Help setting up 3 Fund Portfolio or Vanguard Retirement Fund- streamline 457 plan, rollover ira, roth ira

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Topic Author
AdAstraPerAspera
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Joined: Sat Feb 02, 2019 6:31 pm

Help setting up 3 Fund Portfolio or Vanguard Retirement Fund- streamline 457 plan, rollover ira, roth ira

Post by AdAstraPerAspera » Sun Feb 03, 2019 12:50 pm

I just finished the amazing 3 Fund Portfolio and A Random Walk Down Wall Street (thanks to the reading list). The 3 Fund Portfolio gave this late bloomer the hope and courage to start taking charge of our retirement.

I was so glad to read about the forum as a resource. Thank you Bogle heads!

Goal! and How to streamline?
I would like to set up a 3 fund portfolio or target retirement fund to start saving each month. Also, i have a 457 w/both pre tax and Roth contributions and an old schwab account w/ pretax rollover IRA and roth.

l would like to clean up/streamline the different accounts then allocate to 3 fund portfolio or vanguard target retirement fund. Unless you think the different accounts are good. Then keep as is but move them into 3 fund portfolio allocation or target retirement fund.

Emergency funds: Three months of expenses in savings account
Debt: No debt but Mortgage - 25 years left 4.375%
Tax Filing Status: Married Filing Jointly
Tax Rate: Unsure - Husband and I gross about $100k
State of Residence: Kansas
Age: 44, husband 46
Desired Asset allocation: xx% stocks / xx% bonds - unsure
Desired International allocation: xx% of stocks - unsure

Size of your current total portfolio: Mod 5 figures. Beginner - better late than never i hope!

Current retirement assets
52% public employee retirement plan - I contribute a mandatory 6% of my salary.

Rollover IRA at Schwab
7% Cash account no fees, 0.33% interest (left this sitting here after moving out of an employer sponsored 401k years ago :( )

Roth IRA at Schwab
22% VANGUARD 500 INDEX FD INVESTOR SHS (VFINX) (0.14%)

457(b) at employer - 4% of my income
457 Plan Salary Reduction (They didn't offer Roth option until recently. I moved my future contributions to all Roth)
11% Vanguard 500 Index Fund - Admiral Shares (VFIAX) (0.04%)
5% Vanguard Mid-Cap Index Fund - Admiral Shares (VIMAX) (0.05%)

457 Plan Roth - just started contributing as Roth, not pretax
3% Vanguard 500 Index Fund - Admiral Shares (VFIAX) (0.04%)
1% Vanguard Mid-Cap Index Fund - Admiral Shares (VIMAX) (0.05%)

Company match? No

Total of All Accounts Together 100% (slightly above 100 due to rounding)

Contributions
We would like to start additional monthly contributions after we have set up Vanguard Target Retirement Fund or 3 Fund portfolio.

Available funds

Funds available in my 457 (b)
Target Date Funds
TIAA-CREF Lifecycle 2010 Fund - Institutional Class (TCTIX) 0.49
TIAA-CREF Lifecycle 2015 Fund - Institutional Class (TCNIX) 0.50
TIAA-CREF Lifecycle 2020 Fund - Institutional Class (TCWIX) 0.50
TIAA-CREF Lifecycle 2035 Fund - Institutional Class (TCIIX) 0.54
TIAA-CREF Lifecycle 2040 Fund - Institutional Class (TCOIX) 0.55
TIAA-CREF Lifecycle 2045 Fund - Institutional Class (TTFIX) 0.56
TIAA-CREF Lifecycle 2050 Fund - Institutional Class (TFTIX) 0.57
TIAA-CREF Lifecycle 2055 Fund - Institutional Class (TTRIX) 0.59
TIAA-CREF Lifecycle 2060 Fund - Institutional Class (TLXNX) 0.79
TIAA-CREF Lifecycle Index Retirement Income Fund - Institutional Class (TRILX) (0.31)

Specialty
Cohen & Steers Real Estate Securities Fund, Inc. - Institutional Class (CSDIX) (0.88)

International Stocks
Fidelity Emerging Markets Fund (FEMKX) (0.97)
Oppenheimer International Diversified Fund - Class I (OIDIX) (0.88)

Small Cap Stocks
Touchstone Small Company Fund - Class R6 (SSRRX) 0.85

Mid Cap Stocks
MassMutual Select Mid Cap Growth Fund – Class I (MEFZX) 0.72
**Vanguard Mid-Cap Index Fund - Admiral Shares (VIMAX) 0.05

Large Cap Stocks
ClearBridge Large Cap Growth Fund - Class I (SBLYX) 0.78
MFS Value Fund - Class R3 (MEIHX) 0.84
**Vanguard 500 Index Fund - Admiral Shares (VFIAX) 0.04

Balanced
Capital Income Builder(R) Fund - Class R5 (RIRFX) 0.33 Trade restrictions
PGIM Balanced Fund - Class Z (PABFX) 0.87

Bonds
Federated High Yield Trust - Institutional Shares (FHTIX) 0.83 subject to fee
Pioneer Bond Fund-Class K (PBFKX) 0.35 Trade restrictions

Questions:
1. Keep as is? If yes, how do i set what i have up to work as a 3 fund portfolio or target retirement fund?

2. Streamline? If yes, then how do i set up for 3 fund portfolio or target retirement fund?
I am in a lower tax bracket and would like to streamline and clean up the multiple accounts. Unless bogle heads think the current set up could work?
Can I simplify this to 1 saving place (the 457 or move all to vanguard/change 457 contribution to deposit to vanguard account)? should i convert the pretax stuff to roth then move into 1 place? Is it ok to have it as is? just feel messy.

Thank you in advance for your time, Courtney

snailderby
Posts: 140
Joined: Thu Jul 26, 2018 11:30 am

Re: Help setting up 3 Fund Portfolio or Vanguard Retirement Fund- streamline 457 plan, rollover ira, roth ira

Post by snailderby » Mon Feb 04, 2019 6:01 pm

Welcome to the forum, Courtney!

a. Re whether to convert a traditional IRA to a Roth IRA, there's a Bogleheads wiki article on this: https://www.bogleheads.org/wiki/Roth_IRA_conversion.

b. Setting up a three-fund portfolio in your Roth IRA should be relatively easy.

To construct a three-fund portfolio in a Schwab account, you can use...

Schwab Total Stock Market Index (SWTSX);
Schwab International Index (SWISX); and
Schwab U.S. Aggregate Bond Index Fund (SWAGX).

In a Vanguard account, you can use...

Vanguard Total Stock Market Index Fund (VTSAX);
Vanguard Total International Stock Index Fund (VTIAX); and
Vanguard Total Bond Market Fund (VBTLX).

Unfortunately, in your 457 plan, it looks like the international & bond fund options have higher expense ratios. So instead of paying more for the international / bond funds in your 457 plan, I would probably increase your allocation to SWISX/VTIAX and SWAGX/VBTLX in your Roth IRA(s) until you reach your desired asset allocation for all of your investments as a whole.

c. For what it's worth, there's a fair bit of overlap between VFIAX and VIMAX because VFIAX tracks the S&P 500 index while VIMAX tracks the CSRP mid-cap index. At this point, the CSRP mid-cap index that VIMAX tracks roughly corresponds to holding the 260th to 630th largest companies in the U.S., which substantially overlaps with the bottom half of the S&P 500 index.

Hopefully others will chime in with more helpful answers soon!

Topic Author
AdAstraPerAspera
Posts: 5
Joined: Sat Feb 02, 2019 6:31 pm

Re: Help setting up 3 Fund Portfolio or Vanguard Retirement Fund- streamline 457 plan, rollover ira, roth ira

Post by AdAstraPerAspera » Mon Feb 04, 2019 8:48 pm

Thanks for the welcome snailderby :), the Roth conversion link, the 3 fund Schwab and Vanguard lists, and the advice on the VFIAX VIMAX.

I will definitely change that once I hopefully hear back a little more advice on my questions to be able to make a move.

Really wondering if the 457 is worth it and if I should simply move to 3 fund or target retirement. What do you bogle heads think about Vanguard target retirement funds? Could i just convert and put it all in there? Is that safe?

If yes, that simple solution might be right for us.

retire2022
Posts: 283
Joined: Tue Oct 02, 2018 6:10 pm
Location: NYC

Re: Help setting up 3 Fund Portfolio or Vanguard Retirement Fund- streamline 457 plan, rollover ira, roth ira

Post by retire2022 » Mon Feb 04, 2019 11:36 pm

AdAstraPerAspera wrote:
Mon Feb 04, 2019 8:48 pm

Really wondering if the 457 is worth it and if I should simply move to 3 fund or target retirement. What do you bogle heads think about Vanguard target retirement funds? Could i just convert and put it all in there? Is that safe?

If yes, that simple solution might be right for us.
Adastra

Your breakdown of your entire portfolio is a bit confusing on the quick read.

I would analyze the largest tax sheltered contribution going forward as the bulk of investing, as I read your initial post 52% is 457b is this government? or Not-for-profit, the later has rollover limits, and are seizable to creditors.

457b plan (government) is worth it if you plan on staying job, that is your age 44-67=23 years of investing, assuming 19K x 23 years=437K projected contributions

If you would contribute in addition to your 457b to a Roth IRA 6kx23 years, your projected contributions would be 138K

437+138=K for both 457b+Roth IRA combined is 575K

http://www.moneychimp.com/calculator/co ... ulator.htm

using the compound interest calculator

my calculations are

19k+6K=25K

25K compounded by 5% (conservative estimate) for 23 years will give you at least $1,087,549.97 not including whatever you have

So I think with 457B alone it would be 19K compounded by 5% for 23 years give you at least $826,537.98

snailderby
Posts: 140
Joined: Thu Jul 26, 2018 11:30 am

Re: Help setting up 3 Fund Portfolio or Vanguard Retirement Fund- streamline 457 plan, rollover ira, roth ira

Post by snailderby » Tue Feb 05, 2019 12:47 pm

Just to clarify...

a.
AdAstraPerAspera wrote:
Sun Feb 03, 2019 12:50 pm
Can I ... change 457 contribution to deposit to vanguard account?
Does your 457 plan limit you to the plan options that you listed in your first post, or is there some sort of brokerage option that lets you direct your 457 contributions to an account somewhere else?

b. Does your employer match any contributions to the 457 plan?

c. How much do you want to contribute to all of your retirement accounts (in total) every year?

d. Do you have access to Vanguard's target-date retirement funds in your 457 plan?

Topic Author
AdAstraPerAspera
Posts: 5
Joined: Sat Feb 02, 2019 6:31 pm

Re: Help setting up 3 Fund Portfolio or Vanguard Retirement Fund- streamline 457 plan, rollover ira, roth ira

Post by AdAstraPerAspera » Tue Feb 05, 2019 10:14 pm

I would analyze the largest tax sheltered contribution going forward as the bulk of investing, as I read your initial post 52% is 457b is this government? or Not-for-profit, the later has rollover limits, and are seizable to creditors.
Yes, it is government. Sorry for the confusion. 52% of our current savings is in our state public employees retirement fund (that amount is 6% of my salary contributed every paycheck)
457b plan (government) is worth it if you plan on staying job, that is your age 44-67=23 years of investing, assuming 19K x 23 years=437K projected contributions
I think my original post got confused. We are not able to afford 19k in retirement contributions, but thank you for the money chimp calculator! i appreciate it.

22% of our savings is in the 457b plan (see original post for fund distribution) I contribute 4% of every paycheck to the City's optional 457b plan.

Topic Author
AdAstraPerAspera
Posts: 5
Joined: Sat Feb 02, 2019 6:31 pm

Re: Help setting up 3 Fund Portfolio or Vanguard Retirement Fund- streamline 457 plan, rollover ira, roth ira

Post by AdAstraPerAspera » Tue Feb 05, 2019 10:25 pm

snailderby wrote:
Tue Feb 05, 2019 12:47 pm
Does your 457 plan limit you to the plan options that you listed in your first post, or is there some sort of brokerage option that lets you direct your 457 contributions to an account somewhere else?
Yes, those funds are the only options in our 457 plan.
b. Does your employer match any contributions to the 457 plan?
No
c. How much do you want to contribute to all of your retirement accounts (in total) every year?
12k (more when we can afford to)
d. Do you have access to Vanguard's target-date retirement funds in your 457 plan?
No, I wish! i was thinking of starting an account and stopping the 457 depending on what everyone thought of the 457b fund options.

I know it is not a lot, but it is what we got! I have ignored it for years thinking it was too small to matter, but it is mine. It is what we have, and I want to do the best I can with what we have. Again, thank you for your help and time!

snailderby
Posts: 140
Joined: Thu Jul 26, 2018 11:30 am

Re: Help setting up 3 Fund Portfolio or Vanguard Retirement Fund- streamline 457 plan, rollover ira, roth ira

Post by snailderby » Wed Feb 06, 2019 11:48 am

AdAstraPerAspera wrote:
Tue Feb 05, 2019 10:25 pm
snailderby wrote:
Tue Feb 05, 2019 12:47 pm
Does your 457 plan limit you to the plan options that you listed in your first post, or is there some sort of brokerage option that lets you direct your 457 contributions to an account somewhere else?
Yes, those funds are the only options in our 457 plan.
b. Does your employer match any contributions to the 457 plan?
No
c. How much do you want to contribute to all of your retirement accounts (in total) every year?
12k (more when we can afford to)
d. Do you have access to Vanguard's target-date retirement funds in your 457 plan?
No, I wish! i was thinking of starting an account and stopping the 457 depending on what everyone thought of the 457b fund options.

I know it is not a lot, but it is what we got! I have ignored it for years thinking it was too small to matter, but it is mine. It is what we have, and I want to do the best I can with what we have. Again, thank you for your help and time!
Thank you for the clarification!

1. If your employer won't match your 457b contributions, by all means, max out your Roth IRA first. A Vanguard/Schwab/Fidelity Roth IRA will have better fund options than your 457b plan. You and your husband can each contribute $6000 a year to your respective Roth IRAs, for a total contribution of $12,000 a year. After you turn 50, you can also make additional catch-up contributions. See https://www.rothira.com/roth-ira-contribution-limits. In general, I wouldn't contribute to a 457b/403b/401k plan unless (1) your employer offers an employer match, (2) you and your husband have already maxed out any available tIRAs or Roth IRAs, or (3) the fund options in your 457b/403b/401k plan are better the fund options in your tIRA or Roth IRA. (There's a Bogleheads wiki article on the pros and cons of a traditional v. Roth account: https://www.bogleheads.org/wiki/Traditional_versus_Roth.)

2. There are many reasons to recommend a target-date fund over a three-fund portfolio. (a) Target-date funds are the ultimate in set-it-and-forget-it simplicity. (b) They automatically adjust your stock-bond allocation as you near retirement. (c) They hold thousands of international and U.S. stocks and bonds in one fund, so they are broadly diversified. (c) They protect you from behavioral errors by discouraging you from tinkering with your stock-bond ratio or international-U.S. equity ratio at the worst times. See https://thefinancebuff.com/target-date- ... rated.html.

On the other hand, (a) maintaining a three-fund portfolio yourself can save you a few basis points in fees every year. Take VFORX (Vanguard Target Retirement 2040), for example. It has an expense ratio of 0.14%. That isn't bad. Using VFORX as your only investment fund would save you a ton of fees compared to using a financial advisor that charges 1.00% every year on top of high-cost mutual funds that charge an additional 1.00%-2.00% every year. But if you replicate VFORX's asset allocation with a three-fund portfolio (dropping VFORX's international bonds), you can lower the overall expense ratio even further to 0.07%. (b) A three-fund portfolio will give you more flexibility to hold more or less bonds or international stocks if (i) your preferred bond or international stock allocation differs from Vanguard's recommendations, or (ii) you need to use one account to balance out another account that doesn't have a good bond or international stock option. (c) If you have investments in both tax-advantaged and taxable accounts, a three-fund portfolio offers the potential of more tax-efficient fund placement. See viewtopic.php?t=238174 and https://www.bogleheads.org/wiki/Tax-eff ... _placement.

3. On an aside, the median 401(k) balance in the U.S. is only $36,900. It sounds like you and your husband live in a low-cost-of-living area. One of the great things about a target-date fund or a three-fund portfolio is once you set it up, you can get on with life, save as much as you can, and spend your time worrying about more important things. :beer
Last edited by snailderby on Wed Feb 06, 2019 7:13 pm, edited 1 time in total.

retire2022
Posts: 283
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Location: NYC

Re: Help setting up 3 Fund Portfolio or Vanguard Retirement Fund- streamline 457 plan, rollover ira, roth ira

Post by retire2022 » Wed Feb 06, 2019 6:20 pm

snailderby wrote:
Wed Feb 06, 2019 11:48 am

Thank you for the clarification!

1. If your employer won't match your 457b contributions, by all means, max out your Roth IRA first. A Vanguard/Schwab/Fidelity Roth IRA will have better fund options than your 457b plan.
OP Astra

I disagree with snailderby, most financial planners recommend one max out the largest tax shelter investments, if the 457b plan (19K for 2019) is the only tax sheltered employee plan.

You will have an opportunity lost not investing in the max, as years pass, you may regret under investing.

I would do this first, if you plan on leaving the job in the near future, then it does not matter, it there and bit the bullet and eat the fees. If you decide to leave your job you can transfer 457b holding to Vanguard.

If you want to consolidate your existing 401K and Roth/IRAs into 457b in order to gain momentum you are better off doing so in Vanguard as a custodian.

I would max out Roth 457b, then Roth IRA if you are in low tax bracket.

It seems to me you need a saving plan, or cutting you expenses and or outstanding debts if any.

I've been in 457b for 29 years and have 1,14 million portfolio
Last edited by retire2022 on Wed Feb 06, 2019 6:30 pm, edited 1 time in total.

retire2022
Posts: 283
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Location: NYC

Re: Help setting up 3 Fund Portfolio or Vanguard Retirement Fund- streamline 457 plan, rollover ira, roth ira

Post by retire2022 » Wed Feb 06, 2019 6:27 pm

AdAspera (op)

see link publication 590A (2018) page 22 for transfers rules

https://www.irs.gov/pub/irs-pdf/p590a.pdf

snailderby
Posts: 140
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Re: Help setting up 3 Fund Portfolio or Vanguard Retirement Fund- streamline 457 plan, rollover ira, roth ira

Post by snailderby » Wed Feb 06, 2019 6:31 pm

There's a Bogleheads wiki article on this: https://www.bogleheads.org/wiki/Priorit ... nvestments.

And a few threads on the same topic:

viewtopic.php?t=209651
viewtopic.php?t=199346
viewtopic.php?t=183977

If we're comparing a traditional 457b or 401k with a Roth IRA, I suppose one factor in determining the correct order of investments would be your current and (projected) future tax brackets. But if we are comparing a Roth 457b with a Roth IRA, wouldn't both accounts be taxed similarly? I can't claim any particular expertise with 457b plans, but my understanding is that they are similar to 401k plans in many respects.
Last edited by snailderby on Wed Feb 06, 2019 6:40 pm, edited 2 times in total.

retire2022
Posts: 283
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Location: NYC

Re: Help setting up 3 Fund Portfolio or Vanguard Retirement Fund- streamline 457 plan, rollover ira, roth ira

Post by retire2022 » Wed Feb 06, 2019 6:36 pm

snailderby wrote:
Wed Feb 06, 2019 6:31 pm
There's a Bogleheads wiki article on this: https://www.bogleheads.org/wiki/Priorit ... nvestments.

And a few threads on the same topic:

viewtopic.php?t=209651
viewtopic.php?t=199346
viewtopic.php?t=183977
Not to beat this horse to death

"Contribute to the work-based plan (401(k), 403b,) enough to get the full employer match (the match is like free money, your best possible investment),"

a 401K and 403b is a same as 457b, work-based plan

snailderby
Posts: 140
Joined: Thu Jul 26, 2018 11:30 am

Re: Help setting up 3 Fund Portfolio or Vanguard Retirement Fund- streamline 457 plan, rollover ira, roth ira

Post by snailderby » Thu Feb 07, 2019 11:33 am

The wiki says the first priority is to contribute enough to the work-based plan "to get the full employer match." But in this case,the OP's 457b plan doesn't offer an employer match. If the OP wants to contribute more than the annual limit for her IRA (traditional or Roth), then I agree that it would make sense to direct additional contributions to her work-based 457b plan. :happy

retire2022
Posts: 283
Joined: Tue Oct 02, 2018 6:10 pm
Location: NYC

Re: Help setting up 3 Fund Portfolio or Vanguard Retirement Fund- streamline 457 plan, rollover ira, roth ira

Post by retire2022 » Thu Feb 07, 2019 6:49 pm

snailderby wrote:
Thu Feb 07, 2019 11:33 am
The wiki says the first priority is to contribute enough to the work-based plan "to get the full employer match." But in this case,the OP's 457b plan doesn't offer an employer match. If the OP wants to contribute more than the annual limit for her IRA (traditional or Roth), then I agree that it would make sense to direct additional contributions to her work-based 457b plan. :happy
Snailderby Government worker do not have match with 457b (the nature of what IRS rules provided for worker) so I can't see why this would be a priority with the OP.

Nevertheless the opportunity cost of NOT investing and under investing is the problem with 50% of Americans, once the opportunity is gone it is gone.

Nevertheless the op issue really is saving's issue with mortgage debt.

Topic Author
AdAstraPerAspera
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Joined: Sat Feb 02, 2019 6:31 pm

Re: Help setting up 3 Fund Portfolio or Vanguard Retirement Fund- streamline 457 plan, rollover ira, roth ira

Post by AdAstraPerAspera » Mon Feb 11, 2019 8:58 pm

retire2022 wrote:
Thu Feb 07, 2019 6:49 pm
snailderby wrote:
Thu Feb 07, 2019 11:33 am
I want to you thank you both snailderby and retire2022. You have both given me a lot to think about. I am going to go through all of the information you provided. I will make a better decision about our retirement thanks to your help! I may post back to this thread with some questions after I have time to soak it all in.

I appreciate your time and expertise. Thank you!, Courtney

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