Full Retirement Revamp and Planning for ER/FI.

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eldoface
Posts: 7
Joined: Wed Nov 07, 2018 8:36 pm

Full Retirement Revamp and Planning for ER/FI.

Post by eldoface » Thu Nov 08, 2018 6:43 pm

Hello all, first post after a few months lurking and reading.
I believe that we're currently in a good spot for our age assuming traditional retirement, but we would like to plan on being able to retire earlier than our 60s/70s and be able to reap the benefits of long term planning while we still hopefully are young and fit enough to do a lot traveling, etc.

I'm aiming to meet with Fidelity Tues Nov 13, and would very much like to have all my ducks in a row before I walk in.

Monthly Routine Non-Discretionary Expenses: $3500
Emergency funds: Three to six months of expenses ($21K)
Debt:
Home: $118K outstanding @ 4.625% matures 2043 (Payoff expected 2033 or earlier)
Auto: $27K outstanding @ 2.39% matures 2022
Student Loan: $9700 @ 2.125%

Tax Filing Status: Married Filing Jointly
Tax Rate: 25% Federal (Effective 12% 2017), 0% State
State of Residence:TX
Age: 35 / 34
Desired Asset allocation: Unsure. Maybe somewhere around 75/10/10/5 Equites/Bond/REIT/Options(hedging and/or speculation with a full understanding of the risks)
Desired International allocation: Unsure, maybe 20 – 35% of equities?

Current retirement assets

Cash
Total: 16.5%

$44,000 cash (for investing – do not include emergency funds. Currently in checking accounts)
Will contribute to Mega Roth Backdoor if possible.

His 401k at Fidelity
Total: 61.3%

$163,400 TRP INST LGCP CORE (TPLGX) 0.57%
Company match at 6%, contributions at 6%

His HSA at Fidelity
Total: 5.4%

$14,300
Current Allocation irrelevant, will be adjusting allocation to match goals

Her 401k at Fidelity
Total: 15%

$40,000 FID FREEDOM 2050 (FFFHX) @ 0.75%
Company match at 6%, contributions at 6%

Her Inherited IRA at Fidelity
Total: 1.8%

$5000 in cash

Account Totals:
16.5% Cash to be invested
61.3% His 401k
5.4% His HAS
15% Her 401k
1.8% Her I-IRA

Contributions

Current annual Contributions
$5565 his 401k (employer matches $5565)
$3450 his HAS (Max out every year)
$2400 her 401k (employer matches 2400)

Planned New Annual Contributions (2019+)
$19,000 his 401k (employer matches $5565)
$6,000 his Roth IRA (new, max contribution)
$3,500 his HSA (Max out every year)
$19,000 her 401k (employer matches 2400)
$6,000 her Roth IRA (new, max contribution)
$13,000 (Funds in excess of expenses + discretionary budget)

Available funds


Funds available in his 401(k)
FID 500 INDEX (FXAIX) @ 0.015% (new addition)
FID EXTD MKT IDX (FSMAX) @ 0.045% (new addition)

JH DISCPL VALUE R6 (JDVWX) @ 0.71%
*TRP INST LGCP CORE (TPLGX) @ 0.57%
WM BLAIR SM CP VAL I (BVDIX) @ 1.29%
ABDN EMERG MKTS INST (ABEMX) @ 1.13%
DODGE & COX INTL STK (DODFX) @ 0.63%
MIP II CL 1 @ 0.57%
DODGE & COX INCOME (DODIX) @ 0.43%
H & W HIGH YIELD I (HWHIX) @ 0.74%
FID GOVT MMKT (SPAXX) @ 0.42%
FID 500 INDEX INST (FXSIX) @ 0.02% (removed)
FID EXT MKT IDX PR (FSEVX) @ 0.05% (removed)
VANG SMCP GR IDX ADM (VSGAX) @ 0.07%
VANG TOT INTL STK AD (VTIAX) @ 0.11%
VANG TOT BD MKT ADM (VBTLX) @ 0.05%

Funds available in her 401(k)

FID 500 INDEX IPR (FXAIX) @ 0.015%
INVS DIVRS DIVD INV (LCEIX) @ 0.8%
TRP BLUE CHIP GRTH I (TBCIX) @ 0.57%
CRLN E MID CAP GR R6 (HRAUX) @ 0.69%
FID MID CAP IDX IPR (FSMDX) @ 0.025%
VRTS C MDCP VAL EQ I (SMVTX) @ 1.02%
FID SM CAP IDX IPR (FSSNX) @ 0.025%
FID SMALL CAP GROWTH (FCPGX) @ 1.02%
FID SMALL CAP VALUE (FCPVX) @ 0.91%
FID INTL DISCOVERY (FIGRX) @ 0.94%
FID INTL INDEX IPR (FSPSX) @ 0.045%
FID REAL EST IDX INS (FSRNX) @ 0.07%
FID BALANCED (FBALX) @ 0.53%
FID FREEDOM 2005 (FFFVX) @ 0.49%
FID FREEDOM 2010 (FFFCX) @ 0.53%
FID FREEDOM 2015 (FFVFX) @ 0.57%
FID FREEDOM 2020 (FFFDX) @ 0.61%
FID FREEDOM 2025 (FFTWX) @ 0.66%
FID FREEDOM 2030 (FFFEX) @ 0.7%
FID FREEDOM 2035 (FFTHX) @ 0.74%
FID FREEDOM 2040 (FFFFX) @ 0.75%
FID FREEDOM 2045 (FFFGX) @ 0.75%
* FID FREEDOM 2050 (FFFHX) @ 0.75%
FID FREEDOM 2055 (FDEEX) @ 0.75%
FID FREEDOM 2060 (FDKVX) @ 0.75%
FID FREEDOM INCOME (FFFAX) @ 0.47%
PUTNAM STABLE VALUE (???) @ 0.42%
FID TOTAL BOND (FTBFX) @ 0.45%
FID US BOND IDX IPR (FXNAX) @ 0.025%
VANG GNMA ADM (VFIJX) @ 0.11%

Goals:
  1. Be able to retire in 2033 at 50 with $50,000 (2018 dollars ~ $4,167 / month) in withdrawals. Preferably with tax-free funds from Roth contributions and/or others funds to minimize taxes.
    This should be 100% of needed funds for the gap between 50 and SS age of 67 including medical insurance/medicare/medicade (if applicable), etc . Around 17 years
    Our families do not have particularly long lifespans, typically between 65 -75, planning on full retirement age to begin taking benefits
  2. Continue lifestyle from 2033 to death, drawing from all accounts while minimizing taxes.
Circumstance / Considerations:
  1. We are meeting with Fidelity next week to consolidate all of our accounts including checking/savings, open Roth IRAs, and verify Mega Roth allowances.
    My 401 literature seems to indicate that I am mega qualified, unsure of her.
  2. Since both 401ks are with Fidelity, for ease of management if she needs to take over we will be staying with one provider for all investment accounts.
Questions:
  1. In 2017 I had us significantly reduce our 401k contributions under a misunderstanding it would clearly be better to use taxable accounts for investing for early retirement. As a result, I expect our taxable income and tax bracket to be much higher for the 2018 tax year. What can I do to help reduce our tax burden this year?
  2. Would it make more sense to open TIRAs this year with pre-tax money instead of opening Roth IRAs, and open Roths in 2019 with a lower expected taxable income / tax bracket?
  3. Reading MadFientist articles here: https://www.madfientist.com/traditional ... -roth-ira/ and here: https://www.madfientist.com/how-to-acce ... nds-early/ it appears that a TIRA instead of RIRA may be a better way to go, but I don’t understand if any of these would apply to our situation or not. Can anyone offer any advice?

    Basically the article recommends to use one of the following:
    A: TIRA->RIRA conversion ladder, including rolling our 401s -> RIRAs using a conversion ladder or lump sums after stopping employment

    B: Using the 72(t) SEPP method for ages 50 – 59.5

    C: Leaving in 401 and/or TIRA, and withdrawing as needed, taking the 10% penalty and taxes owed as a matter of course.
  4. Does it make sense to plan for the current $44,000 cash balance to be rolled into mega roth?
    Can this be done this tax year as lump after tax contribution, or does this need to be done via wage deductions?
  5. Will her inherited IRA cause potential issues with mega rollover? If so, how would we work around this?
  6. What is a reasonable accounts setup where we can keep our emergency funds relatively liquid, while not impacting our ability to pay bills, have fun, etc?
    I recall someone mentioning some fidelity setup where a small checking account is held, and auto pulls from a MM(or other?) account as needed.
    Ideally we will DD our wages into one interest bearing account(MM?), schedule bills through either the MM or checking (as above in this question), and schedule discretionary spending distributions to separate account(s).
  7. Should we plan to adjust 401k contributions to rebalance with an eye toward mega roth backdoor since we plan on 5 – 7 years pre 55 age rule for 401 distributions?
    From my understanding, the rollover contributions will be able to be withdrawn early at no tax or penalty, while 401k distributions would incur tax and penalties.
    Would it make more sense to ensure we have 5-7 years of expenses using roth contributions and let all else ride?
  8. Considering relatively mediocre life expectancy, would it make more sense to plan for SS starting at 66.5, or keep the plan in place and revisit in around 10 years?
  9. How can I better understand the differences, pros, and cons between low expense ETF and low expense mutual funds for investments into the equities/bonds space?
    For example: VTSMX vs VTI, VGTSX vs VXUS, VBMFX vs BND

    I understand that with the MF I should be able to buy fractional shares, which may realize some benefit over time, and assuming all of my accounts are tax advantaged, the difference between price increase and dividends on the ETFs may be relatively trivial
  10. From Fidelity, would I be able to hold Vanguard ETF/MFs? Would this include admiral class?
    How can I weigh these against comission free and low/free expense for Fidelity funds(potentially using the new 0 ER funds)?
  11. Assuming we want to eventually become expat (after 2033), are there any special considerations for finances and/or taxes?
  12. Assuming I do not max tax-advantaged accounts, and do not have equities in any potential taxable accounts, I should not have to worry about wash sales, correct?
  13. Should I plan for taxable accounts in order to TLH, or is TLH something to not be concerned about with my current plan?
  14. Is there anything else that I should talk with Fidelity about, or obvious things that I have missed in putting together our initial plan?

    Edited to reflect his 401k fund changes
Last edited by eldoface on Fri Nov 09, 2018 3:04 pm, edited 1 time in total.

PFInterest
Posts: 2623
Joined: Sun Jan 08, 2017 12:25 pm

Re: Full Retirement Revamp and Planning for ER/FI.

Post by PFInterest » Fri Nov 09, 2018 7:36 am

you have much better index funds than you have chosen in your retirement plans, i would fix that first.
you need to get rid of the auto and student loans which will help cash flow.
you are likely in the new 24% bracket. turn 401k contributions to 100% for the remainder of the year to fill up as much as possible and live off the 44K in cash you have lying around.
tIRA is not the way to go if you have the income to max 2x t401ks and do 2x rIRAs.
inherited IRA is not counted towards prorata calculation.

retiredjg
Posts: 34226
Joined: Thu Jan 10, 2008 12:56 pm

Re: Full Retirement Revamp and Planning for ER/FI.

Post by retiredjg » Fri Nov 09, 2018 7:55 am

You have way too many questions to address at once. Start with fixing your 401k plans - your chosen target funds are too high cost.

Funds available in his 401(k)
FID 500 INDEX INST (FXSIX) @ 0.02%
FID EXT MKT IDX PR (FSEVX) @ 0.05%
VANG TOT INTL STK AD (VTIAX) @ 0.11%
VANG TOT BD MKT ADM (VBTLX) @ 0.05%

Funds available in her 401(k)
FID 500 INDEX IPR (FXAIX) @ 0.015%
FID MID CAP IDX IPR (FSMDX) @ 0.025%
FID SM CAP IDX IPR (FSSNX) @ 0.025%
FID INTL INDEX IPR (FSPSX) @ 0.045%
FID REAL EST IDX INS (FSRNX) @ 0.07%
FID US BOND IDX IPR (FXNAX) @ 0.025%


These are both very good plans. Use the building blocks above to get your US equities, international, and REIT.

Chip
Posts: 2293
Joined: Wed Feb 21, 2007 4:57 am

Re: Full Retirement Revamp and Planning for ER/FI.

Post by Chip » Fri Nov 09, 2018 9:26 am

Hi, and welcome! Nice job on your first post.
Home: $118K outstanding @ 4.625% matures 2043 (Payoff expected 2033 or earlier)
Auto: $27K outstanding @ 2.39% matures 2022
Student Loan: $9700 @ 2.125%
The mortgage is pretty expensive, over 1% more than equivalent bonds. Are you able to itemize deductions under the NEW tax law? If not, it may make sense to pay it down vs. investing in taxable.
Desired Asset allocation: Unsure. Maybe somewhere around 75/10/10/5 Equites/Bond/REIT/Options(hedging and/or speculation with a full understanding of the risks)
Desired International allocation: Unsure, maybe 20 – 35% of equities?
75/25 equities/bonds is quite reasonable. So is international at 20-35%. REITs are okay if you commit to the LONG TERM, though you should understand that they are already a part of total market funds. Please, please, avoid options, hedging and speculation. It will be a waste of both your time and your money. Don't ask me how I know.

As PFInterest and retiredjg have noted, the funds you've chosen are too expensive. Follow their advice on using the fine low cost funds you have available.
Be able to retire in 2033 at 50 with $50,000 (2018 dollars ~ $4,167 / month) in withdrawals. Preferably with tax-free funds from Roth contributions and/or others funds to minimize taxes.
This should be 100% of needed funds for the gap between 50 and SS age of 67 including medical insurance/medicare/medicade (if applicable), etc .
Our families do not have particularly long lifespans, typically between 65 -75, planning on full retirement age to begin taking benefits
I must say that I don't think 50k will be enough if your current non-discretionary expenses are 42k. My wife and I retired a little younger than the age you're targeting. Our spending went UP. We had more time to do things and most of those things cost money. But the good news is that your projected savings rate is quite impressive. If the market cooperates with 4% real returns (don't hang your hat on that; I just WAG'd it) you might be getting close to 2M in 2018 dollars by age 50. That would support more than 50k per year. Unless you have a known life-limiting condition I wouldn't put too much stock in family lifespans. You just might get "unlucky" and live into your 90s. It would be nice to have money if that happens. :D
What can I do to help reduce our tax burden this year?
Check with both of your 401k plans and see if you can really jack up your contributions for the rest of the year. Live off savings if you have to. Contribute to rIRAs if contributions are deductible.
it appears that a TIRA instead of RIRA may be a better way to go, but I don’t understand if any of these would apply to our situation or not. Can anyone offer any advice?
If you retire at 50 without a pension your tax rate will drop to zero if you're just living off of your taxable investments. That's why you should mostly defer taxes now, while you're paying higher rates. Once you retire you can choose how much taxes you want to pay, at least until you start receiving social security and distributions from your rIRAs and 401ks. Then your rates go up and you lose some control of them. That's why people like you (and me) choose to do Roth conversions at low tax rates after early retirement.

It's a very individual-specific analysis. While you're early retired you have to have money to live on. We had saved enough in taxable accounts that we were able to live off of those while making Roth conversions. Had we started running out of taxable money we would have taken the same amount out of our tIRAs but put part of it towards living expenses (using SEPP if under 59.5) and part towards Roth conversions. If necessary we would have stopped all Roth conversions and starting withdrawing from the conversion ladder. But you have to run your own numbers, which is nearly impossible to do with any degree of accuracy when you are 17 years away from retirement. So the answer is to just save as much as possible and keep analyzing as you get closer to retirement.
What is a reasonable accounts setup where we can keep our emergency funds relatively liquid, while not impacting our ability to pay bills, have fun, etc?
There are MANY ways to do this. We have essentially all of our accounts at Fidelity; two rIRAs, two tIRAs and a taxable account. In the taxable account we have the "core" account money market fund. We use Fidelity's billpay from that to pay most bills, plus have a few things "pulled" from that account. We also have some money in a higher-yielding money market. We sell some of that occasionally to replenish the core account (since we're decumulating). It is also true that we don't need to sell it -- Fidelity will automatically liquidate the higher yielding fund if the core account isn't sufficient to cover the payments. During working years we had paychecks direct-deposited to the taxable account, as you are contemplating.
How can I better understand the differences, pros, and cons between low expense ETF and low expense mutual funds for investments into the equities/bonds space?
For example: VTSMX vs VTI, VGTSX vs VXUS, VBMFX vs BND

I understand that with the MF I should be able to buy fractional shares, which may realize some benefit over time, and assuming all of my accounts are tax advantaged, the difference between price increase and dividends on the ETFs may be relatively trivial
From Fidelity, would I be able to hold Vanguard ETF/MFs? Would this include admiral class?
How can I weigh these against comission free and low/free expense for Fidelity funds(potentially using the new 0 ER funds)?
Read the wiki: https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

You want ETFs in your taxable account at Fidelity as they are more tax efficient. Vanguard mutual funds are an exception (they are just as tax efficient as the corresponding ETF), but you don't want to buy those at Fidelity because of the large commissions ($50 to buy) and the fact that you can't buy Admiral shares. But you can buy the ETF versions of Vanguard funds for a $4.95 commission. That's what I do. Also, ETFs are easily transferable to another broker if you decide to leave Fidelity. Another plus. None of this matters in IRAs or 401ks.

There is a lengthy discussion here of the Fidelity zero funds. They WILL have capital gains distributions most years so I would avoid them in a taxable account. You can read the thread here for more opinions on the funds. It's a very lengthy thread. Generally here the longer the thread the less a particular issue matters. :P
Considering relatively mediocre life expectancy, would it make more sense to plan for SS starting at 66.5, or keep the plan in place and revisit in around 10 years?
Again, you might just get "unlucky" and live a long time. But with a married couple with no known health problems, taking the lower SS at full retirement age and the higher one at 70 often makes sense. But you have plenty of time to worry about that 20 years from now. Retirement planning is definitely an ongoing process. I'm still doing it 17 years into retirement!
Assuming we want to eventually become expat (after 2033), are there any special considerations for finances and/or taxes?
I think you'll be on your own for health care, as the ACA and Medicare don't work overseas. Taxes can get more complicated, but maybe not too bad if you're retired. Laws will change. Revisit when/if the time is closer.
Assuming I do not max tax-advantaged accounts, and do not have equities in any potential taxable accounts, I should not have to worry about wash sales, correct?
Should I plan for taxable accounts in order to TLH, or is TLH something to not be concerned about with my current plan?
If you want to retire at 50 I think you should be maxing out all tax-advantaged accounts AND contributing to taxable. You will only have to worry about wash sales if you are thinking of TLH. TLH is something you can worry about later. You have a lot on your plate right now that is much more important. And you can always change around your tax-advantaged accounts to work around wash sale issues.
Is there anything else that I should talk with Fidelity about, or obvious things that I have missed in putting together our initial plan?
If you are moving any money to Fidelity, ask if you are eligible for any bonuses. Be sure to tell them UP FRONT that you are only interested in the lowest cost, broad-based index funds. As I said above, avoid regular mutual funds in your taxable account. I sent a friend to Fidelity a few years ago and she was talked into several high cost funds and additional complexity by the advisor even though I had given her a list of the three low cost funds at Fidelity that she should use. They even put her in a muni bond fund even though she pays no federal taxes! That's all been corrected, but it really teed me off.

retiredjg
Posts: 34226
Joined: Thu Jan 10, 2008 12:56 pm

Re: Full Retirement Revamp and Planning for ER/FI.

Post by retiredjg » Fri Nov 09, 2018 2:48 pm

[*]Would it make more sense to open TIRAs this year with pre-tax money instead of opening Roth IRAs, and open Roths in 2019 with a lower expected taxable income / tax bracket?
I suppose it is possible, but it seems likely that you make too much money for a contribution to tIRA to be deductible. Have you checked?
[*]Does it make sense to plan for the current $44,000 cash balance to be rolled into mega roth?
Can this be done this tax year as lump after tax contribution, or does this need to be done via wage deductions?
It could make sense but very few plans allow a lump sum contribution for this. You have see what your plan allows.

[*]Will her inherited IRA cause potential issues with mega rollover? If so, how would we work around this?
No. Besides, it's Her inherited IRA and your mega back door....the two are not related at all.

[*]From Fidelity, would I be able to hold Vanguard ETF/MFs? Would this include admiral class?
How can I weigh these against comission free and low/free expense for Fidelity funds(potentially using the new 0 ER funds)?
You can but you don't want to because of transaction fees.

If you want Vanguard products, buy them at Vanguard. Since you want to be at Fidelity, use Fidelity mutual funds or their no transaction fee iShares ETFs.

[*]Assuming I do not max tax-advantaged accounts, and do not have equities in any potential taxable accounts, I should not have to worry about wash sales, correct?
Why would you avoid putting equities into a taxable account?

[*]Is there anything else that I should talk with Fidelity about, or obvious things that I have missed in putting together our initial plan?
Depending on who you talk to, you might get a hard sell to let them manage your assets. Some of the absolute worst portfolios we have seen came from Fidelity advisors. Don't do it.

eldoface
Posts: 7
Joined: Wed Nov 07, 2018 8:36 pm

Re: Full Retirement Revamp and Planning for ER/FI.

Post by eldoface » Fri Nov 09, 2018 3:08 pm

Thank you both, PFInterest and retiredjg.
I have replied to both of your posts here as they're relatively short.
I appreciate both of your thoughts and help.
PFInterest wrote:
Fri Nov 09, 2018 7:36 am
you have much better index funds than you have chosen in your retirement plans, i would fix that first.
Yes, that is the plan. A couple of years ago both 401k accounts were in considerably worse shape I think -- we had kind of peppered across a large number of funds. Consolidating as they currently I believe put us better than we were, but we do still have work to do on it.
PFInterest wrote:
Fri Nov 09, 2018 7:36 am
you need to get rid of the auto and student loans which will help cash flow.
With the studen and auto loans below 2.5%, my plan has been to over pay monthly and reduce the effective term.
I had considered using the cash on hand to pay off / down the student or auto loan, but had figured that it would be more advantageous to let other investments earning higher return offset the ongoing loans, and be able to pay back with inflated dollars in the future.
As we don't currently have any cash flow issues and I've budgeted for fun money with the increased savings, I don't understand the advantage to paying these off early.

Can you elaborate some on this point?
PFInterest wrote:
Fri Nov 09, 2018 7:36 am
you are likely in the new 24% bracket. turn 401k contributions to 100% for the remainder of the year to fill up as much as possible and live off the 44K in cash you have lying around.
Interesting, I had not considered that option. I will discuss that this weekend. Thanks very much for the idea.
PFInterest wrote:
Fri Nov 09, 2018 7:36 am
tIRA is not the way to go if you have the income to max 2x t401ks and do 2x rIRAs.
inherited IRA is not counted towards prorata calculation.
That's what I was thinking, glad to see I'm on the right track here.


retiredjg wrote:
Fri Nov 09, 2018 7:55 am
You have way too many questions to address at once. Start with fixing your 401k plans - your chosen target funds are too high cost.

Funds available in his 401(k)
FID 500 INDEX INST (FXSIX) @ 0.02%
FID EXT MKT IDX PR (FSEVX) @ 0.05%
VANG TOT INTL STK AD (VTIAX) @ 0.11%
VANG TOT BD MKT ADM (VBTLX) @ 0.05%

...snip...

These are both very good plans. Use the building blocks above to get your US equities, international, and REIT.
Yes, I had planned on spreading these questions out over the last couple of weeks, but work and life said otherwise.

OK, so I should have re-checked the funds in his 401 yesterday. apparently 2 funds have been removed, and 2 added. FXSIX and FSEVX have been removed, but here are the new additions I think would be relevant:
FID 500 INDEX (FXAIX) @ 0.015%
FID EXTD MKT IDX (FSMAX) @ 0.045%

The reason I chose TPLGX was that the return was heads and tails above the other funds, and at the time I was aiming to boost returns as much as possible.
While I understand past performance doesn't guarantee future returns, can you talk with me a bit more about the costs for the TPLGX?
My thoughts were that while the cost is arount 0.5%, it always seemed to return > 2% over the other funds, so I thought that the increase in fees was worth the cost.

eldoface
Posts: 7
Joined: Wed Nov 07, 2018 8:36 pm

Re: Full Retirement Revamp and Planning for ER/FI.

Post by eldoface » Fri Nov 09, 2018 3:40 pm

Chip wrote:
Fri Nov 09, 2018 9:26 am
Hi, and welcome! Nice job on your first post.
Thanks, I've been slowly trying to get my things in order.
Chip wrote:
Fri Nov 09, 2018 9:26 am
Home: $118K outstanding @ 4.625% matures 2043 (Payoff expected 2033 or earlier)
The mortgage is pretty expensive, over 1% more than equivalent bonds. Are you able to itemize deductions under the NEW tax law? If not, it may make sense to pay it down vs. investing in taxable.
I think we have itemized the past few years. I am planning to pay down enough to drop PMI for sure, and currently pay 1/12 or more over each month to incrementally pay it down.

After looking at the allownaces for 2019, we cannot max out all tax advantaged accounts. We would fall short of being able to max both mega backdoors for sure.
Chip wrote:
Fri Nov 09, 2018 9:26 am
Desired Asset allocation: Unsure. Maybe somewhere around 75/10/10/5 Equites/Bond/REIT/Options(hedging and/or speculation with a full understanding of the risks)
Desired International allocation: Unsure, maybe 20 – 35% of equities?
75/25 equities/bonds is quite reasonable. So is international at 20-35%. REITs are okay if you commit to the LONG TERM, though you should understand that they are already a part of total market funds. Please, please, avoid options, hedging and speculation. It will be a waste of both your time and your money. Don't ask me how I know.
I did not realize REITs were in the total market funds, but it's pretty intuitive on second thought. My plan is to buy and hold for the next 17+ years, longer in the 401 accounts.
While not a lot(at the time it was gigantic though), I didn't flinch with the 40K in my 401 during the 08 kerfluffle, so I think I'm fairly inclined to stay the course during dips and dives.

On further thought, I think I will take your advice and not consider options as a vehicle for retirement planning. IF I do decide to do so it would come from discretionary funds, and not retirement.
Chip wrote:
Fri Nov 09, 2018 9:26 am
As PFInterest and retiredjg have noted, the funds you've chosen are too expensive. Follow their advice on using the fine low cost funds you have available.
Understood, and that's the plan.
Chip wrote:
Fri Nov 09, 2018 9:26 am
Be able to retire in 2033 at 50 with $50,000 (2018 dollars ~ $4,167 / month) in withdrawals. Preferably with tax-free funds from Roth contributions and/or others funds to minimize taxes.
This should be 100% of needed funds for the gap between 50 and SS age of 67 including medical insurance/medicare/medicade (if applicable), etc .
Our families do not have particularly long lifespans, typically between 65 -75, planning on full retirement age to begin taking benefits
I must say that I don't think 50k will be enough if your current non-discretionary expenses are 42k. My wife and I retired a little younger than the age you're targeting. Our spending went UP. We had more time to do things and most of those things cost money.
Huh, I did not expect that. I figured that with the mortgage, auto, and studen debt payed off before retirement that I would be able to reduce $2200/mo for expenses, saving 26k/yr.

Good point on 'time to do things' costing more money. I'll have to give that some further thought as well.

Chip wrote:
Fri Nov 09, 2018 9:26 am
But the good news is that your projected savings rate is quite impressive. If the market cooperates with 4% real returns (don't hang your hat on that; I just WAG'd it) you might be getting close to 2M in 2018 dollars by age 50. That would support more than 50k per year.
Thanks! Over the last year we have both started to think more about being able to walk away from the rat race, and this is about as deep as we can cut while not impacting our lifestyle too much.

I appreciate your back-of-the-envelope projection. I had not taken the time to sit down and do them myself yet.
Chip wrote:
Fri Nov 09, 2018 9:26 am
Unless you have a known life-limiting condition I wouldn't put too much stock in family lifespans. You just might get "unlucky" and live into your 90s. It would be nice to have money if that happens. :D
HAHAHA!
You make a good point here. I would hate to spend all the time now to save for later just to go broke before we die.
Chip wrote:
Fri Nov 09, 2018 9:26 am
What can I do to help reduce our tax burden this year?
Check with both of your 401k plans and see if you can really jack up your contributions for the rest of the year. Live off savings if you have to. Contribute to rIRAs if contributions are deductible.
That was recommended above, and I will discuss that this weekend with her.
Chip wrote:
Fri Nov 09, 2018 9:26 am
it appears that a TIRA instead of RIRA may be a better way to go, but I don’t understand if any of these would apply to our situation or not. Can anyone offer any advice?
If you retire at 50 without a pension your tax rate will drop to zero if you're just living off of your taxable investments. That's why you should mostly defer taxes now, while you're paying higher rates. Once you retire you can choose how much taxes you want to pay, at least until you start receiving social security and distributions from your rIRAs and 401ks. Then your rates go up and you lose some control of them. That's why people like you (and me) choose to do Roth conversions at low tax rates after early retirement.
Currently I do not think we will be able to max tax-advantaged accounts, so I'm not sure we will have taxable other than checking and emergency funds. Maybe that's what you're referring to?
Deferring as much tax as possible is certainly one of the main goals for now.
I was hoping to be able to pull from liquid and roth contributions between retire and SS, I think this may fit into your advice here.
Chip wrote:
Fri Nov 09, 2018 9:26 am
It's a very individual-specific analysis. While you're early retired you have to have money to live on. ...snip... So the answer is to just save as much as possible and keep analyzing as you get closer to retirement.
That's a very reasonable suggestion, and sounds like what I may end up doing.
Chip wrote:
Fri Nov 09, 2018 9:26 am
What is a reasonable accounts setup where we can keep our emergency funds relatively liquid, while not impacting our ability to pay bills, have fun, etc?
There are MANY ways to do this. ...snip... During working years we had paychecks direct-deposited to the taxable account, as you are contemplating.
Excellent, sounds like this portion will be where we spend a good bit of time when we meet next week.
Chip wrote:
Fri Nov 09, 2018 9:26 am
How can I better understand the differences, pros, and cons between low expense ETF and low expense mutual funds for investments into the equities/bonds space?
...snip
Read the wiki: https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

You want ETFs in your taxable account at Fidelity as they are more tax efficient. Vanguard mutual funds are an exception (they are just as tax efficient as the corresponding ETF), but you don't want to buy those at Fidelity because of the large commissions ($50 to buy) and the fact that you can't buy Admiral shares. But you can buy the ETF versions of Vanguard funds for a $4.95 commission. That's what I do. Also, ETFs are easily transferable to another broker if you decide to leave Fidelity. Another plus. None of this matters in IRAs or 401ks.

There is a lengthy discussion here of the Fidelity zero funds. They WILL have capital gains distributions most years so I would avoid them in a taxable account. You can read the thread here for more opinions on the funds. It's a very lengthy thread. Generally here the longer the thread the less a particular issue matters. :P
Wonderful, I will check that link out tonight. I haven't made my way through all of the wiki yet and have not come across that particular article so far.
Chip wrote:
Fri Nov 09, 2018 9:26 am
Considering relatively mediocre life expectancy, would it make more sense to plan for SS starting at 66.5, or keep the plan in place and revisit in around 10 years?
Again, you might just get "unlucky" and live a long time. But with a married couple with no known health problems, taking the lower SS at full retirement age and the higher one at 70 often makes sense. But you have plenty of time to worry about that 20 years from now. Retirement planning is definitely an ongoing process. I'm still doing it 17 years into retirement!
Sounds good to me.
Chip wrote:
Fri Nov 09, 2018 9:26 am
Assuming we want to eventually become expat (after 2033), are there any special considerations for finances and/or taxes?
I think you'll be on your own for health care, as the ACA and Medicare don't work overseas. Taxes can get more complicated, but maybe not too bad if you're retired. Laws will change. Revisit when/if the time is closer.
Good point. I'll revisit that when it's on a reasonable horizon.
Chip wrote:
Fri Nov 09, 2018 9:26 am
Assuming I do not max tax-advantaged accounts, and do not have equities in any potential taxable accounts, I should not have to worry about wash sales, correct?
Should I plan for taxable accounts in order to TLH, or is TLH something to not be concerned about with my current plan?
If you want to retire at 50 I think you should be maxing out all tax-advantaged accounts AND contributing to taxable. You will only have to worry about wash sales if you are thinking of TLH. TLH is something you can worry about later. You have a lot on your plate right now that is much more important. And you can always change around your tax-advantaged accounts to work around wash sale issues.
Great, I won't worry about this now.
Chip wrote:
Fri Nov 09, 2018 9:26 am
Is there anything else that I should talk with Fidelity about, or obvious things that I have missed in putting together our initial plan?
If you are moving any money to Fidelity, ask if you are eligible for any bonuses. Be sure to tell them UP FRONT that you are only interested in the lowest cost, broad-based index funds. As I said above, avoid regular mutual funds in your taxable account. I sent a friend to Fidelity a few years ago and she was talked into several high cost funds and additional complexity by the advisor even though I had given her a list of the three low cost funds at Fidelity that she should use. They even put her in a muni bond fund even though she pays no federal taxes! That's all been corrected, but it really teed me off.
Thanks for the specific suggestions.

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Meg77
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Re: Full Retirement Revamp and Planning for ER/FI.

Post by Meg77 » Fri Nov 09, 2018 3:42 pm

eldoface wrote:
Thu Nov 08, 2018 6:43 pm
Cash
Total: 16.5%

$44,000 cash (for investing – do not include emergency funds. Currently in checking accounts) Move this to the fidelity money market account so it can earn closer to 2%.
Will contribute to Mega Roth Backdoor if possible. I've considered this myself, but we decided to accumulate funds in taxable brokerage instead so that we can have added flexibility to do things like invest in real estate and maybe even start or buy a business one day. Or if we have kids we'll have a chunk with which to fund 529s early. Mega Roth is great, but you may end up with some mid term goals or other investing opportunities and wish all your assets weren't in retirement accounts.

His 401k at Fidelity
Total: 61.3%

$163,400 TRP INST LGCP CORE (TPLGX) 0.57% switch
Company match at 6%, contributions at 6%

His HSA at Fidelity
Total: 5.4%

$14,300
Current Allocation irrelevant, will be adjusting allocation to match goals

Her 401k at Fidelity
Total: 15%

$40,000 FID FREEDOM 2050 (FFFHX) @ 0.75% switch!
Company match at 6%, contributions at 6%

Her Inherited IRA at Fidelity
Total: 1.8%

$5000 in cash

Account Totals:
16.5% Cash to be invested
61.3% His 401k
5.4% His HAS
15% Her 401k
1.8% Her I-IRA

Available funds [/b][/u]

Funds available in his 401(k)
FID 500 INDEX (FXAIX) @ 0.015% (new addition) yes!!!!
FID EXTD MKT IDX (FSMAX) @ 0.045% (new addition)
Also very good for small/mid cap diversification.
VANG SMCP GR IDX ADM (VSGAX) @ 0.07% I'd be tempted to pay more in fees (pennies really though) for some of this fund
VANG TOT INTL STK AD (VTIAX) @ 0.11% Good but cheaper to do the two fidelity funds instead
VANG TOT BD MKT ADM (VBTLX) @ 0.05%Great bond fund option to the extent you want bonds.


Funds available in her 401(k)

The below funds are all great. Since you both have plenty of good options, you could just have each 401k be fully balanced as a stand alone portfolio. That makes rebalancing easier.
FID 500 INDEX IPR (FXAIX) @ 0.015%
FID MID CAP IDX IPR (FSMDX) @ 0.025%
FID SM CAP IDX IPR (FSSNX) @ 0.025%
FID INTL INDEX IPR (FSPSX) @ 0.045%
FID REAL EST IDX INS (FSRNX) @ 0.07%
FID US BOND IDX IPR (FXNAX) @ 0.025%
VANG GNMA ADM (VFIJX) @ 0.11%


Questions:
  1. In 2017 I had us significantly reduce our 401k contributions under a misunderstanding it would clearly be better to use taxable accounts for investing for early retirement. As a result, I expect our taxable income and tax bracket to be much higher for the 2018 tax year. What can I do to help reduce our tax burden this year? Jack up your 401k contributions for the next 4 pay periods. Set it as high as possible and you may be able to get close to maxing them out (just live off savings in the interim). Also max out the HSA; you may be able to do this with a lump sum contribution outside of payroll. Talk to HR or the HSA provider directly to ask. If you do it outside payroll though, your pay stub won't tell the full story so remember to check all your tax docs when you do your 2018 taxes to get the full deduction.
  2. Would it make more sense to open TIRAs this year with pre-tax money instead of opening Roth IRAs, and open Roths in 2019 with a lower expected taxable income / tax bracket? No. Roth IRAs are best and it's way simpler anyway to not have two tiny TIRAs to deal with that won't get future contributions. 25% is not that high of a bracket anyway.
  3. Reading MadFientist articles here: https://www.madfientist.com/traditional ... -roth-ira/ and here: https://www.madfientist.com/how-to-acce ... nds-early/ it appears that a TIRA instead of RIRA may be a better way to go, but I don’t understand if any of these would apply to our situation or not. Can anyone offer any advice?Yes, I've read this and many other FIRE blogs on the subject, but the consensus is usually to go with the Roth IRA. They are much more flexible and offer great tax diversification if you're maxing out 401ks especially. One thing many people (including FIRE bloggers) fail to take into account is their incomes rising dramatically over time. Most of the Fire bloggers can't even use the strategies they are talking about because their incomes and tax brackets end up being way higher than they predicted even in early retirement. Go Roth while you can. Tons of higher income folks (myself included) wish they'd put more in when they could. I should have been maxing my 401k in Roth contributions for all my 20s, but when my tax bracket hit the low 20s I thought that was high and switched to traditional. Even if I retire early my tax bracket will remain high since I'm now accumulating after tax investments that will throw off dividends and rental income - and now that we are FI we've actually found jobs we love and don't plan to retire early anymore, meaning our wealth will just continue to grow.

    Basically the article recommends to use one of the following:
    A: TIRA->RIRA conversion ladder, including rolling our 401s -> RIRAs using a conversion ladder or lump sums after stopping employment

    B: Using the 72(t) SEPP method for ages 50 – 59.5

    C: Leaving in 401 and/or TIRA, and withdrawing as needed, taking the 10% penalty and taxes owed as a matter of course.
  4. Does it make sense to plan for the current $44,000 cash balance to be rolled into mega roth?
    Can this be done this tax year as lump after tax contribution, or does this need to be done via wage deductions? You have to contribute to the 401k via payroll deductions over time.
  5. Will her inherited IRA cause potential issues with mega rollover? If so, how would we work around this? not sure on this
  6. What is a reasonable accounts setup where we can keep our emergency funds relatively liquid, while not impacting our ability to pay bills, have fun, etc? We keep our EF at Vanguard in the money market settlement fund. I can transfer it to checking within a day but it earns over 2% there.
    I recall someone mentioning some fidelity setup where a small checking account is held, and auto pulls from a MM(or other?) account as needed.
    Ideally we will DD our wages into one interest bearing account(MM?), schedule bills through either the MM or checking (as above in this question), and schedule discretionary spending distributions to separate account(s). I don't know if you can DD into an investment brokerage account; maybe at your employer they allow that, but typically you need a checking account. Eitehr way you can automate the transfers. The interest you lose on a day or two having to do the transfers yourself though isn't much though. Transaction volume is usually limited on a MM account though so be careful putting too many bills to be paid directly from that. Better to use a checking account as the hub and move money in and out of savings as needed.
  7. Should we plan to adjust 401k contributions to rebalance with an eye toward mega roth backdoor since we plan on 5 – 7 years pre 55 age rule for 401 distributions? I would max out your 401ks, Roth IRAs and HSA first and only then decide what to do with additional funds: mega roth, taxable brokerage, pay down debt, or other (rental RE etc). You can always do Roth conversions in early retirement if you need to from the 401k if your roth contributions aren't enough. Or switch and save all in taxable the last year you decide to work. I lean toward having some taxable investments though, as I said before.
  8. Considering relatively mediocre life expectancy, would it make more sense to plan for SS starting at 66.5, or keep the plan in place and revisit in around 10 years? Do not worry about this right now. The rules will likely change well before you are having to make this decision anyway.
  9. How can I better understand the differences, pros, and cons between low expense ETF and low expense mutual funds for investments into the equities/bonds space? It's a toss up. You can trade ETFs quicker which can be handy if you're doing tax loss harvesting, but within a retirement account that wouldn't apply anyway.
    For example: VTSMX vs VTI, VGTSX vs VXUS, VBMFX vs BND
  10. From Fidelity, would I be able to hold Vanguard ETF/MFs? Would this include admiral class? ETFs probably, but not mutual funds. And they may charge more to trade outside ETFs than they do Fidelity's. They are effectively the same though - no need to buy VG if your account is at Fidelity.
  11. Assuming we want to eventually become expat (after 2033), are there any special considerations for finances and/or taxes? Sure, but again that is so far out that I wouldn't necessarily worry about it now. It'll be more of an impact on your healthcare costs and income taxes, but those rules will change a lot over the next 10-20 years I'm sure.
  12. Assuming I do not max tax-advantaged accounts, and do not have equities in any potential taxable accounts, I should not have to worry about wash sales, correct? Wash sale issues are only possible in a taxable account since that's the only place you can recognize/deduct losses.
  13. Should I plan for taxable accounts in order to TLH, or is TLH something to not be concerned about with my current plan? TLH opportunities are one advantage to having some funds in a taxable account. This is the kind of tax diversification that is beneficial. But I'm not sure that alone should make the decision for you.
Last edited by Meg77 on Fri Nov 09, 2018 3:50 pm, edited 1 time in total.
"An investment in knowledge pays the best interest." - Benjamin Franklin

retiredjg
Posts: 34226
Joined: Thu Jan 10, 2008 12:56 pm

Re: Full Retirement Revamp and Planning for ER/FI.

Post by retiredjg » Fri Nov 09, 2018 3:47 pm

eldoface wrote:
Fri Nov 09, 2018 3:08 pm
OK, so I should have re-checked the funds in his 401 yesterday. apparently 2 funds have been removed, and 2 added. FXSIX and FSEVX have been removed, but here are the new additions I think would be relevant:
FID 500 INDEX (FXAIX) @ 0.015%
FID EXTD MKT IDX (FSMAX) @ 0.045%
Not a problem.
The reason I chose TPLGX was that the return was heads and tails above the other funds, and at the time I was aiming to boost returns as much as possible.
While I understand past performance doesn't guarantee future returns, can you talk with me a bit more about the costs for the TPLGX?
My thoughts were that while the cost is arount 0.5%, it always seemed to return > 2% over the other funds, so I thought that the increase in fees was worth the cost.
Keeping costs low is one of the basic principles of Boglehead investing. Studies have shown that the best all rough predictor of portfolio success is cost. I sorry that I don't have references for that statement and of course, you have no reason to believe. me You will just have to keep reading and learning until you come to this conclusion yourself.

The fund you mentioned is a large cap growth fund. In other words, it represents only a portion of the 500 index which does contain large cap growth stocks as well as "blend" and large cap value stocks. So it is an apples and oranges comparison.

eldoface
Posts: 7
Joined: Wed Nov 07, 2018 8:36 pm

Re: Full Retirement Revamp and Planning for ER/FI.

Post by eldoface » Fri Nov 09, 2018 3:51 pm

retiredjg wrote:
Fri Nov 09, 2018 2:48 pm
[*]Would it make more sense to open TIRAs this year with pre-tax money instead of opening Roth IRAs, and open Roths in 2019 with a lower expected taxable income / tax bracket?
I suppose it is possible, but it seems likely that you make too much money for a contribution to tIRA to be deductible. Have you checked?
We both fall under the threshholds. We file married joint, and together our gross wages are around $130K. For tax year 2017 our AGI was reduced to $80K, and taxable was less than that.

From the above suggestion, it may make more sense to contribute 100% for the remainder of the year for each of us in our 401k accounts.

Thoughts?
retiredjg wrote:
Fri Nov 09, 2018 2:48 pm
[*]Does it make sense to plan for the current $44,000 cash balance to be rolled into mega roth?
Can this be done this tax year as lump after tax contribution, or does this need to be done via wage deductions?
It could make sense but very few plans allow a lump sum contribution for this. You have see what your plan allows.
Good to know, thanks. I'll try to make sure to ask about lump after-tax contributions next week.
If we decide to go 100% 401k contributions for the rest of the year, we may wait and use the cash to live on the rest of the year, and then in 2019 roll into what makes the most sense.
retiredjg wrote:
Fri Nov 09, 2018 2:48 pm
[*]Will her inherited IRA cause potential issues with mega rollover? If so, how would we work around this?
No. Besides, it's Her inherited IRA and your mega back door....the two are not related at all.
Good to know. I was mostly concerned about her being impacted as I'm hoping to be able to set up megas for each of us.
retiredjg wrote:
Fri Nov 09, 2018 2:48 pm
[*]From Fidelity, would I be able to hold Vanguard ETF/MFs? Would this include admiral class?
How can I weigh these against comission free and low/free expense for Fidelity funds(potentially using the new 0 ER funds)?
You can but you don't want to because of transaction fees.

If you want Vanguard products, buy them at Vanguard. Since you want to be at Fidelity, use Fidelity mutual funds or their no transaction fee iShares ETFs.
Thanks, that sounds very reasonable.
retiredjg wrote:
Fri Nov 09, 2018 2:48 pm
[*]Assuming I do not max tax-advantaged accounts, and do not have equities in any potential taxable accounts, I should not have to worry about wash sales, correct?
Why would you avoid putting equities into a taxable account?
Maybe I chose my word choice wrong, but I was under the assumption that equities would be the cause of a wash.
I guess the point was to ask whether wash is applicable on tax deferred accounts.
retiredjg wrote:
Fri Nov 09, 2018 2:48 pm
[*]Is there anything else that I should talk with Fidelity about, or obvious things that I have missed in putting together our initial plan?
Depending on who you talk to, you might get a hard sell to let them manage your assets. Some of the absolute worst portfolios we have seen came from Fidelity advisors. Don't do it.
Good advice. Luckily hard sells haven't ever worked on me, but that's a great point.

retiredjg
Posts: 34226
Joined: Thu Jan 10, 2008 12:56 pm

Re: Full Retirement Revamp and Planning for ER/FI.

Post by retiredjg » Fri Nov 09, 2018 4:05 pm

eldoface wrote:
Fri Nov 09, 2018 3:51 pm
retiredjg wrote:
Fri Nov 09, 2018 2:48 pm
[*]Would it make more sense to open TIRAs this year with pre-tax money instead of opening Roth IRAs, and open Roths in 2019 with a lower expected taxable income / tax bracket?
I suppose it is possible, but it seems likely that you make too much money for a contribution to tIRA to be deductible. Have you checked?
We both fall under the threshholds. We file married joint, and together our gross wages are around $130K. For tax year 2017 our AGI was reduced to $80K, and taxable was less than that.

From the above suggestion, it may make more sense to contribute 100% for the remainder of the year for each of us in our 401k accounts.

Thoughts?
See how much you can get into your 401ks first. YOur employers may have a limit on how much of each check can go into the 401k.

Having a couple of tiny orphan tiRAs hanging around is a nuisance that I would prefer to avoid.




retiredjg wrote:
Fri Nov 09, 2018 2:48 pm
[*]Assuming I do not max tax-advantaged accounts, and do not have equities in any potential taxable accounts, I should not have to worry about wash sales, correct?
Why would you avoid putting equities into a taxable account?
Maybe I chose my word choice wrong, but I was under the assumption that equities would be the cause of a wash.
I guess the point was to ask whether wash is applicable on tax deferred accounts.
A wash sale can only be caused by selling something at a loss in a taxable account. The "something" can be either stocks or bonds. If you own the same thing in an IRA or Roth IRA (and some people include 401ks here) a wash sale could occur if you bought it within 30 or 31 days either before or after the sale at a loss in taxable. This includes reinvestment of dividends. Sorry about the poor wording and I'm not sure I've actually answered your question. It's complicated.

eldoface
Posts: 7
Joined: Wed Nov 07, 2018 8:36 pm

Re: Full Retirement Revamp and Planning for ER/FI.

Post by eldoface » Fri Nov 09, 2018 4:17 pm

responses in red
Meg77 wrote:
Fri Nov 09, 2018 3:42 pm
eldoface wrote:
Thu Nov 08, 2018 6:43 pm
Cash
Total: 16.5%

$44,000 cash (for investing – do not include emergency funds. Currently in checking accounts) Move this to the fidelity money market account so it can earn closer to 2%.I think we will be doing this
Will contribute to Mega Roth Backdoor if possible. I've considered this myself, but we decided to accumulate funds in taxable brokerage instead so that we can have added flexibility to do things like invest in real estate and maybe even start or buy a business one day. Or if we have kids we'll have a chunk with which to fund 529s early. Mega Roth is great, but you may end up with some mid term goals or other investing opportunities and wish all your assets weren't in retirement accounts.
An interesting idea, I will think on this. Maybe a solution for us would be to find a split and do both to some extent. I like the idea that contributions can be withdrawn from the roths after 5 years, but do find the idea of access to full account balances without additional fees beyond taxes.

His 401k at Fidelity
Total: 61.3%

$163,400 TRP INST LGCP CORE (TPLGX) 0.57% switchPlanning on it.
Company match at 6%, contributions at 6%

Her 401k at Fidelity
Total: 15%

$40,000 FID FREEDOM 2050 (FFFHX) @ 0.75% switch!Planning on it.
Company match at 6%, contributions at 6%

Funds available in his 401(k)
FID 500 INDEX (FXAIX) @ 0.015% (new addition) yes!!!!I'm thinking the same thing with that ER
FID EXTD MKT IDX (FSMAX) @ 0.045% (new addition)
Also very good for small/mid cap diversification.Thanks.
VANG SMCP GR IDX ADM (VSGAX) @ 0.07% I'd be tempted to pay more in fees (pennies really though) for some of this fundThis fund over the FID 500 INDEX above?
VANG TOT INTL STK AD (VTIAX) @ 0.11% Good but cheaper to do the two fidelity funds insteadThanks
VANG TOT BD MKT ADM (VBTLX) @ 0.05%Great bond fund option to the extent you want bonds.Sounds good.


Funds available in her 401(k)

The below funds are all great. Since you both have plenty of good options, you could just have each 401k be fully balanced as a stand alone portfolio. That makes rebalancing easier.I was hoping to be able to have each of the 401 accounts managed as stand alone, I'm glad that may be able to happen.

Questions:
  1. In 2017 I had us significantly reduce our 401k contributions under a misunderstanding it would clearly be better to use taxable accounts for investing for early retirement. As a result, I expect our taxable income and tax bracket to be much higher for the 2018 tax year. What can I do to help reduce our tax burden this year? Jack up your 401k contributions for the next 4 pay periods. Set it as high as possible and you may be able to get close to maxing them out (just live off savings in the interim). Also max out the HSA; you may be able to do this with a lump sum contribution outside of payroll. Talk to HR or the HSA provider directly to ask. If you do it outside payroll though, your pay stub won't tell the full story so remember to check all your tax docs when you do your 2018 taxes to get the full deduction.HSA is maxed every year. We will be discussing going 100% in our 401ks for the remainder of the year. I only get paid once a month, but it's all the same at year end, I'd wager.
  2. Would it make more sense to open TIRAs this year with pre-tax money instead of opening Roth IRAs, and open Roths in 2019 with a lower expected taxable income / tax bracket? No. Roth IRAs are best and it's way simpler anyway to not have two tiny TIRAs to deal with that won't get future contributions. 25% is not that high of a bracket anyway.Thanks. That's along the lines of what I was thinking, and hadn't considered ramping up 401k contributions.
  3. Reading MadFientist articles here: https://www.madfientist.com/traditional ... -roth-ira/ and here: https://www.madfientist.com/how-to-acce ... nds-early/ it appears that a TIRA instead of RIRA may be a better way to go, but I don’t understand if any of these would apply to our situation or not. Can anyone offer any advice?Yes, I've read this and many other FIRE blogs on the subject, but the consensus is usually to go with the Roth IRA. They are much more flexible and offer great tax diversification if you're maxing out 401ks especially. One thing many people (including FIRE bloggers) fail to take into account is their incomes rising dramatically over time. Most of the Fire bloggers can't even use the strategies they are talking about because their incomes and tax brackets end up being way higher than they predicted even in early retirement. Go Roth while you can. Tons of higher income folks (myself included) wish they'd put more in when they could. I should have been maxing my 401k in Roth contributions for all my 20s, but when my tax bracket hit the low 20s I thought that was high and switched to traditional. Even if I retire early my tax bracket will remain high since I'm now accumulating after tax investments that will throw off dividends and rental income - and now that we are FI we've actually found jobs we love and don't plan to retire early anymore, meaning our wealth will just continue to grow.Thanks for the advice. I'm in the same boat regarding the 20's. I contributed well for my wages then, but could have done much better. Back in 2002 when I was just starting tradeschool and work, one of the instructors strongly encouraged us to contribute to roths. I wince when I think of the crap I spent that measly couple grand on each year when I consider where it could be now
  4. Does it make sense to plan for the current $44,000 cash balance to be rolled into mega roth?
    Can this be done this tax year as lump after tax contribution, or does this need to be done via wage deductions? You have to contribute to the 401k via payroll deductions over time.understood.
  5. What is a reasonable accounts setup where we can keep our emergency funds relatively liquid, while not impacting our ability to pay bills, have fun, etc? We keep our EF at Vanguard in the money market settlement fund. I can transfer it to checking within a day but it earns over 2% there.Thanks. I think we may do this, but at FID. She's extremely hesitant to deal with banking and retirement, so the less stops the better if she needs to take over for a while.
    I recall someone mentioning some fidelity setup where a small checking account is held, and auto pulls from a MM(or other?) account as needed.
    Ideally we will DD our wages into one interest bearing account(MM?), schedule bills through either the MM or checking (as above in this question), and schedule discretionary spending distributions to separate account(s). I don't know if you can DD into an investment brokerage account; maybe at your employer they allow that, but typically you need a checking account. Eitehr way you can automate the transfers. The interest you lose on a day or two having to do the transfers yourself though isn't much though. Transaction volume is usually limited on a MM account though so be careful putting too many bills to be paid directly from that. Better to use a checking account as the hub and move money in and out of savings as needed.Thanks for the heads up on the MM limitations. I'll need to research this further and discuss this next week.
  6. Should we plan to adjust 401k contributions to rebalance with an eye toward mega roth backdoor since we plan on 5 – 7 years pre 55 age rule for 401 distributions? I would max out your 401ks, Roth IRAs and HSA first and only then decide what to do with additional funds: mega roth, taxable brokerage, pay down debt, or other (rental RE etc). You can always do Roth conversions in early retirement if you need to from the 401k if your roth contributions aren't enough. Or switch and save all in taxable the last year you decide to work. I lean toward having some taxable investments though, as I said before.Understood
  7. Considering relatively mediocre life expectancy, would it make more sense to plan for SS starting at 66.5, or keep the plan in place and revisit in around 10 years? Do not worry about this right now. The rules will likely change well before you are having to make this decision anyway.Understood
  8. How can I better understand the differences, pros, and cons between low expense ETF and low expense mutual funds for investments into the equities/bonds space? It's a toss up. You can trade ETFs quicker which can be handy if you're doing tax loss harvesting, but within a retirement account that wouldn't apply anyway. Understood
    For example: VTSMX vs VTI, VGTSX vs VXUS, VBMFX vs BND
  9. From Fidelity, would I be able to hold Vanguard ETF/MFs? Would this include admiral class? ETFs probably, but not mutual funds. And they may charge more to trade outside ETFs than they do Fidelity's. They are effectively the same though - no need to buy VG if your account is at Fidelity. Understood
  10. Assuming we want to eventually become expat (after 2033), are there any special considerations for finances and/or taxes? Sure, but again that is so far out that I wouldn't necessarily worry about it now. It'll be more of an impact on your healthcare costs and income taxes, but those rules will change a lot over the next 10-20 years I'm sure.Understood
  11. Assuming I do not max tax-advantaged accounts, and do not have equities in any potential taxable accounts, I should not have to worry about wash sales, correct? Wash sale issues are only possible in a taxable account since that's the only place you can recognize/deduct losses.That's what I had thought, thanks for the clarification
  12. Should I plan for taxable accounts in order to TLH, or is TLH something to not be concerned about with my current plan? TLH opportunities are one advantage to having some funds in a taxable account. This is the kind of tax diversification that is beneficial. But I'm not sure that alone should make the decision for you.
    Sounds reasonable. Can you point me in the direction where I can further understand TLH planning, etc?
    I recall seeing a couple threads here, but they all seemed about 3 foot over my head. I'll check the wiki a bit later as well.

eldoface
Posts: 7
Joined: Wed Nov 07, 2018 8:36 pm

Re: Full Retirement Revamp and Planning for ER/FI.

Post by eldoface » Fri Nov 09, 2018 4:24 pm

retiredjg wrote:
Fri Nov 09, 2018 3:47 pm
eldoface wrote:
Fri Nov 09, 2018 3:08 pm
The reason I chose TPLGX was that the return was heads and tails above the other funds, and at the time I was aiming to boost returns as much as possible.
While I understand past performance doesn't guarantee future returns, can you talk with me a bit more about the costs for the TPLGX?
My thoughts were that while the cost is arount 0.5%, it always seemed to return > 2% over the other funds, so I thought that the increase in fees was worth the cost.
Keeping costs low is one of the basic principles of Boglehead investing. Studies have shown that the best all rough predictor of portfolio success is cost. I sorry that I don't have references for that statement and of course, you have no reason to believe. me You will just have to keep reading and learning until you come to this conclusion yourself.
I do understand and agree that keeping expenses low is a cornerstone.
I do recall reading the same things, but had assumed that the increase return was worth it.

I guess I was considering it similar to paying down a low interest auto loan (such as I have now) vs investing the funds and overall attempting to come out ahead.
retiredjg wrote:
Fri Nov 09, 2018 3:47 pm
The fund you mentioned is a large cap growth fund. In other words, it represents only a portion of the 500 index which does contain large cap growth stocks as well as "blend" and large cap value stocks. So it is an apples and oranges comparison.
I did not do enough research to see that the two funds in question weren't really equivelant.
Thanks for pointing it out. I'll have to look closer as I'm comparing options.

retiredjg
Posts: 34226
Joined: Thu Jan 10, 2008 12:56 pm

Re: Full Retirement Revamp and Planning for ER/FI.

Post by retiredjg » Fri Nov 09, 2018 4:33 pm

If you are not familiar with the terms "value" and "growth" as they are used to describe stocks....start paying attention when you see them. I don't have the knowledge or words to exactly describe the difference, but consider this analogy.

Think of the rainbow which starts at red and goes through several different colors (orange yellow green blue indigo) to violet. Red would be value stocks, green would be the middle, and violet would be growth stocks.

The 500 index is the entire rainbow. The growth stocks are just the things near indigo and violet. There are times when growth stocks do very well. Other times, the rest of the rainbow is doing well. I prefer to just hold the whole rainbow.

Chip
Posts: 2293
Joined: Wed Feb 21, 2007 4:57 am

Re: Full Retirement Revamp and Planning for ER/FI.

Post by Chip » Sat Nov 10, 2018 9:48 am

A few observations/clarifications:

You can choose to buy either Vanguard mutual funds or ETFs at Fidelity. I believe it isn't wise to buy the funds because of the high commissions and lack of Admiral shares. But the Vanguard ETFs have only a $5 commission to buy/sell. For me that is essentially nothing, since I'm in retirement and typically only make large purchases/sales. It is probably different for you. But you might want to evaluate the Vanguard ETFs vs. the no-commission iShares equivalents (ITOT, IXUS, AGG) before making a decision. There are some very slight differences. Probably not enough to matter when starting out.

You have a good reason to keep everything at Fidelity in that your 401ks are both there. If you decide you want Vanguard ETFs and are okay with the commissions you'll pay then there is no reason to open a Vanguard account.

There are no transaction volume restrictions on the Fidelity money market funds. Meg77 may be thinking of banking regulations that limit transactions on certain types of accounts. Those regulations don't apply to brokerage house money market funds as brokers are not banks. I make more than a dozen transactions per month out of my account via billpay and direct pulls. And you can definitely direct deposit into a Fidelity taxable account. I do it every month, have tax refunds direct deposited there, etc. I use it as my primary bank account.

You mentioned that your AGI in 2017 was about 80k. That puts your taxable income comfortably inside the 12% bracket. In my opinion that's a low tax rate. If I were in your shoes I would optimize my post-2018 contributions to 401k/Roth 401k/Roth IRA to hit right at the top of that 12% bracket. That way you'll end up with the tax diversification mentioned earlier.

On expenses in retirement: you make a good point about your expenses going down due to paying off debts. I hadn't considered that. But recognize that if you currently escrow taxes and insurance that part of your mortgage payment won't go away when the debt is paid off. And don't forget that you will have to buy medical insurance in retirement and your medical expenses will likely increase from where they are now.

As you get advice here recognize that essentially everyone here injects their own personal experience/situation into the advice that they give. For example, since we have been early-retired for many years with no pension and a tax-efficient taxable account, our tax rates could have been essentially zero for the last 17 years. We chose to do Roth conversions most years to fill out the lower tax brackets. We never passed up a chance to tax defer while working and that was the right decision given the high marginal brackets we were in. But others here worked longer, have pensions and are facing significantly higher tax rates when RMDs and social security kick in. So some of them are regretting maximum tax deferral and wishing they'd contributed more to Roths while working. So you have to filter the advice through that lens and see what applies to your specific situation.

eldoface
Posts: 7
Joined: Wed Nov 07, 2018 8:36 pm

Re: Full Retirement Revamp and Planning for ER/FI.

Post by eldoface » Sat Nov 10, 2018 4:07 pm

retiredjg,
That was probably the most pleasant way I've seen it described.

Chip,
Thanks for your reply.

I have been looking at the commission free ishares for a little while, itot specifically for her 5k in the IIRA.

I haven't been set on, or have a particularly strong interest in, the Vanguards. I figured more information was better, and that since the members have a Vanguard leaning I've appreciated the replies on them.

Great idea about shooting for the top of the bracket, I hadn't thought that far ahead.

Excellent points about the expenses, I do indeed have property taxes on escrow, and did not consider thoroughly how medical would affect expenses.

One of the reasons I've decided to keep coming back to Bogleheads is the wide range of people who contribute, and the general tendency for long term steady planning over get rich quick retire in 5 years attitudes I've seen at some other places. I'm glad to be able to get advice from those in and near my situation, as well as those like yourself who have years of living the life after.

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