Schwab 401(k)?
- Option A: Leave as-is. Schwab’s fees are very slightly higher, but still pretty low. (During my exit interview, I was told that there are no differences in account fees for current vs. former employees.) This would be the easiest option, requiring no paperwork, and I’d be able to continue to use Vanguard funds to slice & dice. Main downside is that there would be one more set of accounts to monitor, and I’d need to keep an eye out for any changes to the plan fees and/or fund options.
Option B: Rollover to TSP. Lowest possible fees. Would allow me to immediately use the G Fund as my sole US fixed income holding, if I wanted. Main downside is somewhat less flexibility to slice & dice. The current I Fund index is also arguably not as broad as the options available from Vanguard.
Option C: Roll to a traditional IRA at Vanguard. Lower fees than Schwab, and access to all Vanguard funds. Primary downside is that if I went back to the private sector in the future and became ineligible for direct Roth contributions, I would need to roll this IRA into a 401(k) or the TSP to avoid screwing up backdoor Roth contributions.
4) Finally, how best to implement all of the above given the fund choices available in each account?
It’s funny - if someone else were to ask these questions, I would probably have no trouble coming up with an opinion, but when it’s your own life, it’s much easier to get choice paralysis. Any thoughts are appreciated.