Retirement Account Consolidation and Adjustment

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mweivoda
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Joined: Sat Aug 04, 2018 1:21 pm

Retirement Account Consolidation and Adjustment

Post by mweivoda » Sat Aug 04, 2018 4:35 pm

Hello -

I've recently finished consolidating various retirement accounts and now I'm in the process of reassessing the investment options. Would appreciate any suggestions on how to simplify investments, reduce expenses, and stay on target for (hopefully) retirement by 60.

I believe I've provided all the required information, but let me know if there's anything missing.

Thank you!

Emergency funds: Yes, in a local credit union – 1.61% APY
Debt: No debt
Tax Filing Status: Single
Tax Rate: 22% Federal, 7.05% State
State of Residence: MN
Age: 35
Desired Asset allocation: 90% stocks / 10% bonds (but open to suggestions)
Desired International allocation: xx% of stocks (open to suggestions)
Total in retirement accounts - ~$160k

Current retirement assets

His 401k
11% Schwab Mngd Ret Trust 2050 Cl IV (SM450) (0.45%)
8% Fidelity Contrafund K (FCNKX) (0.65%)
6% Schwab S&P 500 Index (SWPPX) (0.03)
6% American Beacon Small Cp Val Inst (AVFIX) (0.83%)
2.5% Carillon Eagle Small Cap Growth R6 (HSRUX) (0.66%)
5% Oppenheimer International Growth I (OIGIX) (0.69%)
7% Vanguard International value Inv (VTRIX) (0.40%)
2.5% Blackrock Total Return Bond Fund T (BTCTRT) (0.22%)
5% MassMutual Stable Value Fund (MAS20046) (0.43%)
10% Employee Stock
Company match – 100% up to 4% of Salary

His Roth IRA at Vanguard
37% Vanguard LifeStrategy Growth Fund (VASGX) (0.14%)

Contributions

New annual Contributions
~$9500 his 401k (+ ~$3,000 employee match)
$5500 his Roth IRA

Available funds
Funds available in his 401(k)
Schwab Mngd Ret Trust 2010 Cl IV (SM410) (0.45%)
Schwab Mngd Ret Trust 2015 Cl IV (SM415) (0.45%)
Schwab Mngd Ret Trust 2020 Cl IV (SM420) (0.45%)
Schwab Mngd Ret Trust 2025 Cl IV (SM425) (0.45%)
Schwab Mngd Ret Trust 2030 Cl IV (SM430) (0.45%)
Schwab Mngd Ret Trust 2035 Cl IV (SM435) (0.45%)
Schwab Mngd Ret Trust 2040 Cl IV (SM440) (0.45%)
Schwab Mngd Ret Trust 2045 Cl IV (SM445) (0.45%)
Schwab Mngd Ret Trust 2050 Cl IV (SM450) (0.45%)
Schwab Mngd Ret Trust 2055 Cl IV (SM455) (0.45%)
Schwab Mngd Ret Trust 2060 Cl IV (SM460) (0.45%)
Schwab Mngd Ret Trust Income Cl IV (SM4FI) (0.45%)
Fidelity Contrafund K (FCNKX) (0.65%)
MFS Value R6 (MEIKX) (0.49%)
Schwab S&P 500 Index (SWPPX) (0.03)
American Beacon Small Cp Val Inst (AVFIX) (0.83%)
Carillon Eagle Small Cap Growth R6 (HSRUX) (0.66%)
Fidelity Mid Cap Index Institutional (FSTPX) (0.04%)
TIAA-CREF Small-Cap Blend Idx Inst (TISBX) (0.06%)
Oppenheimer Developing Markets I (ODVIX) (0.88%)
Oppenheimer International Growth I (OIGIX) (0.69%)
Vanguard Developed Markets Index Admiral (VTMGX) (0.07%)
Vanguard International value Inv (VTRIX) (0.40%)
Principal Global Div Inc Instl (PGDIX) (0.78%)
Blackrock Total Return Bond Fund T (BTCTRT) (0.22%)
Vanguard Total Bond Market Index I (VBTIX) (0.04%)
MassMutual Stable Value Fund (MAS20046) (0.43%)
Employee Stock

PFInterest
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Re: Retirement Account Consolidation and Adjustment

Post by PFInterest » Sat Aug 04, 2018 6:30 pm

At 29% marginal one could argue maxing 401k first prior to rIRA. But not wrong. Can you do both?

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BL
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Re: Retirement Account Consolidation and Adjustment

Post by BL » Sat Aug 04, 2018 6:53 pm

Fidelity Contrafund K (FCNKX) (0.65%)
MFS Value R6 (MEIKX) (0.49%)
Schwab S&P 500 Index (SWPPX) (0.03)
American Beacon Small Cp Val Inst (AVFIX) (0.83%)
Carillon Eagle Small Cap Growth R6 (HSRUX) (0.66%)
Fidelity Mid Cap Index Institutional (FSTPX) (0.04%)
TIAA-CREF Small-Cap Blend Idx Inst (TISBX) (0.06%)
Oppenheimer Developing Markets I (ODVIX) (0.88%)
Oppenheimer International Growth I (OIGIX) (0.69%)
Vanguard Developed Markets Index Admiral (VTMGX) (0.07%)
Vanguard International value Inv (VTRIX) (0.40%)
Principal Global Div Inc Instl (PGDIX) (0.78%)
Blackrock Total Return Bond Fund T (BTCTRT) (0.22%)
Vanguard Total Bond Market Index I (VBTIX) (0.04%)
MassMutual Stable Value Fund (MAS20046) (0.43%)
Employee Stock
Consider from above blue funds.

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badbreath
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Re: Retirement Account Consolidation and Adjustment

Post by badbreath » Sat Aug 04, 2018 7:25 pm

Have to agree with BL
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

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ruralavalon
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Re: Retirement Account Consolidation and Adjustment

Post by ruralavalon » Sun Aug 05, 2018 12:34 pm

It's great to see that you are debt free, and have an emergency fund.

You have some excellent funds offered in your 401k, you are fortunate.

Will you be eligible for a significant pension?

Asset allocation.
mweivoda wrote:
Sat Aug 04, 2018 4:35 pm
Age: 35
Desired Asset allocation: 90% stocks / 10% bonds (but open to suggestions)
Desired International allocation: xx% of stocks (open to suggestions)
At age 35 I suggest about 20 - 25% in bonds. This is expected to substantially reduce portfolio volatility (risk), with only a relatively slight decrease in portfolio return. Graph, "An Efficient Frontier: the power of diversification". Please see the wiki articles Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk", and "Asset allocation".

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). (You can find lots of debate here on international allocation, opinions ranging all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box (upper right, this page).

That works out to about 20% bonds, 20% international stock, and 60% domestic stocks. Asset allocation is a very personal decision. You must decide on an allocation



Contributions.
New annual Contributions
~$9500 his 401k (+ ~$3,000 employee match)
$5500 his Roth IRA
In the your tax bracket (22% Federal, 7.05% State), with good low expense funds offered in your 401k, I suggest making maximum contributions to your 401k rather than continuing to a Roth IRA.

"If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA.
An investor's tax bracket may influence the decision as well: those in higher tax brackets should consider higher contributions to a tax-deferred plan (e.g. traditional 401(k) or IRA) rather than a post-tax plan (e.g. Roth 401(k) or IRA);"
Please see the wiki article "Prioritizing investments".

Retirement usually means that employment income has ended. Most people are in a lower tax bracket in retirement. The income tax code is progressive, with a lower tax rate for lower income. Therefore, for most people traditional 401k contributions will probably be better. TFB blog post, "The case against Roth 401k". "I think for most people the majority, if not 100%, of the contribution should go to a Traditional 401(k)."

A pension changes that analysis, so that Roth contributions are likely better if you have a significant pension coming in addition to Social Security. TFB blog post, "Most TSP participants should switch to the Roth TSP". That post discussed the effect of a federal pension, but the analysis should hold for other pensions.

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."


Fund selection.
In selecting funds strive for a combination of broad diversification (to reduce risk) and low expense ratios (to increase your net gain). To simply and easily achieve those two goals I suggest choosing funds to simulate the very well diversified, low expense ratio "three-fund portfolio". Wiki article "Three-fund portfolio". Forum discussion, "The Three-Fund Portfolio".

It is often better coordinate investments across all accounts, in other words treat all accounts together as a single unified portfolio, rather than view each account separately. Select just one or two of the better funds (most diversified + lower expense ratio) in the work-based account (401k, 403b, 457, TSP etc.), where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited or choices available in a taxable account or any IRAs. This approach lets you avoid having to use sub-par funds often found in work-based accounts like 401ks.

For domestic stocks I suggest using a total stock market index fund where available; otherwise an S&P 500 index fund is good enough by itself for domestic stocks. "In a 401(k) plan with limited choices one might very well opt for an S&P 500 index fund to serve as the domestic stock component of a three-fund portfolio." Wiki article, Three-fund portfolio, "Other considerations".

An S&P 500 index fund covers 81% of the U.S. stock market investing in stocks of selected large-cap and mid-cap U.S. companies, and in the 26 years since the creation of the first total stock market index fund the total return of the two types of funds has been almost identical. Morningstar, "growth of $10k" graph, VTSAX vs VFIAX. In the first 10 years the S&P 500 fund did better, in the last 10 years the total market fund did better, and over the 26 years the total market fund gave a little more return (0.11% per year), but at the cost of a little more volatility (risk): nisiprius post, in the forum discussion "Exchanging the S&P 500 for the TSM". See also Allan Roth, CBS Moneywatch, "John C. Bogle on the S&P 500 vs. the Total Stock Market". So it seems that adding a little in mid/small cap stocks trying to mimic the holdings of a total stock market fund has historically made little difference in performance.

If you want to add the small-cap index fund, then an 82/18 mix of S&P 500 and small-cap market will approximate the content of a total stock market index fund. Wiki article, "Approximating total stock market". In my opinion this is not necessary, it is optional if you prefer to do this.




Example portfolio.
Here is an example portfolio that you could consider. This is a three-fund type portfolio, modified as necessary to accommodate the fund offerings in your 401k. Current portfolio size = $160k. New annual contributions = about $18kk. The asset allocation is: 20% bonds; 20% international stocks; and605% domestic stocks. The percentages given are percentages of the total portfolio, not of a given account. The suggestion is to switch both the existing balances and the new contributions to the funds indicated. All percentages and dollar amounts are rounded off, so may not add up exactly. Sometimes I state 00% to indicate funds you might want to add in the future.

His 401k (63% of portfolio)
23%, Schwab S&P 500 Index (SWPPX) ER 0.03%
20%, Vanguard Developed Markets Index Admiral Shares (VTMGX) ER 0.07%
20%, Vanguard Total Bond Market Index Institutional (VBTIX) ER 0.04%

His Roth IRA @ Vanguard (37% of portfolio)
37%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%


Rebalancing.
Because the funds will grow at different and unpredictable rates, it may be necessary every few years to rebalance in order to maintain the desired asset allocation. Wiki article, "Rebalancing". You can easily adjust the asset allocation by exchanging between funds inside your 401k.

. . . . .

I suggest that you read one or two books on general investing. Wiki article, "Books: recommendations and reviews". When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom". Also take a look at the Boglehead’s wiki, the "getting started" link I give below.

If you have any questions just ask.

I hope that this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

mweivoda
Posts: 5
Joined: Sat Aug 04, 2018 1:21 pm

Re: Retirement Account Consolidation and Adjustment

Post by mweivoda » Sun Aug 05, 2018 1:31 pm

Thanks for the responses all!

ruralavalon - the example 401k is more or less what I was leaning towards at this point, thanks for your suggestions, I definitely plan to pick up some books this afternoon and start some reading.

Also - I understand the desire to max out the 401k before contributing to a Roth, but maybe my paranoia is leading me astray :shock:
I won't be in a position to max out both for at least a couple years, and I like the idea of being able to withdraw (my contributions tax and penalty free) from the Roth as an "emergency-emergency fund." or in the event that I'm able to retire before age 59.5.
I also like the idea of having some hedge against potential crazy future tax situations.
Am I way off base here?

Thanks!

nyclon
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Re: Retirement Account Consolidation and Adjustment

Post by nyclon » Sun Aug 05, 2018 2:00 pm

With 24+ years until you begin to touch the retirement assets, I'd suggest 100% equities. My opinion is that you shouldn't pay for lower volatility in what's inevitably going to be a bumpy road via lower returns. At this stage, lower volatility is just optics. Reassess in 10 years.

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ruralavalon
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Location: Illinois

Re: Retirement Account Consolidation and Adjustment

Post by ruralavalon » Sun Aug 05, 2018 6:34 pm

mweivoda wrote:
Sun Aug 05, 2018 1:31 pm
Thanks for the responses all!

ruralavalon - the example 401k is more or less what I was leaning towards at this point, thanks for your suggestions, I definitely plan to pick up some books this afternoon and start some reading.

Also - I understand the desire to max out the 401k before contributing to a Roth, but maybe my paranoia is leading me astray :shock:
I won't be in a position to max out both for at least a couple years, and I like the idea of being able to withdraw (my contributions tax and penalty free) from the Roth as an "emergency-emergency fund." or in the event that I'm able to retire before age 59.5.
I also like the idea of having some hedge against potential crazy future tax situations.
Am I way off base here?

Thanks!
Many people use a Roth IRA as a backup emergency fund.

About how many months worth of basic living expenses would be covered by your emergency fund at the credit union?

About how many months worth of basic living expenses would be covered by the money ($160k x .37 = $59k) which you currently have in your Roth IRA?

How stable is your job, your employer, and the industry that you work in?

In your state do you get a deduction on state income taxes for traditional 401k contributions?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

mweivoda
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Joined: Sat Aug 04, 2018 1:21 pm

Re: Retirement Account Consolidation and Adjustment

Post by mweivoda » Sun Aug 05, 2018 7:12 pm

ruralavalon wrote:
Sun Aug 05, 2018 6:34 pm
mweivoda wrote:
Sun Aug 05, 2018 1:31 pm
Thanks for the responses all!

ruralavalon - the example 401k is more or less what I was leaning towards at this point, thanks for your suggestions, I definitely plan to pick up some books this afternoon and start some reading.

Also - I understand the desire to max out the 401k before contributing to a Roth, but maybe my paranoia is leading me astray :shock:
I won't be in a position to max out both for at least a couple years, and I like the idea of being able to withdraw (my contributions tax and penalty free) from the Roth as an "emergency-emergency fund." or in the event that I'm able to retire before age 59.5.
I also like the idea of having some hedge against potential crazy future tax situations.
Am I way off base here?

Thanks!
Many people use a Roth IRA as a backup emergency fund.

About how many months worth of basic living expenses would be covered by your emergency fund at the credit union?

About how many months worth of basic living expenses would be covered by the money ($160k x .37 = $59k) which you currently have in your Roth IRA?

How stable is your job, your employer, and the industry that you work in?

In your state do you get a deduction on state income taxes for traditional 401k contributions?
I should be able to cover 6 months with the credit union account and at least 18 months with the Roth.

I feel pretty secure in my job at the moment, though I know the company did end up doing layoffs during the 'great recession' they did not layoff anyone from my department, since we run pretty lean as is.

I may be misunderstanding, but I believe that I'm not able to deduct traditional IRA contributions due to my income level > $73k. Is that incorrect?

Thanks!

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ruralavalon
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Re: Retirement Account Consolidation and Adjustment

Post by ruralavalon » Sun Aug 05, 2018 7:41 pm

In my opinion 2 years of emergency fund is ample.

Income level does not affect eligibility to deduct traditional contributions to a 401k on your federal taxes.

Income level (specifically Modifed Adjusted Gross Incomes) can affect the ability to deduct traditional contributions to an IRA on your federal taxes.

In your state can you deduct traditional contributions to your 401k on your state income taxes?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

PFInterest
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Re: Retirement Account Consolidation and Adjustment

Post by PFInterest » Mon Aug 06, 2018 7:02 am

mweivoda wrote:
Sun Aug 05, 2018 1:31 pm
Thanks for the responses all!

ruralavalon - the example 401k is more or less what I was leaning towards at this point, thanks for your suggestions, I definitely plan to pick up some books this afternoon and start some reading.

Also - I understand the desire to max out the 401k before contributing to a Roth, but maybe my paranoia is leading me astray :shock:
I won't be in a position to max out both for at least a couple years, and I like the idea of being able to withdraw (my contributions tax and penalty free) from the Roth as an "emergency-emergency fund." or in the event that I'm able to retire before age 59.5.
I also like the idea of having some hedge against potential crazy future tax situations.
Am I way off base here?

Thanks!
search this forum and you will find you can withdraw from 401k prior to 69.5 without penalty as well. sounds like you could use the extra tax savings from putting more in 401k to then fund rIRA.

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vineviz
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Re: Retirement Account Consolidation and Adjustment

Post by vineviz » Mon Aug 06, 2018 8:42 am

ruralavalon wrote:
Sun Aug 05, 2018 12:34 pm

At age 35 I suggest about 20 - 25% in bonds.
That's way too much. Most experts in asset allocation recommend that the default bond exposure for someone under 40 years old is about 10%.

The OP could reasonably set a goal of getting to 20% bonds by age 45, I think, but most investors shouldn't rush there any faster than that.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

mweivoda
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Re: Retirement Account Consolidation and Adjustment

Post by mweivoda » Mon Aug 06, 2018 5:22 pm

ruralavalon wrote:
Sun Aug 05, 2018 7:41 pm
In my opinion 2 years of emergency fund is ample.

Income level does not affect eligibility to deduct traditional contributions to a 401k on your federal taxes.

Income level (specifically Modifed Adjusted Gross Incomes) can affect the ability to deduct traditional contributions to an IRA on your federal taxes.

In your state can you deduct traditional contributions to your 401k on your state income taxes?
As I understand it, Minnesota State AGI for tax purposes is based on federal AGI, so yes 401k contributions would be deducted from my state taxes. Unless I'm misunderstanding?

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ruralavalon
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Location: Illinois

Re: Retirement Account Consolidation and Adjustment

Post by ruralavalon » Mon Aug 06, 2018 5:51 pm

mweivoda wrote:
Mon Aug 06, 2018 5:22 pm
ruralavalon wrote:
Sun Aug 05, 2018 7:41 pm
In my opinion 2 years of emergency fund is ample.

Income level does not affect eligibility to deduct traditional contributions to a 401k on your federal taxes.

Income level (specifically Modifed Adjusted Gross Incomes) can affect the ability to deduct traditional contributions to an IRA on your federal taxes.

In your state can you deduct traditional contributions to your 401k on your state income taxes?
As I understand it, Minnesota State AGI for tax purposes is based on federal AGI, so yes 401k contributions would be deducted from my state taxes. Unless I'm misunderstanding?
I don't know anything about Minnesota tax law, so I can't answer. Traditional 401k contributions are tax deductible in Illinois.

I think it would be a good idea to increase your withholding to make a larger traditional contribution to your 401k rather than contribute $5,500 to a Roth IRA, take the 22-29% tax deduction, and also increase your withholding in order to contribute the amount of tax savings (for example, $5,500 x .29 = $1.595) to your 401k.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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