Big Picture - are we doing the right things?

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Topic Author
Triple digit golfer
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Big Picture - are we doing the right things?

Post by Triple digit golfer » Thu Mar 21, 2019 11:15 am

My wife and I are 34 and have a 1.5 year old child. I work and my wife stays at home with our toddler, with no imminent plans of returning to work, although it is possible that she will in the future. We both like her home with our child.

We save 20-25% of our $149k gross income and that is after budgeting for non-regular expenses such as car maintenance, home repairs, and even our next vehicles. Last year we purchased a new roof and gutters and still saved more than 20% of our income.

Our mortgage (PITI) is 18.4% of gross income. We have home equity of around $55k and $323k remaining on a 30 year fixed mortgage at 3.5%.

We have around $690k in assets distributed approximately as follows, with all funds being total market index funds, at approximately 75% equities and 25% bonds/cash, with 30% of equities in international:

Tax-deferred:
28.8% U.S. equities
19.0% Bonds

Tax-free:
8.4% U.S. equities
9.8% International equities

Taxable:
14.2% U.S. equities
12.1% International equities
4.1% cash (Prime Money Market)

529:
3.53% age based plan (approx. 90% equities and 10% bonds)

We have the following insurance:
-Medical
-Dental
-Vision
-Homeowners
-Umbrella $1 million policy
-Life: Me: $1mm 20 year term, $1mm 30 year term; Wife: $1mm 20 year term
-Long-term disability: Me: to age 65, own occupation that would pay approximately 60% of my salary

Questions:
1. Is my asset allocation distributed accordingly from a tax perspective? I aimed to have bonds in tax-deferred, equities in tax-free, and taxable be the remaining equities and a bit of cash. My emergency fund will be the cash first, then I would sell equities in taxable and exchange equities to bonds in tax-deferred.

2. Are we over-insured? I feel like we pay a lot of money for insurance, but it all seems necessary to me.

3. Any glaring weaknesses to what we are doing?

FoolMeOnce
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Re: Big Picture - are we doing the right things?

Post by FoolMeOnce » Thu Mar 21, 2019 11:44 am

You look like you are in great shape. Makes sense to put your bonds in tax-deferred. If your wife has decent earning potential, maybe you don't need the second million of life insurance on you, but I imagine that is fairly inexpensive anyway so might not be worth cutting.

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ruralavalon
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Re: Big Picture - are we doing the right things?

Post by ruralavalon » Thu Mar 21, 2019 11:47 am

At age 35 an asset allocation with 25% fixed income is reasonable in my opinion, as is 30% of equities in international equities.

You don't identify the particular funds you are using, but the account placement looks reasonable for tax-efficiency.

In general I think that you are doing fine. My differences with your approach are properly labelled as personal preferences.

I would not keep a cash allocation at all (certainly not $28k cash), feeling that it is certain to give a negative real return net of inflation and taxes. Instead I would use a good intermediate-term bond fund.

We never had dental or vision insurance, and still don't.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Stinky
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Re: Big Picture - are we doing the right things?

Post by Stinky » Thu Mar 21, 2019 11:48 am

You are doing an absolutely great job. Good income, great savings rate, good asset choices, asset allocation is appropriate.

Keep it up. And pass your financial discipline down to your children.
It's a GREAT day to be alive - Travis Tritt

ivk5
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Re: Big Picture - are we doing the right things?

Post by ivk5 » Thu Mar 21, 2019 1:49 pm

+1 can’t find fault with any of the above. Few bits of food for thought:

Are you maxing tax-deferred accounts? Workplace plan, roth or backdoor Roth (I forget income limits), etc?

Consider I Bonds. Do you have HSA option?

No mention of estate planning. Do you have everything in place?

bloom2708
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Re: Big Picture - are we doing the right things?

Post by bloom2708 » Thu Mar 21, 2019 1:54 pm

Looks good.

We don't have the detail of what funds you have. Tax efficient? Low cost? Any funds with .5, .75 or 1% expense ratios?

Any overlap, duplicate funds or heavy tilts? Any individual stocks?

Max pre-tax 401k, pre-tax HSA (if an option), 2 back door Roths. ESPP might be an option for a rolling buy/sell each quarter.

There are always little ways to optimize.
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majiaknight
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Re: Big Picture - are we doing the right things?

Post by majiaknight » Thu Mar 21, 2019 2:14 pm

Triple digit golfer wrote:
Thu Mar 21, 2019 11:15 am
-Umbrella $1 million policy
-Life: Me: $1mm 20 year term, $1mm 30 year term; Wife: $1mm 20 year term
-Long-term disability: Me: to age 65, own occupation that would pay approximately 60% of my salary

2. Are we over-insured? I feel like we pay a lot of money for insurance, but it all seems necessary to me.
This is a very personal question depending on what you want to cover. My wife has a good job so when I calculated the coverage, I only considered the major cost of mortgage balance and x1 child care&education.

However, you may still try to look for a better deal as I saved quite a lot by switching to Costco-Protective Life from my company (big corp)'s recommended Minnesota Life (we still have company provided almost free group life there). I believe there might be better deal out there. Below are my current monthly insurance payment for your reference (I live in the Bay Area so YMMV):

-- Allstate Umbrella Insurance $1M $25.48/m
(Below term life insurance were purchased when we were both in mid-30s a few years back w/ no heath problems; the initial amount will be adjusted higher once w/ ~$6/m more for years 5-20)
-- Protective 20Y TermLife Insurance $1M $29.87/m (me)
-- Protective 20Y TermLife Insurance $1M $26.67/m (wife)

I also want to share a quote from highly respected boglehead Taylor Larimore on his view on insurance:
"Insurance companies know the chances of paying claims and they set their premiums accordingly--after adding in costs and profit.
In my opinion, it is usually a mistake to buy insurance for something we can afford to pay for ourselves. The premiums saved over a lifetime, can be significant. " --Taylor Larimore

ICMoney
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Re: Big Picture - are we doing the right things?

Post by ICMoney » Thu Mar 21, 2019 2:24 pm

Just want to confirm, your home is worth $378K, and you have $55K of equity. Did you put 20 percent down when you bought, or are you paying PMI? Or did the home value just decline so you have less equity in it?

Topic Author
Triple digit golfer
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Re: Big Picture - are we doing the right things?

Post by Triple digit golfer » Thu Mar 21, 2019 3:29 pm

Thank you all for the replies. I'll address some of the follow-up questions.

Other than Prime Money Market, all funds are either Total Stock, S&P 500 (in 401k), Total International, or Total Bond.

I do have $28k in Prime Money Market in my taxable account. If I were to switch that out for bonds, would I use an intermediate term tax exempt fund or simply buy equities in taxable and bonds in tax-deferred? I kept the $28k in cash in case of needing it for home repairs or maintenance, job loss, or whatever. Maybe I cut it down to $5k instead? At some point we will buy new (used) cars. Shouldn't I be saving that money needed in say, 5 years, in taxable cash?

I hadn't considered NOT having dental or vision insurance. I currently pay $51 every two weeks for the two via payroll deductions.

We are maxing out my 401k and two Roth IRAs. However, I am a highly-compensated employee in a non safe harbor 401k plan, so I get a big chunk ($9k this year) of my 401k contribution refunded, which becomes taxable income. I invest it in the taxable account.

I have not considered I Bonds; I like flexibility. If there's a good incentive to do so, maybe I cash start buying some each year.

I do have two HSA options, one high deductible and one low. I currently use the HMO. Here are the comparisons for my family, on a bi-weekly basis:

HMO: $555 per pay period, $0 deductible, $3,000 out of pocket max
HSA high deductible: $209 per pay period, $7,000 overall deductible, $11,600 out of pocket max
HSA low deductible: $432 per pay period, $3,000 overall deductible, $6,000 out of pocket max

I am hesitant to switch to the HSA. My wife had cancer in 2018 and requires period testing - scans, bloodwork, etc. She has had more than $50k in medical expenses and we've paid exactly $0 out of pocket. However, I am not against switching to the HSA. Does it make sense? Switching from HMO to high deductible would save us $8,996 per year, but actually more like $6,500 after factoring in the tax benefit. We would have paid $11,600 in 2018, I believe.

Estate planning was done last year. We have wills that specify a trust will be created in the event of our deaths.

We only put 10% down on our home and did not have to pay PMI because we paid $75 to take a "financial education" course. I figured with a low 3.5% interest rate, it was worth it to pay $75 one time in order to be able to keep that money and invest it.

Our insurance costs are the following. Not much I can do about medical being so high, but I think the others are reasonable.

-Medical $555 per pay period (every 2 weeks)
-Dental $48 per pay period
-Vision $3 per pay period
-Homeowners $691 annual premium
-Umbrella $1 million policy, $220 annual premium
-Life: Me: $1mm 20 year term $410 annual premium, $1mm 30 year term $757 annual premium; Wife: $1mm 20 year term $594 annual premium
-Long-term disability: Me: to age 65, own occupation that would pay approximately 60% of my salary: $160 monthly premium (high but a good Guardian policy)
-Auto full coverage, maximum liability, $750 deductible: $760 annual premium for the two of us

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Stinky
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Re: Big Picture - are we doing the right things?

Post by Stinky » Thu Mar 21, 2019 5:05 pm

On your vision and dental insurance -

Vision at $3 per pay period is trivial

Dental at $48 per period - I always bought the dental, because DW and I both have horrible teeth and we made money on it. Your situation may differ. Also, we paid premium with pre-tax dollars which made it a non-brainer.
It's a GREAT day to be alive - Travis Tritt

Grt2bOutdoors
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Re: Big Picture - are we doing the right things?

Post by Grt2bOutdoors » Thu Mar 21, 2019 5:22 pm

Triple digit golfer wrote:
Thu Mar 21, 2019 3:29 pm
Thank you all for the replies. I'll address some of the follow-up questions.

Other than Prime Money Market, all funds are either Total Stock, S&P 500 (in 401k), Total International, or Total Bond.

I do have $28k in Prime Money Market in my taxable account. If I were to switch that out for bonds, would I use an intermediate term tax exempt fund or simply buy equities in taxable and bonds in tax-deferred? I kept the $28k in cash in case of needing it for home repairs or maintenance, job loss, or whatever. Maybe I cut it down to $5k instead? At some point we will buy new (used) cars. Shouldn't I be saving that money needed in say, 5 years, in taxable cash?
Can you sleep at night with just $5K in your account? Some can, personally I would not. I'd leave the cash right where you have it, it's earning a decent rate of return for insurance money. Tell your wife you're only leaving $5K in there, wait for it......... :twisted:
I hadn't considered NOT having dental or vision insurance. I currently pay $51 every two weeks for the two via payroll deductions.
Leave it, I wouldn't drop dental and I wouldn't drop vision either. If I recall, you work with numbers (accountant) - - no amount of carrots is going to make up for that.
We are maxing out my 401k and two Roth IRAs. However, I am a highly-compensated employee in a non safe harbor 401k plan, so I get a big chunk ($9k this year) of my 401k contribution refunded, which becomes taxable income. I invest it in the taxable account.

I have not considered I Bonds; I like flexibility. If there's a good incentive to do so, maybe I cash start buying some each year.
If you're going to buy, do it before end of April, right now they are offering it with a 0.50% fixed rate, talk is they are not going to offer it in the May round of new rates.
I do have two HSA options, one high deductible and one low. I currently use the HMO. Here are the comparisons for my family, on a bi-weekly basis:

HMO: $555 per pay period, $0 deductible, $3,000 out of pocket max
HSA high deductible: $209 per pay period, $7,000 overall deductible, $11,600 out of pocket max
HSA low deductible: $432 per pay period, $3,000 overall deductible, $6,000 out of pocket max

I am hesitant to switch to the HSA. My wife had cancer in 2018 and requires period testing - scans, bloodwork, etc. She has had more than $50k in medical expenses and we've paid exactly $0 out of pocket. However, I am not against switching to the HSA. Does it make sense? Switching from HMO to high deductible would save us $8,996 per year, but actually more like $6,500 after factoring in the tax benefit. We would have paid $11,600 in 2018, I believe.
Do not switch! Base your families needs not on what some anonymous folks on an internet forum tell you but what you actually know. That's the finance part, but health insurance isn't just finance, it's also what works for you and your family.



-Medical $555 per pay period (every 2 weeks)
-Dental $48 per pay period
-Vision $3 per pay period
-Homeowners $691 annual premium
-Umbrella $1 million policy, $220 annual premium
-Life: Me: $1mm 20 year term $410 annual premium, $1mm 30 year term $757 annual premium; Wife: $1mm 20 year term $594 annual premium
-Long-term disability: Me: to age 65, own occupation that would pay approximately 60% of my salary: $160 monthly premium (high but a good Guardian policy)
-Auto full coverage, maximum liability, $750 deductible: $760 annual premium for the two of us
II'd leave your life insurance policies in place, as is (both of them for you and your wifes).
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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ruralavalon
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Re: Big Picture - are we doing the right things?

Post by ruralavalon » Thu Mar 21, 2019 5:24 pm

Triple digit golfer wrote:
Thu Mar 21, 2019 3:29 pm
I hadn't considered NOT having dental or vision insurance. I currently pay $51 every two weeks for the two via payroll deductions.
That's fairly small, but still $1,326/year.

I agree with Taylor, "it is usually a mistake to buy insurance for something we can afford to pay for ourselves. The premiums saved over a lifetime, can be significant."

This varies a lot depending on personal circumstances, such as whether the policies are subsidized by your employer or a personal history of high vision or dental expenses.


Triple digit golfer wrote:
Thu Mar 21, 2019 3:29 pm
I do have $28k in Prime Money Market in my taxable account. If I were to switch that out for bonds, would I use an intermediate term tax exempt fund or simply buy equities in taxable and bonds in tax-deferred? I kept the $28k in cash in case of needing it for home repairs or maintenance, job loss, or whatever. Maybe I cut it down to $5k instead? At some point we will buy new (used) cars. Shouldn't I be saving that money needed in say, 5 years, in taxable cash?
So the $28k is your emergency fund?

You have about $207k in a taxable account, readily accessible for emergency use without penalty, so I don't suggest holding a cash emergency fund.

I would switch all or almost all of the $28k cash, buying stock index funds in taxable and in tax-advantaged buying an intermediate-term bond fund to maintain the 25% fixed income allocation.

Again, this falls under the heading of personal preference rather than anything of great significance.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
Triple digit golfer
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Joined: Mon May 18, 2009 5:57 pm

Re: Big Picture - are we doing the right things?

Post by Triple digit golfer » Thu Mar 21, 2019 6:35 pm

Stinky wrote:
Thu Mar 21, 2019 5:05 pm
On your vision and dental insurance -

Vision at $3 per pay period is trivial

Dental at $48 per period - I always bought the dental, because DW and I both have horrible teeth and we made money on it. Your situation may differ. Also, we paid premium with pre-tax dollars which made it a non-brainer.
I think we'll keep dental. For around $100 a month for three people isn't horrible. My teeth are fine but I have weak enamel and am prone to cavities, although haven't had any in more than a decade. We also pay with pretax dollars.

Topic Author
Triple digit golfer
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Re: Big Picture - are we doing the right things?

Post by Triple digit golfer » Thu Mar 21, 2019 6:38 pm

Grt2bOutdoors wrote:
Thu Mar 21, 2019 5:22 pm
Triple digit golfer wrote:
Thu Mar 21, 2019 3:29 pm
Thank you all for the replies. I'll address some of the follow-up questions.

Other than Prime Money Market, all funds are either Total Stock, S&P 500 (in 401k), Total International, or Total Bond.

I do have $28k in Prime Money Market in my taxable account. If I were to switch that out for bonds, would I use an intermediate term tax exempt fund or simply buy equities in taxable and bonds in tax-deferred? I kept the $28k in cash in case of needing it for home repairs or maintenance, job loss, or whatever. Maybe I cut it down to $5k instead? At some point we will buy new (used) cars. Shouldn't I be saving that money needed in say, 5 years, in taxable cash?
Can you sleep at night with just $5K in your account? Some can, personally I would not. I'd leave the cash right where you have it, it's earning a decent rate of return for insurance money. Tell your wife you're only leaving $5K in there, wait for it......... :twisted:
I hadn't considered NOT having dental or vision insurance. I currently pay $51 every two weeks for the two via payroll deductions.
Leave it, I wouldn't drop dental and I wouldn't drop vision either. If I recall, you work with numbers (accountant) - - no amount of carrots is going to make up for that.
We are maxing out my 401k and two Roth IRAs. However, I am a highly-compensated employee in a non safe harbor 401k plan, so I get a big chunk ($9k this year) of my 401k contribution refunded, which becomes taxable income. I invest it in the taxable account.

I have not considered I Bonds; I like flexibility. If there's a good incentive to do so, maybe I cash start buying some each year.
If you're going to buy, do it before end of April, right now they are offering it with a 0.50% fixed rate, talk is they are not going to offer it in the May round of new rates.
I do have two HSA options, one high deductible and one low. I currently use the HMO. Here are the comparisons for my family, on a bi-weekly basis:

HMO: $555 per pay period, $0 deductible, $3,000 out of pocket max
HSA high deductible: $209 per pay period, $7,000 overall deductible, $11,600 out of pocket max
HSA low deductible: $432 per pay period, $3,000 overall deductible, $6,000 out of pocket max

I am hesitant to switch to the HSA. My wife had cancer in 2018 and requires period testing - scans, bloodwork, etc. She has had more than $50k in medical expenses and we've paid exactly $0 out of pocket. However, I am not against switching to the HSA. Does it make sense? Switching from HMO to high deductible would save us $8,996 per year, but actually more like $6,500 after factoring in the tax benefit. We would have paid $11,600 in 2018, I believe.
Do not switch! Base your families needs not on what some anonymous folks on an internet forum tell you but what you actually know. That's the finance part, but health insurance isn't just finance, it's also what works for you and your family.



-Medical $555 per pay period (every 2 weeks)
-Dental $48 per pay period
-Vision $3 per pay period
-Homeowners $691 annual premium
-Umbrella $1 million policy, $220 annual premium
-Life: Me: $1mm 20 year term $410 annual premium, $1mm 30 year term $757 annual premium; Wife: $1mm 20 year term $594 annual premium
-Long-term disability: Me: to age 65, own occupation that would pay approximately 60% of my salary: $160 monthly premium (high but a good Guardian policy)
-Auto full coverage, maximum liability, $750 deductible: $760 annual premium for the two of us
II'd leave your life insurance policies in place, as is (both of them for you and your wifes).
Thank you for your reassurance. I think we'll skip the I bonds. I really don't want another account and I don't see how they'll add much value. Yes, I am an accountant. Good memory! I always enjoy your posts and have learned a lot from you. Thank you!

Topic Author
Triple digit golfer
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Joined: Mon May 18, 2009 5:57 pm

Re: Big Picture - are we doing the right things?

Post by Triple digit golfer » Thu Mar 21, 2019 6:41 pm

ruralavalon wrote:
Thu Mar 21, 2019 5:24 pm
Triple digit golfer wrote:
Thu Mar 21, 2019 3:29 pm
I do have $28k in Prime Money Market in my taxable account. If I were to switch that out for bonds, would I use an intermediate term tax exempt fund or simply buy equities in taxable and bonds in tax-deferred? I kept the $28k in cash in case of needing it for home repairs or maintenance, job loss, or whatever. Maybe I cut it down to $5k instead? At some point we will buy new (used) cars. Shouldn't I be saving that money needed in say, 5 years, in taxable cash?
So the $28k is your emergency fund?

You have about $207k in a taxable account, readily accessible for emergency use without penalty, so I don't suggest holding a cash emergency fund.

I would switch all or almost all of the $28k cash, buying stock index funds in taxable and in tax-advantaged buying an intermediate-term bond fund to maintain the 25% fixed income allocation.

Again, this falls under the heading of personal preference rather than anything of great significance.
I'm just hesitant because if and when I do need that money I may end up selling equities at a gain and owing LTCG which could more tha wipe out any benefit. I may split the difference and go to say, $15k or $20k. I agree, it's not very significant, either way.

Thanks all for your posts!

miket29
Posts: 136
Joined: Tue Jun 20, 2017 9:07 pm

Re: Big Picture - are we doing the right things?

Post by miket29 » Fri Mar 22, 2019 12:44 am

Triple digit golfer wrote:
Thu Mar 21, 2019 3:29 pm
-Life: Me: $1mm 20 year term $410 annual premium, $1mm 30 year term $757 annual premium; Wife: $1mm 20 year term $594 annual premium
I would think about the 30 year policy. The 20 year policy already seems sufficient to see your child thru college and provide for your wife. You are spending $24K for additional protection over the next 30 years which if you live will be worth $0. If instead you invested it and it grew at 7% you would have about 90K. 21 years from now if you were to pass away that extra $1 million would be great to have, but on the other hand there is $690K that should grow nicely after 20 years. Obviously you can only know which is better after the fact, so it depends which scenario you and your wife are more comfortable with.

mortfree
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Re: Big Picture - are we doing the right things?

Post by mortfree » Fri Mar 22, 2019 1:25 am

Having 28k in cash does not concern me.

I wouldn’t feel the need to reduce that or move it to investments.

Maybe you cap your cash at 30k and then anything above that gets moved to investments.

Topic Author
Triple digit golfer
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Joined: Mon May 18, 2009 5:57 pm

Re: Big Picture - are we doing the right things?

Post by Triple digit golfer » Fri Mar 22, 2019 7:19 am

miket29 wrote:
Fri Mar 22, 2019 12:44 am
Triple digit golfer wrote:
Thu Mar 21, 2019 3:29 pm
-Life: Me: $1mm 20 year term $410 annual premium, $1mm 30 year term $757 annual premium; Wife: $1mm 20 year term $594 annual premium
I would think about the 30 year policy. The 20 year policy already seems sufficient to see your child thru college and provide for your wife. You are spending $24K for additional protection over the next 30 years which if you live will be worth $0. If instead you invested it and it grew at 7% you would have about 90K. 21 years from now if you were to pass away that extra $1 million would be great to have, but on the other hand there is $690K that should grow nicely after 20 years. Obviously you can only know which is better after the fact, so it depends which scenario you and your wife are more comfortable with.
If I kick the bucket today, my wife would get $2 million plus the $690k. After paying off the house (which I would recommend she do for simplicity), she'd have nearly $2.4 million, the vast majority tax-free, with no mortgage and could withdraw $60k a year and live very comfortably and be able to fund our daughter's education. If that were chopped down to $1.4 million, things would be much tighter and she'd have to work at some point in the near future. I'd want her just focusing on our daughter.

Maybe that's illogical or I'm paying too much for the small risk, but it helps me sleep at night. I'm sure $1.4 million and a paid off house at age 34 would have her in a great position too.

TheHouse7
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Re: Big Picture - are we doing the right things?

Post by TheHouse7 » Fri Mar 22, 2019 7:35 am

You are doing things right, get rid of the 30 year policy. When your 20 year term ends, then you two can decide how much you don't need it anymore.
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

mw1739
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Re: Big Picture - are we doing the right things?

Post by mw1739 » Fri Mar 22, 2019 7:52 am

Triple digit golfer wrote:
Thu Mar 21, 2019 6:41 pm
ruralavalon wrote:
Thu Mar 21, 2019 5:24 pm
Triple digit golfer wrote:
Thu Mar 21, 2019 3:29 pm
I do have $28k in Prime Money Market in my taxable account. If I were to switch that out for bonds, would I use an intermediate term tax exempt fund or simply buy equities in taxable and bonds in tax-deferred? I kept the $28k in cash in case of needing it for home repairs or maintenance, job loss, or whatever. Maybe I cut it down to $5k instead? At some point we will buy new (used) cars. Shouldn't I be saving that money needed in say, 5 years, in taxable cash?
So the $28k is your emergency fund?

You have about $207k in a taxable account, readily accessible for emergency use without penalty, so I don't suggest holding a cash emergency fund.

I would switch all or almost all of the $28k cash, buying stock index funds in taxable and in tax-advantaged buying an intermediate-term bond fund to maintain the 25% fixed income allocation.

Again, this falls under the heading of personal preference rather than anything of great significance.
I'm just hesitant because if and when I do need that money I may end up selling equities at a gain and owing LTCG which could more tha wipe out any benefit. I may split the difference and go to say, $15k or $20k. I agree, it's not very significant, either way.

Thanks all for your posts!
My situation is remarkably similar to yours and I keep about $20k in cash. One thing I haven't seen mentioned are 529's for the kids. Do you have those setup? Contributing?

Topic Author
Triple digit golfer
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Re: Big Picture - are we doing the right things?

Post by Triple digit golfer » Fri Mar 22, 2019 8:19 am

TheHouse7 wrote:
Fri Mar 22, 2019 7:35 am
You are doing things right, get rid of the 30 year policy. When your 20 year term ends, then you two can decide how much you don't need it anymore.
I am curious why so many are suggesting that I may be over insured on life insurance. Do you feel that $1 million life insurance on my income of $149k is sufficient? It's less than 7x income. I always had the idea that I wanted my family to be "set" if something should happen to me. $1 million would be nice, but $2 million would set them up so my wife doesn't have to work and can instead focus on our daughter, especially since she'd then be a single parent.

Open to conversation to help me make the right decision. Saving an additional $757 a year would be nice, but I need to know I'm making the right call if I cancel the 30 year policy.

To cancel the 30 year policy and make it a 20 year is an option, but I don't know if any additional medical tests, etc. would be needed. That could save me a few hundred a year, possibly.

Topic Author
Triple digit golfer
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Re: Big Picture - are we doing the right things?

Post by Triple digit golfer » Fri Mar 22, 2019 8:21 am

mw1739 wrote:
Fri Mar 22, 2019 7:52 am
Triple digit golfer wrote:
Thu Mar 21, 2019 6:41 pm
ruralavalon wrote:
Thu Mar 21, 2019 5:24 pm
Triple digit golfer wrote:
Thu Mar 21, 2019 3:29 pm
I do have $28k in Prime Money Market in my taxable account. If I were to switch that out for bonds, would I use an intermediate term tax exempt fund or simply buy equities in taxable and bonds in tax-deferred? I kept the $28k in cash in case of needing it for home repairs or maintenance, job loss, or whatever. Maybe I cut it down to $5k instead? At some point we will buy new (used) cars. Shouldn't I be saving that money needed in say, 5 years, in taxable cash?
So the $28k is your emergency fund?

You have about $207k in a taxable account, readily accessible for emergency use without penalty, so I don't suggest holding a cash emergency fund.

I would switch all or almost all of the $28k cash, buying stock index funds in taxable and in tax-advantaged buying an intermediate-term bond fund to maintain the 25% fixed income allocation.

Again, this falls under the heading of personal preference rather than anything of great significance.
I'm just hesitant because if and when I do need that money I may end up selling equities at a gain and owing LTCG which could more tha wipe out any benefit. I may split the difference and go to say, $15k or $20k. I agree, it's not very significant, either way.

Thanks all for your posts!
My situation is remarkably similar to yours and I keep about $20k in cash. One thing I haven't seen mentioned are 529's for the kids. Do you have those setup? Contributing?
$20k in cash sounds very reasonable. Yep, we have a 529 plan. It is in the first post. I made a lump sum contribution of $20k when she was born and am contributing a couple hundred dollars a month. My goal is to not overfund as to lose out on college tuition tax credits, but to have enough in there so that the amount I have to pay out of pocket isn't overwhelming. It's a guessing game. I figure the important thing is to save, wherever that may be.

majiaknight
Posts: 114
Joined: Tue Jan 26, 2016 2:55 pm

Re: Big Picture - are we doing the right things?

Post by majiaknight » Fri Mar 22, 2019 4:51 pm

Triple digit golfer wrote:
Fri Mar 22, 2019 8:19 am
I am curious why so many are suggesting that I may be over insured on life insurance. Do you feel that $1 million life insurance on my income of $149k is sufficient? It's less than 7x income. I always had the idea that I wanted my family to be "set" if something should happen to me. $1 million would be nice, but $2 million would set them up so my wife doesn't have to work and can instead focus on our daughter, especially since she'd then be a single parent.

Open to conversation to help me make the right decision. Saving an additional $757 a year would be nice, but I need to know I'm making the right call if I cancel the 30 year policy.
I guess people may make some inaccurate assumptions (e.g. your wife may go back to work and your family may live in a LCOL areas based on the cheap house price) when estimating the living expense need for your wife and kid.

You shouldn't compare the insurance amount w/ your current total income. My family's AGI is x2.7 times of yours but w/ only x1 $1M 20Y term-life for each as we only considered the insurance to cover the debt (mortgage) and kid's education expenses. I also wouldn't consider 30Y term-life as I'd assume after 20Y I should have already accumulated enough assets to be self-insured if needed and my kid would be out of college. You already have a good size of portfolio ~$690K saved so I wound't be surprised that people may normally think you are over-insured w/ x2 $1 million term life just for yourself.

BTW: have you also added your workplace's group life insurance (typical coverage I've seen is x2.5 annual base salary) into your calculation?
Last edited by majiaknight on Fri Mar 22, 2019 5:24 pm, edited 3 times in total.

Strayshot
Posts: 598
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Location: New Mexico

Re: Big Picture - are we doing the right things?

Post by Strayshot » Fri Mar 22, 2019 5:20 pm

Ask for opinions and you will get the whole spectrum. If you post a budget, get ready for people who will wail about your $11 monthly Netflix bill. If you mention cars, wait for the folks who live eat and breathe Teslas to recommend them over anything else without reason. That’s just how it is :sharebeer

You are not over-insured. Your term insurance situation is perfect. Absolutely keep the term policy for the wife as well especially after a cancer diagnosis. If anything, $1M of umbrella is low. If you are already maxing the auto policies in order to get umbrella, why not carry 2-3M? Easy to have a judgement that is >1.5M these days. In another decade, reevaluate if you still want to keep all of the term policies but I absolutely would not get rid of any of them at this point in time.

I think your current situation, savings, asset allocation, etc all seem mostly optimized. Good job!

majiaknight
Posts: 114
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Re: Big Picture - are we doing the right things?

Post by majiaknight » Fri Mar 22, 2019 5:35 pm

Strayshot wrote:
Fri Mar 22, 2019 5:20 pm
If anything, $1M of umbrella is low. If you are already maxing the auto policies in order to get umbrella, why not carry 2-3M? Easy to have a judgement that is >1.5M these days.
I don't understand this suggestion. OP only has <$1M ($690K investment + $55K house equity) financial assets which need protection. Why did you recommend $2-3M umbrella insurance coverage? IMHO this is absolutely over-insured and also I don't believe $1.5M judgement is common unless you could provide statistics as evidence.

Strayshot
Posts: 598
Joined: Thu Mar 05, 2015 8:04 am
Location: New Mexico

Re: Big Picture - are we doing the right things?

Post by Strayshot » Fri Mar 22, 2019 7:47 pm

majiaknight wrote:
Fri Mar 22, 2019 5:35 pm
Strayshot wrote:
Fri Mar 22, 2019 5:20 pm
If anything, $1M of umbrella is low. If you are already maxing the auto policies in order to get umbrella, why not carry 2-3M? Easy to have a judgement that is >1.5M these days.
I don't understand this suggestion. OP only has <$1M ($690K investment + $55K house equity) financial assets which need protection. Why did you recommend $2-3M umbrella insurance coverage? IMHO this is absolutely over-insured and also I don't believe $1.5M judgement is common unless you could provide statistics as evidence.
I have seen statistics that something like 13% of awards are for over $1M, but that was in 2012. If the plaintiff is brain damaged the awards can go into the millions very quickly and death can go into the 10’s of millions.

Most tax advantaged retirement assets are already protected from lawsuits, so the umbrella is not to protect those assets anyways. Umbrella insurance is to protect against the black swan event that could destroy your life so that you don’t lose your home (in most states), cars, future income, personal property, and everything else. For an extra 200-400 a year to have 2-3M of coverage I think the cost is justified.

Topic Author
Triple digit golfer
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Re: Big Picture - are we doing the right things?

Post by Triple digit golfer » Fri Mar 22, 2019 10:20 pm

A follow up question that another active thread sparked:

Instead of Roth IRA contributions, should we make traditional IRA contributions for my wife? She is not covered by a workplace plan so we would be able to deduct it all. We're in the 22% federal and 4.95% state brackets.

Another option, since Illinois doesn't tax retirement income, is to contribute to traditional for her, then convert to Roth. The federal effect would be zero but state would be deductible, since Illinois does not tax retirement income.

Thanks for your thoughts.

Strayshot
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Joined: Thu Mar 05, 2015 8:04 am
Location: New Mexico

Re: Big Picture - are we doing the right things?

Post by Strayshot » Sat Mar 23, 2019 9:19 am

Triple digit golfer wrote:
Fri Mar 22, 2019 10:20 pm
A follow up question that another active thread sparked:

Instead of Roth IRA contributions, should we make traditional IRA contributions for my wife? She is not covered by a workplace plan so we would be able to deduct it all. We're in the 22% federal and 4.95% state brackets.

Another option, since Illinois doesn't tax retirement income, is to contribute to traditional for her, then convert to Roth. The federal effect would be zero but state would be deductible, since Illinois does not tax retirement income.

Thanks for your thoughts.
Given your day job you probably have a better perspective on these opportunities than others, but I can find nothing that goes against what you propose above (contribute and get federal deduction for traditional, then convert and take state deduction). Seems like a good and maybe underutilized strategy for folks in IL that fit the conditions (AGI limits, nonworking spouse, state residency, etc).

For me personally, I like having retirement assets in a mix of taxable and tax advantaged forms that fall under different legislative guidance. My balance is around 50% traditional 35% Roth 15% taxable at present time. I feel that gives me flexibility in retirement given whatever tax and legislative environment I am in at that time to optimize (or at least have options) about the use of the funds. In a way it is another form of diversification. Since everyone is capped at the amount that can enter the Roth form at now 6000-7000 a year each, I tend to use that whole space every year (12000 of contribution in 2019). That way my Roth form can at least try and keep pace with my other forms which have larger contributions (38000 into the traditional 401k’s and 30k-ish into taxable). I have the added benefit of a mega-backdoor in the 401k that bolsters the Roth amounts.

My .02

mbasherp
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Re: Big Picture - are we doing the right things?

Post by mbasherp » Sat Mar 23, 2019 10:01 am

On the term life question, remember to factor in any social security survivors benefits for children under 18. When I calculated this, it prompted me to reduce the amount of term life coverage I bought. It is not an insignificant benefit.

TheHouse7
Posts: 513
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Location: Washington State

Re: Big Picture - are we doing the right things?

Post by TheHouse7 » Sun Mar 24, 2019 9:30 am

Triple digit golfer wrote:
Fri Mar 22, 2019 8:19 am
TheHouse7 wrote:
Fri Mar 22, 2019 7:35 am
You are doing things right, get rid of the 30 year policy. When your 20 year term ends, then you two can decide how much you don't need it anymore.
I am curious why so many are suggesting that I may be over insured on life insurance. Do you feel that $1 million life insurance on my income of $149k is sufficient? It's less than 7x income. I always had the idea that I wanted my family to be "set" if something should happen to me. $1 million would be nice, but $2 million would set them up so my wife doesn't have to work and can instead focus on our daughter, especially since she'd then be a single parent.

Open to conversation to help me make the right decision. Saving an additional $757 a year would be nice, but I need to know I'm making the right call if I cancel the 30 year policy.

To cancel the 30 year policy and make it a 20 year is an option, but I don't know if any additional medical tests, etc. would be needed. That could save me a few hundred a year, possibly.
I'm going to pull something out of thin air, "Term life has always gotten cheaper." Which means hedge your bets. You are right to be concerned about having enough for your family. I think the over insured opinion comes from the view of family expenses, not replacement of income. You all are not living on 149000 a year. You asked for a critique, and we're not finding anything. :beer
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

TheHouse7
Posts: 513
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Location: Washington State

Re: Big Picture - are we doing the right things?

Post by TheHouse7 » Sun Mar 24, 2019 9:34 am

TheHouse7 wrote:
Sun Mar 24, 2019 9:30 am
Triple digit golfer wrote:
Fri Mar 22, 2019 8:19 am
TheHouse7 wrote:
Fri Mar 22, 2019 7:35 am
You are doing things right, get rid of the 30 year policy. When your 20 year term ends, then you two can decide how much you don't need it anymore.
I am curious why so many are suggesting that I may be over insured on life insurance. Do you feel that $1 million life insurance on my income of $149k is sufficient? It's less than 7x income. I always had the idea that I wanted my family to be "set" if something should happen to me. $1 million would be nice, but $2 million would set them up so my wife doesn't have to work and can instead focus on our daughter, especially since she'd then be a single parent.

Open to conversation to help me make the right decision. Saving an additional $757 a year would be nice, but I need to know I'm making the right call if I cancel the 30 year policy.

To cancel the 30 year policy and make it a 20 year is an option, but I don't know if any additional medical tests, etc. would be needed. That could save me a few hundred a year, possibly.
I'm going to pull something out of thin air, "Term life has always gotten cheaper." Which means hedge your bets. You are right to be concerned about having enough for your family. I think the over insured opinion comes from the view of family expenses, not replacement of income. You all are not living on 149000 a year. You asked for a critique, and we're not finding anything. :beer

Could your SAHM live on 1.3m with a paid off house and one toddler? Yes.
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

Topic Author
Triple digit golfer
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Joined: Mon May 18, 2009 5:57 pm

Re: Big Picture - are we doing the right things?

Post by Triple digit golfer » Sun Mar 24, 2019 11:23 am

TheHouse7 wrote:
Sun Mar 24, 2019 9:30 am
Triple digit golfer wrote:
Fri Mar 22, 2019 8:19 am
TheHouse7 wrote:
Fri Mar 22, 2019 7:35 am
You are doing things right, get rid of the 30 year policy. When your 20 year term ends, then you two can decide how much you don't need it anymore.
I am curious why so many are suggesting that I may be over insured on life insurance. Do you feel that $1 million life insurance on my income of $149k is sufficient? It's less than 7x income. I always had the idea that I wanted my family to be "set" if something should happen to me. $1 million would be nice, but $2 million would set them up so my wife doesn't have to work and can instead focus on our daughter, especially since she'd then be a single parent.

Open to conversation to help me make the right decision. Saving an additional $757 a year would be nice, but I need to know I'm making the right call if I cancel the 30 year policy.

To cancel the 30 year policy and make it a 20 year is an option, but I don't know if any additional medical tests, etc. would be needed. That could save me a few hundred a year, possibly.
I'm going to pull something out of thin air, "Term life has always gotten cheaper." Which means hedge your bets. You are right to be concerned about having enough for your family. I think the over insured opinion comes from the view of family expenses, not replacement of income. You all are not living on 149000 a year. You asked for a critique, and we're not finding anything. :beer

Could your SAHM live on 1.3m with a paid off house and one toddler? Yes.
Thanks for your input! Over the years reading this forum and learning, I've been fine-tuning. It took me a while, but I finally feel like I'm doing things the right way, efficiently, while being able to sleep at night. For a long time, I wanted a large cash amount in a savings account and couldn't get over holding most of my bonds in tax-deferred and keeping stocks in taxable. I was illogically afraid of paying taxes on dividends but had no problem paying ordinary income on interest income. I also liked to think of money in terms of buckets (retirement money, future expense money) and keep retirement money in stocks/bonds and other money in cash in taxable accounts. I also kept some municipal bonds in taxable.

Over time here, I've made some good changes that have helped with tax efficiency, as well as lined up insurance, etc. for my family. I now have a bucket of money, invested efficiently according to my asset allocation, with no set "emergency fund," but an emergency plan. I have cash available, but not enough to cover a year's expenses because that is inefficient. If I lose my job for an extended time period, I sell stocks in taxable and exchange bonds for stocks in tax-deferred. That's the emergency plan and I am very comfortable with it.

I couldn't have gotten to this position of comfort, efficiency and auto pilot without the Bogleheads. So thank you and the rest of the group! :sharebeer

Topic Author
Triple digit golfer
Posts: 3479
Joined: Mon May 18, 2009 5:57 pm

Re: Big Picture - are we doing the right things?

Post by Triple digit golfer » Mon Apr 01, 2019 12:50 pm

OP here with a few follow up questions after deciding to use a Traditional IRA for my non-working spouse:

1. As long as bonds are in tax-deferred, am I fine having both U.S. and international equities essentially spread across all account types?

2. Is there a way that we can use fewer funds within our accounts? Below is our current portfolio, along with new annual contributions. Selling in taxable is out because we have unrealized capital gains.

3. In order to keep international equities in taxable below the limit for having to file Form 1116, I am considering placing all taxable investments in Total Stock, and then exchanging Total Stock to Total International in His Roth IRA. This will, over time, give me most of my international equities in Roth accounts and most of my U.S. equities in taxable accounts. As I understand it, currently U.S. and international in taxable are about even in terms of tax efficiency, when factoring in the higher international dividend yield and the foreign tax credit.

His 401k:
7.6% Total Stock <--- $11k new contributions going here (contribute max, but get partial refund of contribution due to non-safe harbor plan)

His Rollover IRA:
8.7% Total Stock
19.2% Total Bond

Her Rollover IRA:
12.5% Total Stock <--- $6k new contributions going here

His Roth IRA:
8.4% Total Stock
4.5% Total International <--- $6k new contributions going here

Her Roth IRA:
5.2% Total International

Taxable:
14.2% Total Stock <--- $7,200 new contributions going here
12.0% Total International <--- $4,300 new contributions going here
3.9% Prime Money Market
0.2% Checking

529:
3.5% Age based fund <--- $2,400 new contributions going here

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ruralavalon
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Location: Illinois

Re: Big Picture - are we doing the right things?

Post by ruralavalon » Tue Apr 02, 2019 4:12 pm

Triple digit golfer wrote:
Mon Apr 01, 2019 12:50 pm
OP here with a few follow up questions after deciding to use a Traditional IRA for my non-working spouse:

1. As long as bonds are in tax-deferred, am I fine having both U.S. and international equities essentially spread across all account types?
Yes. Both total stock market and total international stock index funds are suitable for any type of account.

Triple digit golfer wrote:
Mon Apr 01, 2019 12:50 pm
2. Is there a way that we can use fewer funds within our accounts? Below is our current portfolio, along with new annual contributions. Selling in taxable is out because we have unrealized capital gains.

. . . . .

His 401k:
7.6% Total Stock <--- $11k new contributions going here (contribute max, but get partial refund of contribution due to non-safe harbor plan)

His Rollover IRA:
8.7% Total Stock
19.2% Total Bond

Her Rollover IRA:
12.5% Total Stock <--- $6k new contributions going here

His Roth IRA:
8.4% Total Stock
4.5% Total International <--- $6k new contributions going here

Her Roth IRA:
5.2% Total International

Taxable:
14.2% Total Stock <--- $7,200 new contributions going here
12.0% Total International <--- $4,300 new contributions going here
3.9% Prime Money Market
0.2% Checking

529:
3.5% Age based fund <--- $2,400 new contributions going here
You are correct, don't sell or exchange between funds in the taxable account because that would create unnecessary income tax liability.

It's often better for portfolio management and rebalancing to have at least one large tax-advantaged account which contains all three asset types (bonds, international stocks, and domestic stocks). That way you can easily rebalance simply by exchanging between funds,inside that one account. In your case that could be his rollover IRA.

Are all three total market type funds offered in his 401k? With 30% of the new annual contributions going to that account, that is another account possibility to hold all three asset types.

You could consider this portfolio lineup, with $36.9k in new annual contributions. The asset allocation is approximately 75% equities and 25% bonds/cash, with 30% of equities in international.

His 401k (7.6% of total; 30% of new annual contributions):
7.6% Total Stock <--- $11k new contributions going here (contribute max, but get partial refund of contribution due to non-safe harbor plan)

His rollover IRA (27.9% of total):
4.2% Total Stock
4.5% Total International
19.2% Total Bond

Her rollover IRA (12.5% of total; 16% of new annual contributions):
12.5% Total Stock <--- $6k new contributions going here

His Roth IRA (12.9% of total):
12.9% Total Stock

Her Roth IRA (5.2% of total; 16% of new annual contributions):
5.2% Total International <--- $6k new contributions going here

Taxable account 26.2% of total; 31% of new annual contributions):
14.2% Total Stock <--- $7,200 new contributions going here
12.0% Total International <--- $4,300 new contributions going here
3.9% Prime Money Market
0.2% Checking

529 (3.5% of total; 7%of new annual contributions):
3.5% Age based fund <--- $2,400 new contributions going here



Triple digit golfer wrote:
Mon Apr 01, 2019 12:50 pm
3. In order to keep international equities in taxable below the limit for having to file Form 1116, I am considering placing all taxable investments in Total Stock, and then exchanging Total Stock to Total International in His Roth IRA. This will, over time, give me most of my international equities in Roth accounts and most of my U.S. equities in taxable accounts. As I understand it, currently U.S. and international in taxable are about even in terms of tax efficiency, when factoring in the higher international dividend yield and the foreign tax credit.
The two types of funds are fairly similar in tax-efficency, it varies depending on tax bracket. I believe that a total U.S. stock market index fund may be a liitle more tax-efficient than a total international stock index fund. Forum post, "2017 relative tax-efficiency".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
Triple digit golfer
Posts: 3479
Joined: Mon May 18, 2009 5:57 pm

Re: Big Picture - are we doing the right things?

Post by Triple digit golfer » Tue Apr 02, 2019 8:00 pm

ruralavalon wrote:
Tue Apr 02, 2019 4:12 pm
Triple digit golfer wrote:
Mon Apr 01, 2019 12:50 pm
OP here with a few follow up questions after deciding to use a Traditional IRA for my non-working spouse:

1. As long as bonds are in tax-deferred, am I fine having both U.S. and international equities essentially spread across all account types?
Yes. Both total stock market and total international stock index funds are suitable for any type of account.

Triple digit golfer wrote:
Mon Apr 01, 2019 12:50 pm
2. Is there a way that we can use fewer funds within our accounts? Below is our current portfolio, along with new annual contributions. Selling in taxable is out because we have unrealized capital gains.

. . . . .

His 401k:
7.6% Total Stock <--- $11k new contributions going here (contribute max, but get partial refund of contribution due to non-safe harbor plan)

His Rollover IRA:
8.7% Total Stock
19.2% Total Bond

Her Rollover IRA:
12.5% Total Stock <--- $6k new contributions going here

His Roth IRA:
8.4% Total Stock
4.5% Total International <--- $6k new contributions going here

Her Roth IRA:
5.2% Total International

Taxable:
14.2% Total Stock <--- $7,200 new contributions going here
12.0% Total International <--- $4,300 new contributions going here
3.9% Prime Money Market
0.2% Checking

529:
3.5% Age based fund <--- $2,400 new contributions going here
You are correct, don't sell or exchange between funds in the taxable account because that would create unnecessary income tax liability.

It's often better for portfolio management and rebalancing to have at least one large tax-advantaged account which contains all three asset types (bonds, international stocks, and domestic stocks). That way you can easily rebalance simply by exchanging between funds,inside that one account. In your case that could be his rollover IRA.

Are all three total market type funds offered in his 401k? With 30% of the new annual contributions going to that account, that is another account possibility to hold all three asset types.

You could consider this portfolio lineup, with $36.9k in new annual contributions. The asset allocation is approximately 75% equities and 25% bonds/cash, with 30% of equities in international.

His 401k (7.6% of total; 30% of new annual contributions):
7.6% Total Stock <--- $11k new contributions going here (contribute max, but get partial refund of contribution due to non-safe harbor plan)

His rollover IRA (27.9% of total):
4.2% Total Stock
4.5% Total International
19.2% Total Bond

Her rollover IRA (12.5% of total; 16% of new annual contributions):
12.5% Total Stock <--- $6k new contributions going here

His Roth IRA (12.9% of total):
12.9% Total Stock

Her Roth IRA (5.2% of total; 16% of new annual contributions):
5.2% Total International <--- $6k new contributions going here

Taxable account 26.2% of total; 31% of new annual contributions):
14.2% Total Stock <--- $7,200 new contributions going here
12.0% Total International <--- $4,300 new contributions going here
3.9% Prime Money Market
0.2% Checking

529 (3.5% of total; 7%of new annual contributions):
3.5% Age based fund <--- $2,400 new contributions going here



Triple digit golfer wrote:
Mon Apr 01, 2019 12:50 pm
3. In order to keep international equities in taxable below the limit for having to file Form 1116, I am considering placing all taxable investments in Total Stock, and then exchanging Total Stock to Total International in His Roth IRA. This will, over time, give me most of my international equities in Roth accounts and most of my U.S. equities in taxable accounts. As I understand it, currently U.S. and international in taxable are about even in terms of tax efficiency, when factoring in the higher international dividend yield and the foreign tax credit.
The two types of funds are fairly similar in tax-efficency, it varies depending on tax bracket. I believe that a total U.S. stock market index fund may be a liitle more tax-efficient than a total international stock index fund. Forum post, "2017 relative tax-efficiency".
Thank you for the detailed post!

Unfortunately the international and bond funds in my 401k are expensive and actively managed, so I'm locked into only the U.S. fund.

You have both IRA contributions going to Her accounts. I believe the Her Roth should be His Roth since she will be contributing to the rollover IRA. In that case do we contribute to International in His Roth? I see you exchanged international to U.S. in His Roth and vice versa in His Rollover in order to get international in His Rollover to have all three accounts.

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ruralavalon
Posts: 16720
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Location: Illinois

Re: Big Picture - are we doing the right things?

Post by ruralavalon » Wed Apr 03, 2019 7:57 am

Triple digit golfer wrote:
Tue Apr 02, 2019 8:00 pm
Unfortunately the international and bond funds in my 401k are expensive and actively managed, so I'm locked into only the U.S. fund.
What are the 2-3 international stock and 2-3 bond funds with the lowest expense ratios in your 401k? Please give fund names, tickers and expense ratios. There are a few actively managed funds that I would consider useful.

Triple digit golfer wrote:
Tue Apr 02, 2019 8:00 pm
You have both IRA contributions going to Her accounts. I believe the Her Roth should be His Roth since she will be contributing to the rollover IRA.
Correct. My mistake for going too fast and just not noticing :( .

Triple digit golfer wrote:
Tue Apr 02, 2019 8:00 pm
In that case do we contribute to International in His Roth?
Yes.
Triple digit golfer wrote:
Tue Apr 02, 2019 8:00 pm
I see you exchanged international to U.S. in His Roth and vice versa in His Rollover in order to get international in His Rollover to have all three accounts.
That's correct.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
Triple digit golfer
Posts: 3479
Joined: Mon May 18, 2009 5:57 pm

Re: Big Picture - are we doing the right things?

Post by Triple digit golfer » Wed Apr 03, 2019 8:53 am

ruralavalon wrote:
Wed Apr 03, 2019 7:57 am
Triple digit golfer wrote:
Tue Apr 02, 2019 8:00 pm
Unfortunately the international and bond funds in my 401k are expensive and actively managed, so I'm locked into only the U.S. fund.
What are the 2-3 international stock and 2-3 bond funds with the lowest expense ratios in your 401k? Please give fund names, tickers and expense ratios. There are a few actively managed funds that I would consider useful.
Here are the available international funds:

American Funds EuroPacific Gr R6 (RERGX) - 0.49% ER
Great-West International Value (MXIVX) - 1.06% ER
Oppenheimer Global Allocation (QGRIX) - 0.93% ER

Here are the available bond funds:

PIMCO Income Instl (PIMIX) - 0.74% ER
Pioneer Bond K (PBFKX) - 0.35% ER
Vanguard Interm-Term Bond Index Adm (VBILX) - 0.07% ER - website says it was added 2/1/19; good to know!

Since under your proposal I will be contributing to His Roth IRA International equities annually, it would make sense to leave say $5 or 10k in there, since originally you had me transferring out the entire amount and exchanging to Total Stock, and doing vice versa in His Rollover. Then I'll meet the minimum and will be contributing to it each year (I actually do quarterly contributions at $1,500 per IRA).

Another thing I was considering is, rather than contribute to International in taxable at all, contribute to Her Rollover in international. Unfortunately this adds yet another fund. However, then my contributions would look like this:

His 401k:
$11k U.S.

His Roth IRA:
$6k International

Her Rollover IRA:
$1.7k U.S.
$4.3k International

Taxable:
11.5k U.S.

529:
$2.4k Age Based Plan

An alternative is, to avoid adding International in Her Rollover while still not contributing to International in taxable (both ideal for me, to avoid adding funds and to not contribute to International in taxable to avoid Form 1116 in near future), is to contribute as follows:

His 401k:
$11k U.S.

His Roth IRA:
$6k International

Her Rollover IRA:
$6k U.S.

Taxable:
11.5k U.S.

529:
$2.4k Age Based Plan

In conjunction, exchange $4.3k from U.S. to International in His Roth IRA.

Over time, this will very heavily weight my Roth accounts to International and taxable accounts to U.S.

In reality, this all may not even work as shown because the right thing to do is contribute to the fund that is underweight due to market fluctuations. I prefer not to rebalance or sell anything; I feel most comfortable with my investments when I'm only buying.

I guess my biggest question is this:
If choosing between these options, is there much of a difference?
A) 100% of U.S. in taxable, 100% of International in Roth
B) 100% of U.S. in Roth, 100% of International in taxable

If not, then I guess I can contribute Roth and taxable wherever needs it based upon the funds I already own.

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ruralavalon
Posts: 16720
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Big Picture - are we doing the right things?

Post by ruralavalon » Wed Apr 03, 2019 4:36 pm

In your 401k American Funds EuroPacific Gr R6 (RERGX) - 0.49% ER although actively managed has a moderate expense ratio, is well diversified investing in both developed and emerging markets, and in my opinion is a reasonable choice for a international stock fund.

In your 401k Vanguard Interm-Term Bond Index Adm (VBILX) - 0.07% ER is an excellent choice for a bond index fund. It is about 50/50 government/corporate bonds, with no Mortgage Backed Securities (MBS).


Triple digit golfer wrote:
Wed Apr 03, 2019 8:53 am
I guess my biggest question is this:
If choosing between these options, is there much of a difference?
A) 100% of U.S. in taxable, 100% of International in Roth
B) 100% of U.S. in Roth, 100% of International in taxable]
I don't understand this question.

In your taxable account I suggest keeping the same funds in the same amounts that you have now, to avoid creating unnecessary income tax liability.


Triple digit golfer wrote:
Wed Apr 03, 2019 8:53 am
. . . . the right thing to do is contribute to the fund that is underweight due to market fluctuations. I prefer not to rebalance or sell anything; I feel most comfortable with my investments when I'm only buying.
This will make rebalancing more difficult.

If you want to rebalance only via new contributions then you need to use the bond fund in your 401k, the account which will receive 33% of your new annual contributions. A bond fund is not very tax-efficient and should be kept in a tax-advantaged account, preferably in a tax-deferred account such as your rollover IRA or 401k. Wiki article "Tax-efficient fund placement". Because withdrawals from the Roth IRAs are tax free, use the Roth IRAs to hold stock funds which have higher expected returns than bond funds.

I think you should drop the 529 college account out of the retirement portfolio. This changes the percentage in each account, and the percentage of new contributions going to each account.

The desired asset allocation is "approximately 75% equities and 25% bonds/cash, with 30% of equities in international". Rounding off the percentages, that works out to about 25% bonds/cash, 23% international stocks, 53% domestic stock.



Another portfolio idea.
You could consider this portfolio lineup, with $34.5k in new annual contributions. The desired asset allocation is "approximately 75% equities and 25% bonds/cash, with 30% of equities in international". That works out to about 25% bonds/cash, 23% international stocks, 53% domestic stock.
I have rounded off the percentages for each account, so they will not add up exactly.

Taxable account (30% of total; 33% of new annual contributions):
14% Total Stock <--- $10k new annual contributions going here
12% Total International <--- $2k new annual contributions going here
04% Prime Money Market
(no change from present funds)

His 401k (08% of total; 32% of new annual contributions):
$11k new contributions going here (contribute max, but get partial refund of contribution due to non-safe harbor plan)
08% Total Stock <--- $2k new contributions going here (contribute max, but get partial refund of contribution due to non-safe harbor plan)
0.0% American Funds EuroPacific Growth R6 (both developed and emerging markets) (RERGX) - 0.49% ER <--- add later as needed
0.0% Vanguard Intermediate-Term Bond Index Fund Admiral Shares (VBILX) - 0.07% ER <---- $9k new annual contributions going here

His rollover IRA (29% of total):
04%, Total Stock
05%, Total International
20%, Total Bond

His Roth IRA (13% of total; 17% of new annual contributions):
13% Total Stock <--- $6k new annual contributions going here

Her rollover IRA (13% of total):
13% Total Stock

Her Roth IRA (05% of total; 17% of new annual contributions):
05% Total International <--- $6k new annual contributions going here


Rebalancing by contributions.
The desired asset allocation is approximately "75% equities and 25% bonds/cash, with 30% of equities in international". Rounding the percentages off, that works out to about 25% bonds/cash, 23% international stocks, 53% domestic stock.

The planned annual contributions are in about the amount of the desired asset allocation, so may tend to keep the portfolio in balance.
9/34.5 = 26% to bonds
2 + 6 = 8/34.5 = 23% to international stocks
10 +2 + 6 = 18/34.5 = 52% to domestic stocks

You can then re-adjust contributions periodically in order to maintain the desired asset allocation. You can adjust the stock/bond mix by changing the contributions in your 401k. You can adjust the domestic/international stock mix by changing the contributions in your taxable account, or by adding the international stock fund in your 401k.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
Triple digit golfer
Posts: 3479
Joined: Mon May 18, 2009 5:57 pm

Re: Big Picture - are we doing the right things?

Post by Triple digit golfer » Wed Apr 03, 2019 7:24 pm

ruralavalon wrote:
Wed Apr 03, 2019 4:36 pm
In your 401k American Funds EuroPacific Gr R6 (RERGX) - 0.49% ER although actively managed has a moderate expense ratio, is well diversified investing in both developed and emerging markets, and in my opinion is a reasonable choice for a international stock fund.

In your 401k Vanguard Interm-Term Bond Index Adm (VBILX) - 0.07% ER is an excellent choice for a bond index fund. It is about 50/50 government/corporate bonds, with no Mortgage Backed Securities (MBS).


Triple digit golfer wrote:
Wed Apr 03, 2019 8:53 am
I guess my biggest question is this:
If choosing between these options, is there much of a difference?
A) 100% of U.S. in taxable, 100% of International in Roth
B) 100% of U.S. in Roth, 100% of International in taxable]
I don't understand this question.

In your taxable account I suggest keeping the same funds in the same amounts that you have now, to avoid creating unnecessary income tax liability.


Triple digit golfer wrote:
Wed Apr 03, 2019 8:53 am
. . . . the right thing to do is contribute to the fund that is underweight due to market fluctuations. I prefer not to rebalance or sell anything; I feel most comfortable with my investments when I'm only buying.
This will make rebalancing more difficult.

If you want to rebalance only via new contributions then you need to use the bond fund in your 401k, the account which will receive 33% of your new annual contributions. A bond fund is not very tax-efficient and should be kept in a tax-advantaged account, preferably in a tax-deferred account such as your rollover IRA or 401k. Wiki article "Tax-efficient fund placement". Because withdrawals from the Roth IRAs are tax free, use the Roth IRAs to hold stock funds which have higher expected returns than bond funds.

I think you should drop the 529 college account out of the retirement portfolio. This changes the percentage in each account, and the percentage of new contributions going to each account.

The desired asset allocation is "approximately 75% equities and 25% bonds/cash, with 30% of equities in international". Rounding off the percentages, that works out to about 25% bonds/cash, 23% international stocks, 53% domestic stock.



Another portfolio idea.
You could consider this portfolio lineup, with $34.5k in new annual contributions. The desired asset allocation is "approximately 75% equities and 25% bonds/cash, with 30% of equities in international". That works out to about 25% bonds/cash, 23% international stocks, 53% domestic stock.
I have rounded off the percentages for each account, so they will not add up exactly.

Taxable account (30% of total; 33% of new annual contributions):
14% Total Stock <--- $10k new annual contributions going here
12% Total International <--- $2k new annual contributions going here
04% Prime Money Market
(no change from present funds)

His 401k (08% of total; 32% of new annual contributions):
$11k new contributions going here (contribute max, but get partial refund of contribution due to non-safe harbor plan)
08% Total Stock <--- $2k new contributions going here (contribute max, but get partial refund of contribution due to non-safe harbor plan)
0.0% American Funds EuroPacific Growth R6 (both developed and emerging markets) (RERGX) - 0.49% ER <--- add later as needed
0.0% Vanguard Intermediate-Term Bond Index Fund Admiral Shares (VBILX) - 0.07% ER <---- $9k new annual contributions going here

His rollover IRA (29% of total):
04%, Total Stock
05%, Total International
20%, Total Bond

His Roth IRA (13% of total; 17% of new annual contributions):
13% Total Stock <--- $6k new annual contributions going here

Her rollover IRA (13% of total):
13% Total Stock

Her Roth IRA (05% of total; 17% of new annual contributions):
05% Total International <--- $6k new annual contributions going here


Rebalancing by contributions.
The desired asset allocation is approximately "75% equities and 25% bonds/cash, with 30% of equities in international". Rounding the percentages off, that works out to about 25% bonds/cash, 23% international stocks, 53% domestic stock.

The planned annual contributions are in about the amount of the desired asset allocation, so may tend to keep the portfolio in balance.
9/34.5 = 26% to bonds
2 + 6 = 8/34.5 = 23% to international stocks
10 +2 + 6 = 18/34.5 = 52% to domestic stocks

You can then re-adjust contributions periodically in order to maintain the desired asset allocation. You can adjust the stock/bond mix by changing the contributions in your 401k. You can adjust the domestic/international stock mix by changing the contributions in your taxable account, or by adding the international stock fund in your 401k.
Thank you again. I will read this a couple more times and digest! I appreciate all the thought and time that went into your posts.

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