Help with wife and I's Retirement Plan

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Topic Author
vss317
Posts: 28
Joined: Sun Apr 13, 2014 12:02 pm

Help with wife and I's Retirement Plan

Post by vss317 » Sun Mar 24, 2019 11:21 pm

My wife and I are adjusting our savings/retirement plans as kiddo two is on the way. This is the longest post I’ve ever done! Questions are at the bottom.

Emergency funds: 2 months and still adding, goal is 3 months (checking account)
Debt: Mortgage $198,000 at 4.85%, Car $9,400 at 2.25%
Tax Filing Status: Married filing jointly (approx yearly gross income $125,000)
Tax Rate: 22% Federal, 4.24% State
State of Residence: AZ
Age: Him 35, Her 34
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 20% of stocks

His 401k (approx $29,000) - 5% contribution, 2.5% company match
100% American Funds 2050 Target Date-R4, RDITX (0.77)

His Roth IRA at Vanguard (approx $3,800) - being used as college savings for kiddo 1, but retirement comes first
$50 every two weeks - Total Stock Market Index Fund Admiral, VTSAX (0.04)

His 403b (approx $29,000)
No contributions, holding from a previous job

Her 401k (approx $59,000) - 12% contribution, 5% company match
Her account is all over the place, will be fixed
47.22% Target Date Fund 2050 (0.06)
8.53% Stable Value Fund (0.19)
3.26% Large Cap Growth Fund (0.40)
2.84% Core Bond Fund (0.00)
2.83% Small Cap Core Fund (0.00)
10.365 Company Common Stock Fund (0.00)
8.02% Large Cap Index Fund (0.03)
3.03% S&P 500 Index Fund (0.02)
2.84% Large Cap Value Fund (0.35)



Below are the options available to us

His 401k Options
Growth
AMCAP Fund® — R-4 (0.71)
EuroPacific Growth Fund® — R-4 (0.83)
The Growth Fund of America® — R-4 (0.68)
New Perspective Fund® — R-4 (0.80)
New World Fund® — R-4 (0.98)
SMALLCAP World Fund® — R-4 (1.05)

Growth and Income
American Mutual Fund® — R-4 (0.65)
Capital World Growth and Income Fund® — R-4 (0.79)
The Investment Company of America® — R-4 (0.64)
Washington Mutual Investors Fund℠ — R-4 (0.64)

Equity Income
The Income Fund of America® — R-4 (0.63)

Balanced
American Balanced Fund® — R-4 (0.63)

Bond
The Bond Fund of America® — R-4 (0.61)
Intermediate Bond Fund of America® — R-4 (0.62)
U.S. Government Securities Fund® — R-4 (0.63)

Cash Equivalent
American Funds U.S. Government Money Market Fund℠ — R-4 (0.69)

Retirement Target Date
All usual years (0.70ish)


Her 401k Options
Target Date Funds
All usual years (0.06ish)

Cash Alternatives
Short-Term Fixed Income Fund (0.00)

Bonds
Stable Value Fund (0.19)
Government Inflation-Protected Bond Fund (0.21)
Core Bond Fund (0.00)
Intermediate Bond Fund (0.21)
High Yield Bond Fund (0.35)

Domestic Equity
Large Cap Value Index Fund (0.03)
Large Cap Value Fund (0.35)
S&P 500 Index Fund (0.02)
Large Cap Growth Index Fund (0.03)
Large Cap Growth Fund (0.40)
S&P MidCap 400 Index Fund (0.04)
Small Cap Index Fund (0.05)
Small Cap Core Fund (0.00)
Small Cap Blend Fund (0.60)

International Equity
International Large Cap Value Fund (0.31)
International Large Cap Index Fund (0.07)
International Small Cap Index Fund (0.09)

Emerging Market
Emerging Market Equity Index Fund (0.13)

Company Stock
Common Stock Fund (0.00)


1. I recently dropped down my 401k contributions from 11% to 5% with the idea that I was going to contribute more to my IRA. However, thinking now of creating a 3 fund portfolio between our 401k options. Looking at my wife’s options, looks like she has better funds available. Thinking she jumps her contributions up to 18-20% and I keep mine at 5%. Does this sound like a better idea? Or should I stick with the idea of putting more to my IRA?

2. With that said, what funds would be ideal for a 3 fund portfolio? This is where I lack knowledge and come here for help. A majority will come from her 401k options, with mine just being the bonds.
  • Stock Market Funds: One of the three - Large Cap Value Index Fund (0.03), S&P 500 Index Fund (0.02), or Large Cap Growth Index Fund (0.03). Then the Small Cap Index Fund (0.07)
  • International Stock Funds: International Large Cap (0.07) and Small Cap (0.09) Index Funds
  • Bonds: The Bond Fund of America® — R-4 (0.61)
  • Company Stock: wife wants to continue to invest in her company, maybe 2-5% will go here.
3. A follow up question to the previous one, since there isn’t a “Total” market fund, is it ideal to hold both a large and small cap to create that total fund? If so, what’s the rule of how much goes to each?


Thank you for your help and reading the long post. I may not post often, but I value everything I read here.

VSS

b42
Posts: 342
Joined: Thu Apr 11, 2013 7:00 pm

Re: Help with wife and I's Retirement Plan

Post by b42 » Mon Mar 25, 2019 5:34 am

There's a good wiki page on approximating the total stock market if you don't have that type of fund available:

https://www.bogleheads.org/wiki/Approxi ... ock_market

Or you could always go with the S&P 500 fund. It isn't the entire market, but it tends to correlate closely with the Total Stock Market fund.

The simplest option would be to put all of the 401k assets into the Target Date 2050 fund (plus the smaller amount into company stock), and then balance out the stock/bond ratio with the bond fund in your 401k.

I see you mention the Roth IRA is potential college savings. If that ends up being the case, a 529 plan would likely be better since you would get more tax benefits.

Skiandswim
Posts: 119
Joined: Tue Dec 21, 2010 3:24 pm

Re: Help with wife and I's Retirement Plan

Post by Skiandswim » Mon Mar 25, 2019 8:11 am

A few thoughts ....

1. His 401k Options – not very attractive ERs. I think you are making a good choice to just get maximum match at 5%. You seem to have some attractive options for the 6% you are no longer putting into your 401K. The Wiki provides information of prioritizing investments: https://www.bogleheads.org/wiki/Priorit ... nvestments

My thought would be to add the 6% to your Roth IRA. Flexibility of investment options, long term tax advantages, and you presently don’t have to mess with a backdoor Roth conversion.

“His 403b (approx $29,000)”: Why continue to hold this 403b? Attractive investment options? You could rollover the funds to an IRA (or Roth IRA with tax impact).

Have you considered a 529 Plan? In AZ you do get a state tax deduction (4.2% up to $4000 annual 529 contribution limit). AZ plan has an option to invest in a range of Fidelity funds
https://www.fidelity.com/go/529-arizona/overview

2. Her 401K Options – Target date fund provides you simplicity in building your 80/20 portfolio. The bond fund ERs does not look attractive in Her 401k or His 401k. You might consider rolling over His 403b to IRA account that offers some low ER bond options. If just equities in Her 401K, then a combination of S&P500 and International Large Cap could be used for the portfolio.

There are several discussions on the risks of investing in your own company common stock (excluding options and RSUs award by a firm). I do not necessarily see the investment benefit for your wife, but it is a small position. “a large holding in employer stock doubles your risk: If your company runs into major problems, you may lose your job and your retirement security.” https://www.brookings.edu/opinions/havi ... ook-at-ge/

It may help other people to know firms or tickers for her 401k funds.

lakpr
Posts: 3507
Joined: Fri Mar 18, 2011 9:59 am

Re: Help with wife and I's Retirement Plan

Post by lakpr » Mon Mar 25, 2019 9:19 am

With a gross income of $125000, if between husband and wife you can contribute at least $22k per year to your 401k, your Adjusted Gross Income would drop to $103k, less standard deduction of $24.4k for 2019 would drop you into the 12% bracket. This should be your goal.

Does your wife have access to Roth 401k in her plan?

If she does, I suggest that you contribute the full 19k to your plan to get the tax deduction, she contributes 3k to traditional 401k in her plan, and the remaining $16k to Roth 401k in her plan. Her plan choices are simply superb, you should put almost all stocks in her plan, your plan should contain bonds to the extent of your Asset allocation. Your plan’s purpose will be, for your family, get the tax break. Your wife’s plan is where the most growth will be/should be.

IF you are able to contribute to your individual Roth IRAs even after this, I would encourage you to do so. But that would also mean you are going to be living on less than half your combined salary, not sure if it is feasible.

elainet7
Posts: 386
Joined: Sat Dec 08, 2018 1:52 pm

Re: Help with wife and I's Retirement Plan

Post by elainet7 » Mon Mar 25, 2019 9:22 am

KISS Keep your investment portfolio as simple as possible at the lowest cost with VANGUARD

Topic Author
vss317
Posts: 28
Joined: Sun Apr 13, 2014 12:02 pm

Re: Help with wife and I's Retirement Plan

Post by vss317 » Mon Mar 25, 2019 9:53 am

I'll look at the responses closer when I get on a computer, hate using my phone.

But real quick, I should of mentioned day care cost. That comes to about $14k a year and our second that's due in August will be attending when he/she is ready. Trying to maximize the retirements while keeping some savings going.

User avatar
Wiggums
Posts: 2419
Joined: Thu Jan 31, 2019 8:02 am

Re: Help with wife and I's Retirement Plan

Post by Wiggums » Mon Mar 25, 2019 10:09 am

Not a fan of the high yield (junk bonds).

Also, the value funds have a much higher ER. I’m thinking the index fund in that asset class might be good enough. Too many funds for my tastes.

Example:
Large Cap Value Index Fund (0.03)
Large Cap Value Fund (0.35)

Carl53
Posts: 1878
Joined: Sun Mar 07, 2010 8:26 pm

Re: Help with wife and I's Retirement Plan

Post by Carl53 » Mon Mar 25, 2019 10:12 am

lakpr wrote:
Mon Mar 25, 2019 9:19 am
With a gross income of $125000, if between husband and wife you can contribute at least $22k per year to your 401k, your Adjusted Gross Income would drop to $103k, less standard deduction of $24.4k for 2019 would drop you into the 12% bracket. This should be your goal.
OP, this would be great if you could do it. If your income is split 50/50, her 12% 401k is $7500 and your 5% 401k is $3125 in annual contributions. You mention saving $50 every other week or $1300 in a Roth. You also are building your EF. Even if you are adding $5k per year that could be diverted to Pre-tax retirement accounts and the Roth contributions were made pretax, you still would only have $16925 in pretax retirement contributions so would still be in the 22% bracket. I would consider doing both once you have your EF at a level you are comfortable with as it would provide substantial tax savings.

If you do can get your taxable down into the 12% bracket, and have more that you are able to save, a Roth would be a great way to go.

Your mortgage rate of 4.8% is high as of today. If your credit score is high, you might be able to reduce it by nearly a percent by refinancing or recasting. If you are going to stay in the home for five or more years, you could likely gain substantially by refinancing. You are not likely to be able to itemize on your taxes any longer, so a reduction in mortgage rates will have more value to you.

As mentioned by others, look carefully at the 403 plan. You very well may do better by rolling it over to a low cost IRA.

Your wife has some wonderful ERs in her 401k plan. While it is a little messy, it looks like it would be hard to go wrong with making more contributions to it.

lakpr
Posts: 3507
Joined: Fri Mar 18, 2011 9:59 am

Re: Help with wife and I's Retirement Plan

Post by lakpr » Mon Mar 25, 2019 10:21 am

vss317 wrote:
Mon Mar 25, 2019 9:53 am
I'll look at the responses closer when I get on a computer, hate using my phone.

But real quick, I should of mentioned day care cost. That comes to about $14k a year and our second that's due in August will be attending when he/she is ready. Trying to maximize the retirements while keeping some savings going.
My workplace offers ability to contribute to Dependent Care FSA, my wife’s workplace does the same. When our kids attended day care (now they are teens), we used to max $5k each and thus able to pay $10k out of the $16k incurred on a pre-tax basis. You might want to look into that.

I also want to say that your kids together provide you $4000 worth tax credits, you need to make sure that you have at least that amount if taxable income in the year. That comes to about $40k taxable income, negated to $0 through tax credits.

$125 gross income
- $22k contributions to 401k as suggested
- $10k through Dependent Care FSA if possible
- $7k medical insurance premiums (estimate)
- $24.4k standard deduction for Martied Filing Jointly
—————————-
= $61.6k taxable income
= $7000 tax
-$4000 tax credit = $3000 total tax liability for the year

If you would contribute $35k between both of you to your 401k plans on a pretax basis, your tax liability would be zero. Don’t need to bother later about Roth IRAs or Roth 401k etc. $35k per year on a $125k combined salary is about 25% savings rate, personally I think that is a superb rate.



Keep these figures in mind,

Topic Author
vss317
Posts: 28
Joined: Sun Apr 13, 2014 12:02 pm

Re: Help with wife and I's Retirement Plan

Post by vss317 » Fri Mar 29, 2019 2:27 pm

Thank you all for the advice, pretty good stuff. Looks like our goal should be to get into the 12% bracket, which we will attempt to in 2020, just don't see that happening this year. I'm also in the works of transferring the 401b to my Roth. I'm sure I'll have to pay some taxes on that though, but figure it'll be small compared to long term gains. As for the 529, going to wait on that until we can max out our retirement funds. And the refinance suggestion, we're planning to sell in 2-3 years to find more space for the growing family. One question though can be found below

lakpr wrote:
Mon Mar 25, 2019 10:21 am
vss317 wrote:
Mon Mar 25, 2019 9:53 am
I'll look at the responses closer when I get on a computer, hate using my phone.

But real quick, I should of mentioned day care cost. That comes to about $14k a year and our second that's due in August will be attending when he/she is ready. Trying to maximize the retirements while keeping some savings going.
My workplace offers ability to contribute to Dependent Care FSA, my wife’s workplace does the same. When our kids attended day care (now they are teens), we used to max $5k each and thus able to pay $10k out of the $16k incurred on a pre-tax basis. You might want to look into that.

I also want to say that your kids together provide you $4000 worth tax credits, you need to make sure that you have at least that amount if taxable income in the year. That comes to about $40k taxable income, negated to $0 through tax credits.

$125 gross income
- $22k contributions to 401k as suggested
- $10k through Dependent Care FSA if possible
- $7k medical insurance premiums (estimate)
- $24.4k standard deduction for Martied Filing Jointly
—————————-
= $61.6k taxable income
= $7000 tax
-$4000 tax credit = $3000 total tax liability for the year

If you would contribute $35k between both of you to your 401k plans on a pretax basis, your tax liability would be zero. Don’t need to bother later about Roth IRAs or Roth 401k etc. $35k per year on a $125k combined salary is about 25% savings rate, personally I think that is a superb rate.



Keep these figures in mind,

My wife's work does offer the Dependent Care FSA. When I read up on it though, doesn't look like you can do more than $5k, even if you have multiple kiddos. Is there something I'm missing?

Thanks again,

VSS

lakpr
Posts: 3507
Joined: Fri Mar 18, 2011 9:59 am

Re: Help with wife and I's Retirement Plan

Post by lakpr » Fri Mar 29, 2019 3:02 pm

vss317 wrote:
Fri Mar 29, 2019 2:27 pm
My wife's work does offer the Dependent Care FSA. When I read up on it though, doesn't look like you can do more than $5k, even if you have multiple kiddos. Is there something I'm missing?

Thanks again,

VSS
The limit is $5k, true. But that's $5K from my employer, and $5K from my wife's employer ...

Topic Author
vss317
Posts: 28
Joined: Sun Apr 13, 2014 12:02 pm

Re: Help with wife and I's Retirement Plan

Post by vss317 » Fri Mar 29, 2019 3:16 pm

Got it. I did talk to my employer about it. We are small but growing and said it's something they are considering for next year.

Mr.BB
Posts: 1083
Joined: Sun May 08, 2016 10:10 am

Re: Help with wife and I's Retirement Plan

Post by Mr.BB » Fri Mar 29, 2019 3:26 pm

Just two points on your layout. You and your wife have company matches that's free money! I'm a friend fan of Roth accounts, however missing out on free money is a no no. Run some calculations if you take the Roth money and put it between you and your wife's accounts how much more free money would you get from from your companies?
Keep working on that emergency fund. With your second kid on the way (congratuations) life can throw you some very serious surprises that you would never expect. Personally I think you should work towards a six months emergency fund. Besides your current savings level toward that emergency fund, try to add an extra $25 - $50 a month besides what you normally do. It doesn't sound like much, but in another 5-6 years you will be real happy with what you got;and you won't miss that little bit of extra money that you put towards it.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

Topic Author
vss317
Posts: 28
Joined: Sun Apr 13, 2014 12:02 pm

Re: Help with wife and I's Retirement Plan

Post by vss317 » Fri Mar 29, 2019 3:46 pm

Mr.BB wrote:
Fri Mar 29, 2019 3:26 pm
Just two points on your layout. You and your wife have company matches that's free money! I'm a friend fan of Roth accounts, however missing out on free money is a no no. Run some calculations if you take the Roth money and put it between you and your wife's accounts how much more free money would you get from from your companies?
Thanks for the congrats, we're excited and a little scared at the same time. Think that's normal though, it'll be fun! We are shooting for minimum $20k for the EF and will continue to add to it, just not as aggressively as we are now.

Anyway, about your comment, not quite sure what you mean. Can you elaborate please? We are both getting the max free monies we can in both our current employee 401ks.

Mr.BB
Posts: 1083
Joined: Sun May 08, 2016 10:10 am

Re: Help with wife and I's Retirement Plan

Post by Mr.BB » Fri Mar 29, 2019 4:52 pm

The money you are putting into your roth, you get no bonus (company match) on. If you took your roth money and increased your 401k money you will instantly be rewarded with a larger account balance. For example these last couple years we have been able to max out my wife's 401k. Her company in return (matching) also adds about another $9200 dollars (I don't have the exact figure from last year in front of me) to her 401k during the year for that. She's fortunate enough that her company also allows Roth 401k contributions (which we give a percent too). Either way her company match goes into her traditional 401k. That is a lot of free extra money, that we would be passing up if we used it to max out our regular Roth accounts.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

Mr.BB
Posts: 1083
Joined: Sun May 08, 2016 10:10 am

Re: Help with wife and I's Retirement Plan

Post by Mr.BB » Fri Mar 29, 2019 5:02 pm

Also, in regards to my monthly extra contributions to your savings account. I just ran a quick calculation. If you have a basic taxable account with Vanguard (lets say you use a Total Market Index Fund) and lets say you add just $30 a month (have it set up to automatically withdraw it every month), and it earns 7% on average over 30 years, by the time your 65 years old you would of saved an extra $35,000 toward your retirement without really thinking about it! It's good to be young!
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

Topic Author
vss317
Posts: 28
Joined: Sun Apr 13, 2014 12:02 pm

Re: Help with wife and I's Retirement Plan

Post by vss317 » Fri Mar 29, 2019 5:05 pm

Got it, I see what you mean now, up the 401k instead of the Roth. That's one of the plans we have going into 2020 after we hit that emergency fund amount we are comfy with. It's definitely going to be my wife's we are going to try to max out first, her options are so much better than mine.

Thanks for the input.

cashheavy18
Posts: 105
Joined: Fri Jun 15, 2018 3:19 pm

Re: Help with wife and I's Retirement Plan

Post by cashheavy18 » Fri Mar 29, 2019 5:33 pm

lakpr wrote:
Fri Mar 29, 2019 3:02 pm
vss317 wrote:
Fri Mar 29, 2019 2:27 pm
My wife's work does offer the Dependent Care FSA. When I read up on it though, doesn't look like you can do more than $5k, even if you have multiple kiddos. Is there something I'm missing?

Thanks again,

VSS
The limit is $5k, true. But that's $5K from my employer, and $5K from my wife's employer ...
Would anyone else be able to confirm this please, for the longest time I've had the understanding that it is $5k for dependent care FSA per married filing joint (not employer)?
Last edited by cashheavy18 on Fri Mar 29, 2019 5:35 pm, edited 1 time in total.

sapper1371
Posts: 143
Joined: Tue Jul 10, 2018 7:21 pm

Re: Help with wife and I's Retirement Plan

Post by sapper1371 » Fri Mar 29, 2019 5:35 pm

lakpr wrote:
Fri Mar 29, 2019 3:02 pm
vss317 wrote:
Fri Mar 29, 2019 2:27 pm
My wife's work does offer the Dependent Care FSA. When I read up on it though, doesn't look like you can do more than $5k, even if you have multiple kiddos. Is there something I'm missing?

Thanks again,

VSS
The limit is $5k, true. But that's $5K from my employer, and $5K from my wife's employer ...
This is incorrect. The max is $5k for both of you combined.

https://www.fsafeds.com/explore/dcfsa

Topic Author
vss317
Posts: 28
Joined: Sun Apr 13, 2014 12:02 pm

Re: Help with wife and I's Retirement Plan

Post by vss317 » Fri Mar 29, 2019 6:07 pm

That's what I read. Put the $5k to the FSA and the remaining $1k to the Child Care Tax Credit. Would this be the way to go? Think that's what I have to sit down and figure out.

Salmonid
Posts: 16
Joined: Tue Feb 06, 2018 3:40 pm

Re: Help with wife and I's Retirement Plan

Post by Salmonid » Fri Mar 29, 2019 6:21 pm

Refinance that mortgage!

Topic Author
vss317
Posts: 28
Joined: Sun Apr 13, 2014 12:02 pm

Re: Help with wife and I's Retirement Plan

Post by vss317 » Fri Mar 29, 2019 6:42 pm

We'll be doing that here shortly but it'll be buying a new home.

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