Newbie: 35 and I have no idea what I'm doing

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soforth
Posts: 1
Joined: Sun Jan 22, 2017 8:55 pm

Newbie: 35 and I have no idea what I'm doing

Post by soforth » Tue Jul 17, 2018 9:24 pm

Hi,

Trying to get some advice on my family's current financial situation. Any/all feedback is welcome and appreciated!

Age: 35
Marital Status: Married, filing jointly
Residence: NYC, Rental
Employment: Software
Household income: $185k, take home ~9400/month
Debt: Student loans, ~17k, 5.25% interest rate

My wife bounced around to a lot of random jobs over several years and eventually went to graduate school. Over that time she didn't accumulate any retirement assets. She stopped working several months ago to stay at home with our <1yo. I do my best to handle the financial responsibilities but reading the other posts on this board I'm slowly realizing I don't know what I'm doing. Consequently I could use all the advice I can get!

Assets
Emergency fund: $20,000 @ 1% annually
Other liquid savings for various reasons: $5500 @ 1% annually

529 for child: $10,000 for 2018 (NY limit for max state tax deduction)

Retirement: $140,000
Rollover IRA from past jobs: $61,000 (Target 2055 retirement fund at VG)
Rollover Roth IRA from past jobs: $69,000 (Target 2055 retirement fund at VG)
Employer-sponsored 401k: $10,000 (Target 2055 retirement fund at Fidelity) - funded up to my employer match, it's roughly $1440/month

Taxable Brokerage Account at Vanguard: $56,000
* VBFMX Vanguard Total Bond Market Index Fund Investor Shares: $3,000
* VGTSX Vanguard Total International Stock Index Fund Investor Shares: $3,000
* VTSAX Vanguard Total Stock Market Index Fund Admiral Shares: $20,000
* VGT VANGUARD INFORMATION TECHNOLOGY ETF $3,000
* A bunch of individual stocks: $27,000

Notes:
  • As you can see things are kind of all over the place. The bulk of the individual stocks are tied up in shares from a previous job and "fun" money I got really lucky on several years ago -- I haven't really spent more than $5,000 to generate that $27,000. I don't like to actively trade individual stocks and would prefer to put money into index funds.
  • We've put a LOT of our extra money into paying down the student loan debt; it was $90k three years ago. We're looking to get it paid off completely this year.
  • My asset allocation for the taxable accounts are messed up because I misunderstood the "higher proportion of stocks when you're younger" advice. I didn't realize it was talking about tax-advantaged accounts and long-term investing for retirement. I'm very wary of the asset allocation now and would love to move towards something safer/more sustainable because I know this market isn't going to last forever.
  • My wife is staying at home with the baby now but we're not sure how long that will last. We're going to re-evaluate in a year.
Newbie questions:
  1. What's the best way to go about rebalancing funds in the taxable account? Should I wait until the 1 year mark to rebalance for long term capital gains? I'm okay with a three fund portfolio.
  2. I'd like to make an attempt to buy a house in the next ~4 years or so. Assuming I'd need $80k-$100k for a downpayment, what's the best way to use the money in my taxable account to get there? Should I sell it all and put the proceeds in a savings account?
  3. More generally: I see a lot of advice about putting money into retirement accounts because of the tax advantages. That makes sense, I get that. What I don't understand: what are the best ways to build wealth for money I'd like to have access to BEFORE I get to retirement age? Is it a taxable account?
  4. My wife has no retirement savings, but in the years she works we're over the joint income limit to contribute to a Roth IRA. I've heard of a backdoor Roth but I'm not sure how to go about doing it. Two questions: (1) Do I need to contact someone at a company to help me perform one? (2) Assuming that neither of us ever have any intentions of a divorce (for the sake of argument let's assume this is true), is there a point to investing in any retirement accounts for her? Would it make more sense to contribute more to my own instead?
  5. Should I hire and talk to a professional? What's the best way to go about finding someone?
Thanks!

spth
Posts: 134
Joined: Fri Aug 09, 2013 8:31 am

Re: Newbie: 35 and I have no idea what I'm doing

Post by spth » Tue Jul 17, 2018 9:48 pm

You should figure out you desired asset allocation of stocks and bonds. 70/30 or 60/40 stocks/bonds would be reasonable for people your age.

You can do Backdoor Roths but you’ll need to roll your tIRAs into your 401k first. See if you can do that.

You look to have $221,000 between the bank, retirement, taxable accounts and 529.

I’d recommend that you max out your 401k and do Backdoor Roths for you and your wife. Any excess money should go towards paying off debt, building up you emergency found, and saving for a down payment. Consider selling your taxable investments to do so.

I’d stay in the target date funds in your 401k until you have enough money to invest in taxable (even though you have taxable investments, you probably should not yet). You can then learn about tax efficient fund placement from wiki.

HEDGEFUNDIE
Posts: 238
Joined: Sun Oct 22, 2017 2:06 pm

Re: Newbie: 35 and I have no idea what I'm doing

Post by HEDGEFUNDIE » Tue Jul 17, 2018 9:55 pm

The majority of your money is already in Vanguard 2055, a perfectly appropriate fund for you. You're in better shape than you think.

Easiest thing to do is just sell everything in taxable account and buy Vanguard 2055 with that money as well. The fund will automatically get more conservative as you age. Or if you're confident about the home purchase buy Vanguard Prime Money Market to be safe.

Well done.

nasrullah
Posts: 138
Joined: Fri Feb 10, 2017 11:40 am

Re: Newbie: 35 and I have no idea what I'm doing

Post by nasrullah » Tue Jul 17, 2018 10:09 pm

soforth wrote:
Tue Jul 17, 2018 9:24 pm
  1. What's the best way to go about rebalancing funds in the taxable account? Should I wait until the 1 year mark to rebalance for long term capital gains? I'm okay with a three fund portfolio.
  2. I'd like to make an attempt to buy a house in the next ~4 years or so. Assuming I'd need $80k-$100k for a downpayment, what's the best way to use the money in my taxable account to get there? Should I sell it all and put the proceeds in a savings account?
  3. More generally: I see a lot of advice about putting money into retirement accounts because of the tax advantages. That makes sense, I get that. What I don't understand: what are the best ways to build wealth for money I'd like to have access to BEFORE I get to retirement age? Is it a taxable account?
  4. My wife has no retirement savings, but in the years she works we're over the joint income limit to contribute to a Roth IRA. I've heard of a backdoor Roth but I'm not sure how to go about doing it. Two questions: (1) Do I need to contact someone at a company to help me perform one? (2) Assuming that neither of us ever have any intentions of a divorce (for the sake of argument let's assume this is true), is there a point to investing in any retirement accounts for her? Would it make more sense to contribute more to my own instead?
  5. Should I hire and talk to a professional? What's the best way to go about finding someone?
1. This is really specific on what AA you want, and what the actual tax implications on short vs long term gains will look like for you. General advice would be to not spend money if you can avoid it - hence try to wait for long term / don't sell at all.

2. I understand the desire to own a house - it's practically been brainwashed into us that we have to do this to be a success. There are lots of negatives with home ownership. You are tying up a significant amount of your portfolio in an illiquid asset, you need to hold this asset 6+ years for it to make sense, if you get an opportunity with a company in a different location it's harder to relocate, etc... Don't go blindly into this thinking you're missing the bus, you might be better off not.

To answer your question, sub 5 year needs are not investments they're savings. There are different strategies to accomplish this - keep it in your portfolio and don't change your AA, change your AA, establish a different fund, etc... This itself could be a large debate.

3. You always have access to your funds in your tax advantaged accounts - the government is just going to slap you hard if you withdraw them early. Some retirement plans will let you take a loan against your holdings for qualified purchases (buying a house for example). I don't know all of the details but something you can look into. Otherwise, yes your options are Tax Advantaged and Taxable.

4. With no prenup in a community property state (I believe NY is similar to CA) it's not going to matter much where the assets are. They belong to the community. Divorces are financially punitive - avoid it if you can. General advice on the forum will be to max out your 401K (not just to employer match) before messing with IRAs.

5. Talk with Vanguard PAS (man I feel like I've been shilling for them lately). They will help you figure out your AA, help you figure out down payment savings, help you figure out tax advantaged vs taxable contributions, help you figure out how to reallocate your holdings based on your tax implications, and give you all of this for free before you commit. You can pay them the 0.30%/year to make your life easier, or do it yourself (or use them for a couple of quarters and then stop).
"We have a lot to do, and very little time, so we must work slowly." Liviu Ciulei | | Thanks vineviz (https://www.bogleheads.org/forum/memberlist.php?mode=viewprofile&u=134698) for the quote.

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badbreath
Posts: 890
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Re: Newbie: 35 and I have no idea what I'm doing

Post by badbreath » Tue Jul 17, 2018 10:10 pm

d
Newbie questions:
What's the best way to go about rebalancing funds in the taxable account? Should I wait until the 1 year mark to rebalance for long term capital gains? I'm okay with a three fund portfolio. I would just move the bonds and information technology into total stock since you do not have very much and the tax will be low
tI'd like to make an attempt to buy a house in the next ~4 years or so. Assuming I'd need $80k-$100k for a downpayment, what's the best way to use the money in my taxable account to get there? Should I sell it all and put the proceeds in a savings account? None of your house down payment should be in a taxable account.
More generally: I see a lot of advice about putting money into retirement accounts because of the tax advantages. That makes sense, I get that. What I don't understand: what are the best ways to build wealth for money I'd like to have access to BEFORE I get to retirement age? Is it a taxable account?
My wife has no retirement savings, but in the years she works we're over the joint income limit to contribute to a Roth IRA. I've heard of a backdoor Roth but I'm not sure how to go about doing it. Two questions: (1) Do I need to contact someone at a company to help me perform one? (2) Assuming that neither of us ever have any intentions of a divorce (for the sake of argument let's assume this is true), is there a point to investing in any retirement accounts for her? Would it make more sense to contribute more to my own instead? Yes you should always up the 401k then move on to Roth at your income for both you and your spouse. just call and ask Vanguard how its done the you will know for future years (its not that hard)
Should I hire and talk to a professional? No What's the best way to go about finding someone?
Thanks!
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

FoolMeOnce
Posts: 211
Joined: Mon Apr 24, 2017 11:16 am

Re: Newbie: 35 and I have no idea what I'm doing

Post by FoolMeOnce » Tue Jul 17, 2018 10:16 pm

soforth wrote:
Tue Jul 17, 2018 9:24 pm

[*] My asset allocation for the taxable accounts are messed up because I misunderstood the "higher proportion of stocks when you're younger" advice. I didn't realize it was talking about tax-advantaged accounts and long-term investing for retirement. I'm very wary of the asset allocation now and would love to move towards something safer/more sustainable because I know this market isn't going to last forever.
Can you clarify what you think your misunderstanding was? I don't think asset allocation and age-based glide paths toward safer allocations has any relation to taxable v. retirement accounts.

If you are considering lowering your equity exposure and shifting more to bonds, conventional wisdom is to place the bonds in your tax-preferred accounts rather than taxable, since the bond interest of taxes as income. See the wiki:https://www.bogleheads.org/wiki/Tax-eff ... _placement
soforth wrote:
Tue Jul 17, 2018 9:24 pm
[*] My wife has no retirement savings, but in the years she works we're over the joint income limit to contribute to a Roth IRA. I've heard of a backdoor Roth but I'm not sure how to go about doing it. Two questions: (1) Do I need to contact someone at a company to help me perform one? (2) Assuming that neither of us ever have any intentions of a divorce (for the sake of argument let's assume this is true), is there a point to investing in any retirement accounts for her? Would it make more sense to contribute more to my own instead?
(Almost) no one has any intention of a distant future divorce. I think it makes sense for both of you to contribute to retirement accounts. Perhaps it would get balanced out in divorce proceedings, but it still seems equitable to contribute to both. Also, with your income and then perhaps your wife going back to work, it might not need to be an either-or situation.

sjt
Posts: 68
Joined: Fri May 26, 2017 3:03 pm

Re: Newbie: 35 and I have no idea what I'm doing

Post by sjt » Wed Jul 18, 2018 6:47 am

soforth wrote:
Tue Jul 17, 2018 9:24 pm

Newbie questions:
  1. What's the best way to go about rebalancing funds in the taxable account? Should I wait until the 1 year mark to rebalance for long term capital gains? I'm okay with a three fund portfolio.

    sjt: Probably makes sense to wait until 1 year mark to rebalance, unless some of those stock have losses and the gains would cancel out the losses - could end up with a small tax liability.
  2. I'd like to make an attempt to buy a house in the next ~4 years or so. Assuming I'd need $80k-$100k for a downpayment, what's the best way to use the money in my taxable account to get there? Should I sell it all and put the proceeds in a savings account?

    sjt: a savings account will accrue little interest. Check out some short term CDs - I used Ally bank no penalty 11 month CD last year and made 1.5%
  3. More generally: I see a lot of advice about putting money into retirement accounts because of the tax advantages. That makes sense, I get that. What I don't understand: what are the best ways to build wealth for money I'd like to have access to BEFORE I get to retirement age? Is it a taxable account?

    sjt: Roth IRA contributions can be withdrawn at any time without consequence. Note, this is for contributions only, not the gains. If you contributed $90k to Roth IRA over the years, and it grew to $300k over that period, you could withdraw $90k from that account before retirement age. Otherwise taxable account is a good place.

    Also, if you're thinking early retirement - there is a way to access 401k funds before retirement. I believe it's called 72(t) - but who knows if that will still be an option when you or I near retirement age.
  4. My wife has no retirement savings, but in the years she works we're over the joint income limit to contribute to a Roth IRA. I've heard of a backdoor Roth but I'm not sure how to go about doing it. Two questions: (1) Do I need to contact someone at a company to help me perform one? (2) Assuming that neither of us ever have any intentions of a divorce (for the sake of argument let's assume this is true), is there a point to investing in any retirement accounts for her? Would it make more sense to contribute more to my own instead?

    sjt: Countless threads on here about doing Backdoor Roth, and I'm sure it's in the Wiki also.
  5. Should I hire and talk to a professional? What's the best way to go about finding someone?

    sjt: I don't see a need to hire a professional. Read through the Bogleheads wiki a few times and scan the discussion boards - you'll learn a lot!
Thanks!
SJT
"The one who covets is the poorer man, | For he would have that which he never can; | But he who doesn't have and doesn't crave | Is rich, though you may hold him but a knave." - Wife of Bath tale

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whodidntante
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Re: Newbie: 35 and I have no idea what I'm doing

Post by whodidntante » Wed Jul 18, 2018 7:00 am

HEDGEFUNDIE wrote:
Tue Jul 17, 2018 9:55 pm
Easiest thing to do is just sell everything in taxable account and buy Vanguard 2055 with that money as well. The fund will automatically get more conservative as you age. Or if you're confident about the home purchase buy Vanguard Prime Money Market to be safe.
That will not be tax efficient once the glide path bouncing ball gets to the point where the fund holds more bonds. And you'll hopefully have a lot of capital gains by that time, so you'll be trapped in a less than optimal tax situation.

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Tamarind
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Re: Newbie: 35 and I have no idea what I'm doing

Post by Tamarind » Wed Jul 18, 2018 8:14 am

You're actually in fine shape, OP.

1) You should sell the individual stocks as you are able to cover the gains (don't take more than 2-3 years at most to do this).

2) Don't contribute another dollar to 529 until your student loans are paid off. As you say, it won't be long.

3) You are probably paying more tax than you need to. Boost your contributions to tax-advantaged plans. It looks to me like you ought to be able to make direct Roth IRA contributions, with no need to use the backdoor yet. You should also be able to contribute to a spousal Roth IRA for your wife. The beginning of phaseout for Married Filling Jointly being MAGI of $189k for 2018, and contributions to your traditional 401k will lower your MAGI further.

3a) Even if you never divorce, you should contribute to retirement accounts in your wife's name whenever possible. The most obvious reason is that it gets you access to more tax-advantaged space you would not otherwise have. This is not an either-or decision. You should do both and increase your savings rate.

4) What kind of spending do you want to do with your pre-retirement wealth? Do you mean saving for items like a down payment? Or increasing your expenses and living above your income in general?

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Taylor Larimore
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Read a good book about investing

Post by Taylor Larimore » Wed Jul 18, 2018 9:26 am

soforth:

Welcome to the Bogleheads Forum!
35 and I have no idea what I'm doing.
The best thing you can do is to read a good book about investing. This is a link to help you select a good book that appeals to you:

https://www.bogleheads.org/wiki/Books:_ ... t-up_books

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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