What's next when 401K/tIRA are maxed?

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Topic Author
3blindmice
Posts: 12
Joined: Mon Apr 08, 2019 12:57 pm

What's next when 401K/tIRA are maxed?

Post by 3blindmice » Mon Apr 08, 2019 7:56 pm

First time poster, I will try to be thorough as noted in the post guidelines. Thank you so much for your time and wisdom as us newbies try and figure things out.
Background
I'm an employed optometrist (W2).
Emergency funds: $40,000 in Money Market at Credit Union with 1.5% interest
Debt: $138,000 remaining on mortgage at 4.1%, no other debt
Tax Filing Status: Married, file jointly
Adjusted Gross Income $200,00 (combined me and hubby)
Tax Rate: 24% Federal, 5.49% State
State of Residence: NC
Age:40
Desired Asset allocation: 66% stocks / 34% bonds
Desired International allocation: 20% of stocks (I don't really know, I'm just making this number up).

Current retirement assets
My 401K with 3%match at JohnHancock $100,000 invested in Mutual Funds (40%Aggressive, 30%Growth, 20%Growth/Income, 10%Income)- it's invested in 13 funds and the expense ratio range is 0.64-1.20%. The cost for last year was $600 (fees). I contribute the max annually to this account (and have for the past 4 years).
John Hancock Funds:
Aggressive Growth Expense Ratio
DFA Emerging Markets Value 1.17%
DFA US Targeted Value Fund 0.97%
JPMorgan MidCap Value Fund 1.25%
Mid Cap Index Fund 0.67%
Oppenheimer Intl Growth Fund 1.2%
PGIM Jennison Mid Cap Growth 1.15%
Vanguard Small Cap Grow Index 0.67%
Growth
500 Index Fund 0.64%
BlackRock Basic Value 0.90%
ClearBridge Aggressive Growth 1.22%
Growth & Income
Federated High Yield Bond 1.05%
Oppenheimer Int'l Bond 1.09%
Income
John Hancock Bond Fund 0.75%

All options available for 401K:
• JH Multi-Index 2060 Preserv John Hancock 0.78 Target-date 2060+
• JH Multi-Index 2055 Preserv John Hancock 0.79 Target-date 2055
• JH Multi-Index 2050 Preserv John Hancock 0.79 Target-date 2050
• JH Multi-Index 2045 Preserv John Hancock 0.78 Target-date 2045
• JH Multi-Index 2040 Preserv John Hancock 0.77 Target-date 2040
• JH Multi-Index 2035 Preserv John Hancock 0.77 Target-date 2035
• JH Multi-Index 2030 Preserv John Hancock 0.77 Target-date 2030
• JH Multi-Index 2025 Preserv John Hancock 0.76 Target-date 2025
• JH Multi-Index 2020 Preserv John Hancock 0.76 Target-date 2020
• JH Multi-Index Income Preserv John Hancock 0.79
• DFA Emerging Markets Value DFA 1.14 Diversified Emerging Markets
DFA US Targeted Value Fund 25 DFA 0.97 Small Value
• Intl Equity Index Fund SSgA 0.76 Foreign Large Blend
• JPMorgan MidCap Value Fund J.P. Morgan 1.25 Mid-cap Blend
• Mid Cap Index Fund John Hancock 0.67 Mid-cap Blend
Oppenheimer Intl Growth Fund Oppenheimer 1.21 Foreign Large Growth
PGIM Jennison Mid Cap Growth Jennison 1.15 Mid-cap Growth
• Small Cap Index Fund John Hancock 0.69 Small Blend
Vanguard Small Cap Grow Index Vanguard 0.67 Small Growth
• 500 Index Fund John Hancock 0.64 Large Blend
BlackRock Basic Value BlackRock 0.90 Large Value
ClearBridge Aggressive Growth Legg Mason 1.22 Large Growth
• Federated High Yield Bond Federated 1.05 High Yield Bond
• Oppenheimer Int'l Bond Oppenheimer 1.09 World Bond
DFA Inflation-Protected Sec DFA 0.72 Inflation Protected Bond
• John Hancock Bond Fund John Hancock 0.75 Intermediate-term Bond
US Government Securities American Funds 0.87 Intermediate Government

My husband does part-time employed W2 consulting and web development and childcare for our 6 year old and does not have an employer retirement plan to contribute to right now.

I have an Edward Jones account because I have a traditional IRA ($67,000) that was at E.J. from previous job and my husband has a trad IRA ($32,000) with E.J. and we have a local branch. He also has an inherited Roth ($30,000). All three of these accounts have approximately the same breakdown of Mutual Funds as the John Hancock. So, we have an E.J. Adviser and through him, opened an account to save money for a new house that has $200,000. I can't find the expense ratios for the funds on the website. They list "Cost Basis" but I'm not sure how that relates to the expense ratios.
Edward Jones Info-
tIRA 1 Funds:
AMERICAN AMCAP CL A AMCPX
AMERICAN BALANCED CL A ABALX
AMERICAN BOND FUND OF AMERICA CL A ABNDX
AMERICAN CAPITAL WORLD GROWTH & INCOME CL A CWGIX
AMERICAN EUROPACIFIC GROWTH CL A AEPGX
AMERICAN FUNDAMENTAL INVESTORS CL A ANCFX
AMERICAN HIGH-INCOME TRUST CL A AHITX
AMERICAN INVESTMENT COMPANY OF AMERICA CL A AIVSX
AMERICAN NEW WORLD CL A NEWFX
AMERICAN SMALLCAP WORLD CL A SMCWX

tIRA 2 Funds:
AMERICAN FUNDAMENTAL INVESTORS CL F3 FUNFX
AMERICAN NEW WORLD CL F3 FNWFX
FRANKLIN DYNATECH CL R6 FDTRX
FRANKLIN TEMPLETON GLOBAL BOND CL R6 FBNRX
HARTFORD MIDCAP CL F HMDFX
HOTCHKIS & WILEY HIGH YIELD CL I HWHIX
JOHN HANCOCK BOND CL R6 JHBSX
MFS GROWTH CL R6 MFEKX
MFS INTERNATIONAL GROWTH CL R6 MGRDX
VICTORY SYCAMORE ESTABLISHED VALUE CL R6 VEVRX
VICTORY SYCAMORE SMALL COMPANY OPPORTUNITY CL I VSOIX
ISHARES S&P US PFD STOCK INDEX FUND PFF Aggressive Income
SPDR SER TR S&P DIVID ETF SDY Growth & Income

Inherited Roth Funds:
AMERICAN FUNDAMENTAL INVESTORS CL F3 FUNFX
AMERICAN NEW WORLD CL F3 FNWFX
FRANKLIN DYNATECH CL R6 FDTRX
HARTFORD MIDCAP CL F HMDFX
JOHN HANCOCK BOND CL R6 JHBSX
MFS GROWTH CL R6 MFEKX
MFS INTERNATIONAL DIVERSIFICATION CL R6 MDIZX
VICTORY SYCAMORE ESTABLISHED VALUE CL R6 VEVRX
VICTORY SYCAMORE SMALL COMPANY OPPORTUNITY CL I VSOIX
VANGUARD INTER TERM BD ETF BIV Income

Taxable account funds:
AMERICAN FUNDAMENTAL INVESTORS CL F3 FUNFX
HARTFORD MIDCAP CL F HMDFX
HOTCHKIS & WILEY HIGH YIELD CL I HWHIX
INVESCO DEVELOPING MARKETS CL R6 GTDFX
INVESCO DIVERSIFIED DIVIDEND CL R6 LCEFX
JOHN HANCOCK BOND CL R6 JHBSX
MFS GROWTH CL R6 MFEKX
MFS INTERNATIONAL DIVERSIFICATION CL R6 MDIZX
VICTORY SYCAMORE ESTABLISHED VALUE CL R6 VEVRX
VICTORY SYCAMORE SMALL COMPANY OPPORTUNITY CL I VSOIX
ISHARES S&P US PFD STOCK INDEX FUND PFF Aggressive Income
SPDR SER TR S&P DIVID ETF SDY Growth & Income
VANGUARD INDEX TR VANGUARD VALUE ETF VTV Growth & Income
VANGUARD INTER TERM BD ETF BIV Income
VANGUARD TOTAL INTERNATIONAL BOND INDEX EXCHANGE TRADED FD BNDX

We had $4500 in capital gains from the taxable account last year. This money must be used prior to retirement per the adviser.
The cost for last year was $1400 (fees) on all of the accounts (total of all holdings $300,000).

Since reading the Boglehead's Guide to Investing in January (which was recommended by White Coat Investor), I have opened a Vanguard traditional IRA account and contributed $5,500 (for 2018) to VTSAX, $6000 (for 2019) to VBTLX ($3000) and VTIAX ($3000).

I also opened a Vanguard NV 529 plan and contributed $3000.

I have an HSA through the credit union at 2.5% interest that has $7500.

Questions:
1. I would like to be saving more, but since we max out my 401K and my trad IRA, I'm not sure where to put the extra money. Right now I have about $60,000 sitting in a Money Market fund (on top of my emergency fund) at only 1.5% interest. We have a short-term goal of building a house in the next 1-2 years, so the MM fund and the E.J. taxable account will be for that. Should I put more into the 529 plan? Should I open a different type of Vanguard taxable account to contribute to? What are the most advantageous options to invest in when the 401K and tIRA are maxed?

2. We are over the income limit to contribute to a ROTH IRA and I have been trying to figure out if I should try and do a backdoor ROTH, but I understand that I can't have any traditional IRAs to do that (which we have two trad IRAs that hold a total of $99,000). Should we convert the trad IRAs to a ROTH and pay tax on that so we can use the backdoor ROTH? Or just forget about it? I like the idea of having a tax-free withdrawal option since the 401K will be taxed.

3. Should I transfer/rollover/etc. the Edward Jones accounts to Vanguard?

Thanks so much for your time and advice, Lynn
Last edited by 3blindmice on Tue Apr 09, 2019 7:32 pm, edited 1 time in total.

Beehave
Posts: 437
Joined: Mon Jun 19, 2017 12:46 pm

Re: What's next when 401K/tIRA are maxed?

Post by Beehave » Mon Apr 08, 2019 10:22 pm

My suggestions would be:

- Move to Vanguard. The 10 funds in taxable are way overcomplicated and probably costly in fees or capital gains. Invest the funds in VG's Total US and Total International indexes. If the 10 funds have appreciated you'll have capital gains, but selling will set a new base value so it seems to be no harm to me.

- Leaving EJ will save a lot in fees over time. If you search "Taylor Larrimore three fund portfolio" on this site you will see many reasons to simplify and use the total market funds for US stocks, bonds, and foreign stocks.

- If you want an advisor, get a fee-only advisor who can give objective advice - - hopefully on an hourly basis and hopefully one who understands tax implications and can help you optimize among your many needs as young professionals dealing with retirement, emergency fund, new house, education, and other savings and tax issues.

- In general - - put new taxable contributions into the three fund taxable account after maxing out the tax-free 529 and HSA accounts. (edited to add this)

I'm sure others will chime in with more specific (and possibly better) advice.

Best wishes, it looks to me as if you are doing extremely well and will continue to do so.

MotoTrojan
Posts: 3796
Joined: Wed Feb 01, 2017 8:39 pm

Re: What's next when 401K/tIRA are maxed?

Post by MotoTrojan » Mon Apr 08, 2019 10:41 pm

We will need more info to give you specific advice but I would transfer your taxable and IRA holdings to Vanguard or similar, and liquidate all the funds in the IRA (replace with a similar AA Target/Lifestrategy fund until you can make a global makeover.

You may be stuck with the 401k at JH but instead of holding 13 funds with those ranges of ER I would figure out what cheaper funds meet your AA requirements and only hold those. Note; you should look at your portfolio as one entity, so it is entirely possible your 401k will be all in bonds, or all in equity, yet your overall AA will still meet your needs.

User avatar
ruralavalon
Posts: 15215
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: What's next when 401K/tIRA are maxed?

Post by ruralavalon » Tue Apr 09, 2019 8:25 am

Welcome to the forum :) .

It's good to see that you are debt free other than the mortgage note, are making the maximum annual contribution to your 401k and IRA, and are starting to use low expense index funds.

Some additional information will be helpful. I have asked some questions below. Please simply add new information to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.


3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
Emergency funds: $40,000 in Money Market at Credit Union with 1.5% interest
I suggest instead opening a taxable account at a Vanguard and using Vanguard Prime Money Market Fund (VMMXX) current SEC Yield = 2.45%, or Vanguard Ultra Short-term Bond Fund (VUBFX) current SEC Yield = 2.69%, for your emergency fund.


3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
Age:40
Desired Asset allocation: 66% stocks / 34% bonds
Desired International allocation: 20% of stocks (I don't really know, I'm just making this number up).
At age 40 in my opinion 34% in bonds or other fixed income is within the range of what is reasonable.

In my opinion 20% of stocks in international stocks is within the range of what is reasonable. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit (p. 6).


3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
Current retirement assets
My 401K with 3%match at JohnHancock $100,000 invested in Mutual Funds (40%Aggressive, 30%Growth, 20%Growth/Income, 10%Income)- it's invested in 13 funds and the expense ratio range is 0.64-1.20%. The cost for last year was $600 (fees). I contribute the max annually to this account (and have for the past 4 years). I have all of the fund assest information, but I'm not sure if that would be helpful.
It would be helpful to know what funds you are using, and what funds are offered in the 401k plan. Please give fund names, tickers and expense ratios.

It's probably best to just use 1-3 diversified funds with lower expense ratios. There is a big difference vin impact between an expense ratio of 0.64% and an expense ratio of 1.20%.


3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
My husband does part-time consulting and web development and childcare for our 6 year old and does not have an employer retirement plan to contribute to right now.
Is your husband self-employed? Or a part-time employee paid on a W2?

If self-employed then there are tax-advantaged accounts which he can use. He could consider using a SEP IRA, SIMPLE IRA, or individual (solo) 401k. Vanguard, small-business plans,"Compare plans". That link has a nice table comparing the features (like contribution limits, amount of paperwork required, etc.) of the three types of plans.

The Bogleheads' wiki has articles on each type of plan. Boglehead's wiki, "SEP IRA". Boglehead's wiki, "SIMPLE IRA". Boglehead's wiki, "Solo 401k Plan".



3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
Since reading the Boglehead's Guide to Investing in January (which was recommended by White Coat Investor), I have opened a Vanguard traditional IRA account and contributed $5,500 (for 2018) to VTSAX, $6000 (for 2019) to VBTLX ($3000) and VTIAX ($3000).
Those are excellent fund choices.


3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
Questions:
1. I would like to be saving more, but since we max out my 401K and my trad IRA, I'm not sure where to put the extra money. Right now I have about $60,000 sitting in a Money Market fund (on top of my emergency fund) at only 1.5% interest. We have a short-term goal of building a house in the next 1-2 years, so the MM fund and the E.J. taxable account will be for that. Should I put more into the 529 plan? Should I open a different type of Vanguard taxable account to contribute to? What are the most advantageous options to invest in when the 401K and tIRA are maxed?
Open a joint taxable account at a low cost provider like Vanguard and invest in very tax-efficient stock index funds. I suggest using Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04% and Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11. Wiki article "Tax-efficient fund placement".

For the $60k savings for the house you could instead use use Vanguard Prime Money Market Fund (VMMXX) current SEC Yield = 2.45% or Vanguard Ultra Short-term Bond Fund (VUBFX) current SEC Yield = 2.69%.


3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
2. We are over the income limit to contribute to a ROTH IRA and I have been trying to figure out if I should try and do a backdoor ROTH, but I understand that I can't have any traditional IRAs to do that (which we have two trad IRAs that hold a total of $99,000). Should we convert the trad IRAs to a ROTH and pay tax on that so we can use the backdoor ROTH? Or just forget about it? I like the idea of having a tax-free withdrawal option since the 401K will be taxed.
Do you expect that you will be in higher tax bracket during most of your working life?

Does your 401k plan permit Roth contributions?

Does your employer’s 401k plan allow non-Roth after-tax contributions?

If so it can such contributions be distributed while you are still working there (“in-service distribution”)?

If the plan also offers a Roth 401k option, can the non-Roth after-tax contributions be rolled over to the Roth 401k part of the plan (“in-plan Roth rollover”)?

TFB blog post "The Elusive Mega Backdoor Roth".


3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
I have an Edward Jones account because I have a traditional IRA ($67,000) that was at E.J. from previous job and my husband has a trad IRA ($32,000) with E.J. and we have a local branch. He also has an inherited Roth ($30,000). All three of these accounts have approximately the same breakdown of Mutual Funds as the John Hancock. So, we have an E.J. Adviser and through him, opened an account to save money for a new house that has $200,000- this is a taxable account that has 10 Mutual funds and 5 ETFs and 1 CD (I have all of the funds listed, but I can't find any expense ratio info on my account website). We had $4500 in capital gains from that account last year that we had to pay taxes on. This money must be used prior to retirement per the adviser.

The cost for last year was $1400 (fees) on all of the accounts (total of all holdings $300,000).
. . . . .
3. Should I transfer/rollover/etc. the Edward Jones accounts to Vanguard?
What funds are you using in the taxable account at Edward Jones? Please give fund names, tickers and expense ratios.

Yes. Rollover the IRAs. Do an in-kind transfer of the taxable account.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
3blindmice
Posts: 12
Joined: Mon Apr 08, 2019 12:57 pm

Re: What's next when 401K/tIRA are maxed?

Post by 3blindmice » Tue Apr 09, 2019 7:37 pm

Sorry, I'm trying to figure out how to reply to each comment!
Last edited by 3blindmice on Tue Apr 09, 2019 8:01 pm, edited 1 time in total.

Topic Author
3blindmice
Posts: 12
Joined: Mon Apr 08, 2019 12:57 pm

Re: What's next when 401K/tIRA are maxed?

Post by 3blindmice » Tue Apr 09, 2019 7:48 pm

Beehave wrote:
Mon Apr 08, 2019 10:22 pm
My suggestions would be:

- Move to Vanguard. The 10 funds in taxable are way overcomplicated and probably costly in fees or capital gains. Invest the funds in VG's Total US and Total International indexes. If the 10 funds have appreciated you'll have capital gains, but selling will set a new base value so it seems to be no harm to me.
I have been gathering that my portfolio is over complicated after reading the Boglehead guide.

- Leaving EJ will save a lot in fees over time. If you search "Taylor Larrimore three fund portfolio" on this site you will see many reasons to simplify and use the total market funds for US stocks, bonds, and foreign stocks.
This is exactly why I chose the 3 for my tIRA with Vanguard that I opened after reading the Boglehead guide.

- If you want an advisor, get a fee-only advisor who can give objective advice - - hopefully on an hourly basis and hopefully one who understands tax implications and can help you optimize among your many needs as young professionals dealing with retirement, emergency fund, new house, education, and other savings and tax issues.

- In general - - put new taxable contributions into the three fund taxable account after maxing out the tax-free 529 and HSA accounts. (edited to add this)

I'm sure others will chime in with more specific (and possibly better) advice.

Best wishes, it looks to me as if you are doing extremely well and will continue to do so.
Thanks so much for time and reply Beehave! I appreciate it, Lynn
Last edited by 3blindmice on Tue Apr 09, 2019 7:55 pm, edited 1 time in total.

Topic Author
3blindmice
Posts: 12
Joined: Mon Apr 08, 2019 12:57 pm

Re: What's next when 401K/tIRA are maxed?

Post by 3blindmice » Tue Apr 09, 2019 7:54 pm

MotoTrojan wrote:
Mon Apr 08, 2019 10:41 pm
We will need more info to give you specific advice but I would transfer your taxable and IRA holdings to Vanguard or similar, and liquidate all the funds in the IRA (replace with a similar AA Target/Lifestrategy fund until you can make a global makeover.
I edited my post, adding specific funds in the J.H. and E.J. accounts. By "liquidate all funds in the IRA" do you mean sell them or is there some mechanism to "roll-over"? Would this mean I would have to pay capital gains on the "liquidation"?

You may be stuck with the 401k at JH but instead of holding 13 funds with those ranges of ER I would figure out what cheaper funds meet your AA requirements and only hold those. Note; you should look at your portfolio as one entity, so it is entirely possible your 401k will be all in bonds, or all in equity, yet your overall AA will still meet your needs.
I have been realizing how overly complicated my "portfolio" is as directed by the EJ and JH advisers after having read the Boglehead guide and reading this forum.
Thanks again for your reply! I appreciate your time, Lynn

Topic Author
3blindmice
Posts: 12
Joined: Mon Apr 08, 2019 12:57 pm

Re: What's next when 401K/tIRA are maxed?

Post by 3blindmice » Tue Apr 09, 2019 7:59 pm

ruralavalon wrote:
Tue Apr 09, 2019 8:25 am
Welcome to the forum :) .

It's good to see that you are debt free other than the mortgage note, are making the maximum annual contribution to your 401k and IRA, and are starting to use low expense index funds.

Some additional information will be helpful. I have asked some questions below. Please simply add new information to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

Thank you for your reply ruralavalon! I appreciate your insight. I have edited my document and added the funds to answer most of your notes. I would be grateful for your analysis of the funds. It seems like I have so many (as directed by the J.H. and E.J. advisers. Below are the replies to your individual questions. Thank you again! Lynn

Do you expect that you will be in higher tax bracket during most of your working life? No- likely at 24% until retirement

Does your 401k plan permit Roth contributions? Maybe (there is a "Roth" section on my account page)- I didn't realize this was a possible option. I will call J.H. to find out.

Does your employer’s 401k plan allow non-Roth after-tax contributions? I'm uncertain but will ask

If so it can such contributions be distributed while you are still working there (“in-service distribution”)? I will ask

If the plan also offers a Roth 401k option, can the non-Roth after-tax contributions be rolled over to the Roth 401k part of the plan (“in-plan Roth rollover”)? I will ask
3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
Emergency funds: $40,000 in Money Market at Credit Union with 1.5% interest
I suggest instead opening a taxable account at a Vanguard and using Vanguard Prime Money Market Fund (VMMXX) current SEC Yield = 2.45%, or Vanguard Ultra Short-term Bond Fund (VUBFX) current SEC Yield = 2.69%, for your emergency fund.


3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
Age:40
Desired Asset allocation: 66% stocks / 34% bonds
Desired International allocation: 20% of stocks (I don't really know, I'm just making this number up).
At age 40 in my opinion 34% in bonds or other fixed income is within the range of what is reasonable.

In my opinion 20% of stocks in international stocks is within the range of what is reasonable. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit (p. 6).


3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
Current retirement assets
My 401K with 3%match at JohnHancock $100,000 invested in Mutual Funds (40%Aggressive, 30%Growth, 20%Growth/Income, 10%Income)- it's invested in 13 funds and the expense ratio range is 0.64-1.20%. The cost for last year was $600 (fees). I contribute the max annually to this account (and have for the past 4 years). I have all of the fund assest information, but I'm not sure if that would be helpful.
It would be helpful to know what funds you are using, and what funds are offered in the 401k plan. Please give fund names, tickers and expense ratios.

It's probably best to just use 1-3 diversified funds with lower expense ratios. There is a big difference vin impact between an expense ratio of 0.64% and an expense ratio of 1.20%.


3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
My husband does part-time consulting and web development and childcare for our 6 year old and does not have an employer retirement plan to contribute to right now.
Is your husband self-employed? Or a part-time employee paid on a W2?

If self-employed then there are tax-advantaged accounts which he can use. He could consider using a SEP IRA, SIMPLE IRA, or individual (solo) 401k. Vanguard, small-business plans,"Compare plans". That link has a nice table comparing the features (like contribution limits, amount of paperwork required, etc.) of the three types of plans.

The Bogleheads' wiki has articles on each type of plan. Boglehead's wiki, "SEP IRA". Boglehead's wiki, "SIMPLE IRA". Boglehead's wiki, "Solo 401k Plan".



3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
Since reading the Boglehead's Guide to Investing in January (which was recommended by White Coat Investor), I have opened a Vanguard traditional IRA account and contributed $5,500 (for 2018) to VTSAX, $6000 (for 2019) to VBTLX ($3000) and VTIAX ($3000).
Those are excellent fund choices.


3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
Questions:
1. I would like to be saving more, but since we max out my 401K and my trad IRA, I'm not sure where to put the extra money. Right now I have about $60,000 sitting in a Money Market fund (on top of my emergency fund) at only 1.5% interest. We have a short-term goal of building a house in the next 1-2 years, so the MM fund and the E.J. taxable account will be for that. Should I put more into the 529 plan? Should I open a different type of Vanguard taxable account to contribute to? What are the most advantageous options to invest in when the 401K and tIRA are maxed?
Open a joint taxable account at a low cost provider like Vanguard and invest in very tax-efficient stock index funds. I suggest using Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04% and Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11. Wiki article "Tax-efficient fund placement".

For the $60k savings for the house you could instead use use Vanguard Prime Money Market Fund (VMMXX) current SEC Yield = 2.45% or Vanguard Ultra Short-term Bond Fund (VUBFX) current SEC Yield = 2.69%.


3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
2. We are over the income limit to contribute to a ROTH IRA and I have been trying to figure out if I should try and do a backdoor ROTH, but I understand that I can't have any traditional IRAs to do that (which we have two trad IRAs that hold a total of $99,000). Should we convert the trad IRAs to a ROTH and pay tax on that so we can use the backdoor ROTH? Or just forget about it? I like the idea of having a tax-free withdrawal option since the 401K will be taxed.
Do you expect that you will be in higher tax bracket during most of your working life?

Does your 401k plan permit Roth contributions?

Does your employer’s 401k plan allow non-Roth after-tax contributions?

If so it can such contributions be distributed while you are still working there (“in-service distribution”)?

If the plan also offers a Roth 401k option, can the non-Roth after-tax contributions be rolled over to the Roth 401k part of the plan (“in-plan Roth rollover”)?

TFB blog post "The Elusive Mega Backdoor Roth".


3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
I have an Edward Jones account because I have a traditional IRA ($67,000) that was at E.J. from previous job and my husband has a trad IRA ($32,000) with E.J. and we have a local branch. He also has an inherited Roth ($30,000). All three of these accounts have approximately the same breakdown of Mutual Funds as the John Hancock. So, we have an E.J. Adviser and through him, opened an account to save money for a new house that has $200,000- this is a taxable account that has 10 Mutual funds and 5 ETFs and 1 CD (I have all of the funds listed, but I can't find any expense ratio info on my account website). We had $4500 in capital gains from that account last year that we had to pay taxes on. This money must be used prior to retirement per the adviser.

The cost for last year was $1400 (fees) on all of the accounts (total of all holdings $300,000).
. . . . .
3. Should I transfer/rollover/etc. the Edward Jones accounts to Vanguard?
What funds are you using in the taxable account at Edward Jones? Please give fund names, tickers and expense ratios.

Yes. Rollover the IRAs. Do an in-kind transfer of the taxable account.

MotoTrojan
Posts: 3796
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Re: What's next when 401K/tIRA are maxed?

Post by MotoTrojan » Tue Apr 09, 2019 8:26 pm

3blindmice wrote:
Tue Apr 09, 2019 7:54 pm
MotoTrojan wrote:
Mon Apr 08, 2019 10:41 pm
We will need more info to give you specific advice but I would transfer your taxable and IRA holdings to Vanguard or similar, and liquidate all the funds in the IRA (replace with a similar AA Target/Lifestrategy fund until you can make a global makeover.
I edited my post, adding specific funds in the J.H. and E.J. accounts. By "liquidate all funds in the IRA" do you mean sell them or is there some mechanism to "roll-over"? Would this mean I would have to pay capital gains on the "liquidation"?

You may be stuck with the 401k at JH but instead of holding 13 funds with those ranges of ER I would figure out what cheaper funds meet your AA requirements and only hold those. Note; you should look at your portfolio as one entity, so it is entirely possible your 401k will be all in bonds, or all in equity, yet your overall AA will still meet your needs.
I have been realizing how overly complicated my "portfolio" is as directed by the EJ and JH advisers after having read the Boglehead guide and reading this forum.
Thanks again for your reply! I appreciate your time, Lynn

Anything in an IRA can be bought/sold with no tax impact, hence my suggestion to just move on from them. As to whether to sell then transfer the cash or transfer “in-kind” then sell, that’ll depend on fee structure and whether the new broker can even hold those funds.

In taxable I’d aim to start with an in-kind transfer to get away from management fees and then sell anything at a loss. From there you may need a more personalized plan to get rid of the rest.

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ruralavalon
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Re: What's next when 401K/tIRA are maxed?

Post by ruralavalon » Wed Apr 10, 2019 2:08 pm

have edited my document and added the funds to answer most of your notes. I would be grateful for your analysis of the funds. It seems like I have so many (as directed by the J.H. and E.J. advisers. Below are the replies to your individual questions. Thank you again! Lynn
In selecting funds strive for a combination of broad diversification (to reduce risk) and low expense ratios (to increase your net gain).

. Low expense ratios are critical to long-term investing performance. Seemingly small annual fees have a large cumulative impact over time. Here is a calculator you could use to estimate the impact of investing expenses. Bankrate.com, "Mutual fund fees calculator".

Also, low expense ratios are the best predictor of future performance. Morningstar, 8/9/10 . “If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.” “Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance.”

"The expense ratio is the most proven predictor of future fund returns." "There are many other things to consider, but investors should make expense ratios their first or second screen." Morningstar, 5/5/18.


In your 401k I suggest using only:
500 Index Fund (81% of U.S.stock market) ER 0.64%.

Your IRAs primarily use American Funds, Class A shares. They have relatively high expense ratios, and sales loads. For example:

American Funds Europacific Growth A (AEPGX) has an expense ratio of 0.82% which you pay every year, which includes a 12b1 fee of 0.24% paid annually to the "advisor" who sells the fund to.you. The fund also charges a front load of 5.75% when you buy, subtracted from your investment and paid to the "advisor" selling you the fund.

There are some American Funds I think are reasonable to use but only if share classes with lower expense ratios and no sales loads are available. But that's not what you got from Edward Jones.

These expenses are in addition to.whatever advisory fee or Asset Under Management (AUM) fee you pay to Edward Jones.

Of all the many funds used in your IRAs, the only fund I would suggest using at all is:
Vanguard Intermediate-Term Bond ETF (BIV) ER 0.07%.

That same fund is also used in your taxable account. But bond funds are not very tax-efficient, and ordinarily should not be used in a taxable account,instead should be held in a tax-advantaged account. The other funds (except the few Vanguard funds) used in your taxable account have relatively high expense ratios.

About the only desirable fund in your taxable account would be:
Vanguard Value ETF (VTV) ER 0.05%

You can look up information (including expenses charged) on any fund using Morningstar and entering the ticker symbol.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

spammagnet
Posts: 991
Joined: Wed Apr 27, 2016 9:42 pm

Re: What's next when 401K/tIRA are maxed?

Post by spammagnet » Wed Apr 10, 2019 2:58 pm

To see just how much you're paying in fees, open an account at PersonalCapital.com. It's free. Sales calls from the representative are rare. They are easily dissuaded from further contact without resorting to being rude.

The reason for that account is they have an excellent composite view of your entire holdings. In particular, it shows the total expenses within your mutual funds and compares them to industry standards. You may be surprised and/or nauseated by what you find out about expenses. It also a good composite allocation view of your entire portfolio.

I doubt that fee calculation considers termination fees or charges directly to your accounts by EJ. Even without that, you'll be in pain.

Topic Author
3blindmice
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Re: What's next when 401K/tIRA are maxed?

Post by 3blindmice » Wed Apr 10, 2019 9:15 pm

ruralavalon wrote:
Wed Apr 10, 2019 2:08 pm
have edited my document and added the funds to answer most of your notes. I would be grateful for your analysis of the funds. It seems like I have so many (as directed by the J.H. and E.J. advisers. Below are the replies to your individual questions. Thank you again! Lynn
In selecting funds strive for a combination of broad diversification (to reduce risk) and low expense ratios (to increase your net gain).

. Low expense ratios are critical to long-term investing performance. Seemingly small annual fees have a large cumulative impact over time. Here is a calculator you could use to estimate the impact of investing expenses. Bankrate.com, "Mutual fund fees calculator".

Also, low expense ratios are the best predictor of future performance. Morningstar, 8/9/10 . “If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.” “Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance.”

"The expense ratio is the most proven predictor of future fund returns." "There are many other things to consider, but investors should make expense ratios their first or second screen." Morningstar, 5/5/18.


In your 401k I suggest using only:
500 Index Fund (81% of U.S.stock market) ER 0.64%.

Your IRAs primarily use American Funds, Class A shares. They have relatively high expense ratios, and sales loads. For example:

American Funds Europacific Growth A (AEPGX) has an expense ratio of 0.82% which you pay every year, which includes a 12b1 fee of 0.24% paid annually to the "advisor" who sells the fund to.you. The fund also charges a front load of 5.75% when you buy, subtracted from your investment and paid to the "advisor" selling you the fund.

There are some American Funds I think are reasonable to use but only if share classes with lower expense ratios and no sales loads are available. But that's not what you got from Edward Jones.

These expenses are in addition to.whatever advisory fee or Asset Under Management (AUM) fee you pay to Edward Jones.

Of all the many funds used in your IRAs, the only fund I would suggest using at all is:
Vanguard Intermediate-Term Bond ETF (BIV) ER 0.07%.

That same fund is also used in your taxable account. But bond funds are not very tax-efficient, and ordinarily should not be used in a taxable account,instead should be held in a tax-advantaged account. The other funds (except the few Vanguard funds) used in your taxable account have relatively high expense ratios.

About the only desirable fund in your taxable account would be:
Vanguard Value ETF (VTV) ER 0.05%

You can look up information (including expenses charged) on any fund using Morningstar and entering the ticker symbol.
Thanks for the tip about looking up the fund information on Morningstar.

Thank you so much for your time and analysis. It's really amazing how complicated the alphabet soup list of funds I own looks, but that complexity is apparently in no way beneficial to my long-term financial goals. I am very thankful to have found the Bogleheads before I have wasted more time paying fees. I guess there is no way to get around the 401K fees since the provider is not selected by me, but I'm thinking from your advice and from the general Bogleheads theory that I should eliminate several of the funds and leave the ones with the lowest expense ratios (<0.7%)... do you have any advice about the "target" funds that are options for me? For example, JH Multi-Index 2045 or 2040 Preserv John Hancock 0.78% expense ratio? Or is it best to chose a few of the lower expense ratio funds like: Mid Cap Index Fund 0.67%, Vanguard Small Cap Grow Index 0.67%, and 500 Index Fund 0.64%?
I'm still waiting for a reply about the Roth options via my 401K.
Thanks again, Lynn

Topic Author
3blindmice
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Re: What's next when 401K/tIRA are maxed?

Post by 3blindmice » Wed Apr 10, 2019 9:17 pm

spammagnet wrote:
Wed Apr 10, 2019 2:58 pm
To see just how much you're paying in fees, open an account at PersonalCapital.com. It's free. Sales calls from the representative are rare. They are easily dissuaded from further contact without resorting to being rude.

The reason for that account is they have an excellent composite view of your entire holdings. In particular, it shows the total expenses within your mutual funds and compares them to industry standards. You may be surprised and/or nauseated by what you find out about expenses. It also a good composite allocation view of your entire portfolio.

I doubt that fee calculation considers termination fees or charges directly to your accounts by EJ. Even without that, you'll be in pain.
Thanks for the tip, I will check out this service. I guess better to go ahead and pull the bandaid off now rather than linger paying fees any longer than I have to. Thanks again for your time and reply. Lynn

niceguy7376
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Re: What's next when 401K/tIRA are maxed?

Post by niceguy7376 » Wed Apr 10, 2019 9:49 pm

It was not clear to me if OP is contributing to a 401k and a DEDUCTIBLE Trad IRA.

I am curious why you are not eligible to do a Direct IRA contribution because you said 200 K income and contribute to 401k (hopefully a trad 401k). That should put you within the ROTH IRA contribution limits.

If you are somehow not eligible for ROTH IRA, then I assume that you are contributing to a NON DEDUCTIBLE Trad IRA. I personally would not recommend a non DEDUCTIBLE Trad IRA and would rather do a taxable account.

Topic Author
3blindmice
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Re: What's next when 401K/tIRA are maxed?

Post by 3blindmice » Wed Apr 10, 2019 10:06 pm

niceguy7376 wrote:
Wed Apr 10, 2019 9:49 pm
It was not clear to me if OP is contributing to a 401k and a DEDUCTIBLE Trad IRA.

I am curious why you are not eligible to do a Direct IRA contribution because you said 200 K income and contribute to 401k (hopefully a trad 401k). That should put you within the ROTH IRA contribution limits.

If you are somehow not eligible for ROTH IRA, then I assume that you are contributing to a NON DEDUCTIBLE Trad IRA. I personally would not recommend a non DEDUCTIBLE Trad IRA and would rather do a taxable account.
I have a 401K through John Hancock with 3%employer match. I have a traditional IRA that I just opened and funded $5,500 for 2018 and $6000 for 2019 through Vanguard. I am just over the income requirement to contribute to a ROTH, which is why I was trying to decide if I should convert the traditional IRA plans from Edward Jones to a ROTH plan and then utilize a backdoor ROTH option. My contributions to the 401K are pretax but my contributions to the traditional IRA are post-tax (which I believe makes it non Deductible, correct?). Are you suggesting not to fund the Vanguard traditional IRA up to the $6000 annual limit and instead open a separate taxable account through Vanguard? Why would that be better?
Thank you for your reply and I look forward to your response. Lynn

niceguy7376
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Re: What's next when 401K/tIRA are maxed?

Post by niceguy7376 » Wed Apr 10, 2019 10:27 pm

3blindmice wrote:
Wed Apr 10, 2019 10:06 pm
I have a 401K through John Hancock with 3%employer match. I have a traditional IRA that I just opened and funded $5,500 for 2018 and $6000 for 2019 through Vanguard. I am just over the income requirement to contribute to a ROTH, which is why I was trying to decide if I should convert the traditional IRA plans from Edward Jones to a ROTH plan and then utilize a backdoor ROTH option. My contributions to the 401K are pretax but my contributions to the traditional IRA are post-tax (which I believe makes it non Deductible, correct?). Are you suggesting not to fund the Vanguard traditional IRA up to the $6000 annual limit and instead open a separate taxable account through Vanguard? Why would that be better?
Thank you for your reply and I look forward to your response. Lynn
How long have you been contributing to non deductible trad ira?
If you are not getting the deduction on trad ira, what is the benefit of contributing to it ?

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ruralavalon
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Re: What's next when 401K/tIRA are maxed?

Post by ruralavalon » Thu Apr 11, 2019 8:13 am

3blindmice wrote:
Wed Apr 10, 2019 9:15 pm
I guess there is no way to get around the 401K fees since the provider is not selected by me, but I'm thinking from your advice and from the general Bogleheads theory that I should eliminate several of the funds and leave the ones with the lowest expense ratios (<0.7%)... do you have any advice about the "target" funds that are options for me? For example, JH Multi-Index 2045 or 2040 Preserv John Hancock 0.78% expense ratio? Or is it best to chose a few of the lower expense ratio funds like: Mid Cap Index Fund 0.67%, Vanguard Small Cap Grow Index 0.67%, and 500 Index Fund 0.64%?
Funds to use in your 401k.
It is often better coordinate investments across all accounts, in other words treat all accounts together as a single unified portfolio, rather than view each account separately. Select just one or two of the better funds (most diversified + lower expense ratio) in the work-based account (401k), where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited choices available in a taxable account or any IRAs. This approach lets you avoid having to use sub-par funds often found in work-based plans. Do not try to put all components of the asset allocation in every account. Wiki article, "Asset allocation in multiple accounts".

In my opinion it's probably better to use just the 500 Index Fund ER 0.64% in your 401k, for all or most of your 401k. It is a very diversified U.S. stock fund, and had the lowest expense ratio offered in the 401k. A second possibility in your 401k is John Hancock Bond Fund (intermediate term bonds) ER 0.75% for part of the 401k

Can you give the ticker symbol or share class or both for "John Hancock Bond Fund John Hancock 0.75" as offered in your 401k?

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

In my opinion in a plan that lacks a total stock market index fund, a S&P 500 index fund is good enough by itself for a domestic stock allocation. A S&P 500 index fund covers 81% of the U.S. stock market, investing in stocks of selected large-cap and mid-cap U.S. companies. In the 27 years since the creation of the first total stock market index fund the performance of the two types of funds has been almost identical. Morningstar, "growth of $10k" graph, VTSAX vs VFIAX. In the first 10 years the S&P 500 fund did better, in the last 10 years the total market fund did better, and over the 27 years the total market fund gave a little more return (0.11% per year), but at the cost of a little more volatility (risk): nisiprius post, in the forum discussion "Exchanging the S&P 500 for the TSM". So it seems that adding a little in mid/small cap stocks trying to mimic the holdings of a total stock market fund has historically made little difference in performance.

See also:
1) Allan Roth, CBS Moneywatch (02/03/2010), "John C. Bogle on the S&P 500 vs. the Total Stock Market"; and
2) Wall Street Physician (01/17/2019), "Should You Invest in the S&P 500 or the Total Stock Market?".



The IRAs.
When you have transferred your IRAs from Edward Jones to a low cost provider like Vanguard, you can use the IRAs to hold all or part of your bond allocation, your international stock allocation, and some additional U.S. stock allocation. This lets you avoid using the more expensive bond and international stock funds in your 401k.



Questions.
More information is needed before its possible to give a complete example of how to arrange your portfolio.

Can you give the ticker symbol or share class or both for "John Hancock Bond Fund John Hancock 0.75" as offered in your 401k?

About how much (in dollars) will you contribute annually to your 401k?

How much (in dollars) is the maximum annual employer match?

About how much (in dollars) will you contribute annually to a taxable brokerage account?

About how much (in dollars) do you feel you might be able to contribute annually to investing (total, all accounts)?

Does your 401k plan permit Roth contributions?

Does your employer’s 401k plan allow non-Roth after-tax contributions?

If so it can such contributions be distributed while you are still working there (“in-service distribution”)?

If the plan also offers a Roth 401k option, can the non-Roth after-tax contributions be rolled over to the Roth 401k part of the plan (“in-plan Roth rollover”)?



Portfolio illustration.
The overall portfolio could be something like this. Total current portfolio = $229k. New annual contributions = $???? The desired asset allocation is 34% bonds, 13% international stocks, and 53% domestic stocks.

Taxable account @ Vanguard
Vanguard Total Stock Mkt Idx Adm (VTSAX) ER 0.04%
Vanguard Total Intl Stock Index Admiral VTIAX ) ER 0.11%

your 401k (44% of total; $100k: adds $???/yr + employer match)
27%, 500 Index Fund ER 0.64%
17%, John Hancock Bond Fund (JHBSX??) 0.75%

your traditional IRA @ Vanguard (29% of total; $67k)
12%, Vanguard Total Stock Mkt Idx Adm (VTSAX) ER 0.04%
17%, Vanguard Total Bond Market Index Adm (VBTLX ) ER 0.05%

your Roth IRA @ Vanguard (14% of total; $32k; adds $6/yr via backdoor?)
07%, Vanguard Total Stock Mkt Idx Adm (VTSAX) ER 0.04%
07%,Vanguard Total Intl Stock Index Admiral VTIAX ) ER 0.11%

his Roth IRA @ Vanguard (13% of total; $30k adds $6/yr via backdoor?)
07%, Vanguard Total Stock Mkt Idx Adm (VTSAX) ER 0.04%
06%, Vanguard Total Intl Stock Index Admiral VTIAX ) ER 0.11%
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
3blindmice
Posts: 12
Joined: Mon Apr 08, 2019 12:57 pm

Re: What's next when 401K/tIRA are maxed?

Post by 3blindmice » Sat Apr 13, 2019 10:23 am

niceguy7376 wrote:
Wed Apr 10, 2019 10:27 pm
3blindmice wrote:
Wed Apr 10, 2019 10:06 pm
I have a 401K through John Hancock with 3%employer match. I have a traditional IRA that I just opened and funded $5,500 for 2018 and $6000 for 2019 through Vanguard. I am just over the income requirement to contribute to a ROTH, which is why I was trying to decide if I should convert the traditional IRA plans from Edward Jones to a ROTH plan and then utilize a backdoor ROTH option. My contributions to the 401K are pretax but my contributions to the traditional IRA are post-tax (which I believe makes it non Deductible, correct?). Are you suggesting not to fund the Vanguard traditional IRA up to the $6000 annual limit and instead open a separate taxable account through Vanguard? Why would that be better?
Thank you for your reply and I look forward to your response. Lynn
How long have you been contributing to non deductible trad ira?
If you are not getting the deduction on trad ira, what is the benefit of contributing to it ?
The ones at Edward Jones were "left overs" from previous jobs (me and husband). I just opened the Traditional IRA at Vanguard and contributed to it this year (for 2018) because after reading the Bogleheads guide, I thought it was a good idea. I'm looking for the best options to save for retirement and since I maxed out the 401K and am not eligible for the Roth, it seems like the traditional IRA is what should be maxed out next. Does this sound logical or am I misunderstanding? I am eager to learn and understand now before I make more mistakes (like opening the taxable account with Edward Jones instead of doing it myself through Vanguard or Fidelity). I would appreciate your feedback. Thanks again, Lynn

Topic Author
3blindmice
Posts: 12
Joined: Mon Apr 08, 2019 12:57 pm

Re: What's next when 401K/tIRA are maxed?

Post by 3blindmice » Sat Apr 13, 2019 11:30 am

ruralavalon wrote: ↑Thu Apr 11, 2019 9:13 am
3blindmice wrote: ↑Wed Apr 10, 2019 10:15 pm
I guess there is no way to get around the 401K fees since the provider is not selected by me, but I'm thinking from your advice and from the general Bogleheads theory that I should eliminate several of the funds and leave the ones with the lowest expense ratios (<0.7%)... do you have any advice about the "target" funds that are options for me? For example, JH Multi-Index 2045 or 2040 Preserv John Hancock 0.78% expense ratio? Or is it best to chose a few of the lower expense ratio funds like: Mid Cap Index Fund 0.67%, Vanguard Small Cap Grow Index 0.67%, and 500 Index Fund 0.64%?
Funds to use in your 401k.
It is often better coordinate investments across all accounts, in other words treat all accounts together as a single unified portfolio, rather than view each account separately. Select just one or two of the better funds (most diversified + lower expense ratio) in the work-based account (401k), where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited choices available in a taxable account or any IRAs. This approach lets you avoid having to use sub-par funds often found in work-based plans. Do not try to put all components of the asset allocation in every account. Wiki article, "Asset allocation in multiple accounts".
Thank you for this insight and the link.
In my opinion it's probably better to use just the 500 Index Fund ER 0.64% in your 401k, for all or most of your 401k. It is a very diversified U.S. stock fund, and had the lowest expense ratio offered in the 401k. A second possibility in your 401k is John Hancock Bond Fund (intermediate term bonds) ER 0.75% for part of the 401k

Can you give the ticker symbol or share class or both for "John Hancock Bond Fund John Hancock 0.75" as offered in your 401k?
JSBHX (you guessed correctly as noted below) and it's in the "Income" category
For domestic stocks I suggest using a total stock market index fund where available; otherwise an S&P 500 index fund is good enough by itself for domestic stocks. "In a 401(k) plan with limited choices one might very well opt for an S&P 500 index fund to serve as the domestic stock component of a three-fund portfolio." Wiki article, Three-fund portfolio, "Other considerations".
Thank you
In my opinion in a plan that lacks a total stock market index fund, a S&P 500 index fund is good enough by itself for a domestic stock allocation. A S&P 500 index fund covers 81% of the U.S. stock market, investing in stocks of selected large-cap and mid-cap U.S. companies. In the 27 years since the creation of the first total stock market index fund the performance of the two types of funds has been almost identical. Morningstar, "growth of $10k" graph, VTSAX vs VFIAX. In the first 10 years the S&P 500 fund did better, in the last 10 years the total market fund did better, and over the 27 years the total market fund gave a little more return (0.11% per year), but at the cost of a little more volatility (risk): nisiprius post, in the forum discussion "Exchanging the S&P 500 for the TSM". So it seems that adding a little in mid/small cap stocks trying to mimic the holdings of a total stock market fund has historically made little difference in performance.

See also:
1) Allan Roth, CBS Moneywatch (02/03/2010), "John C. Bogle on the S&P 500 vs. the Total Stock Market"; and
2) Wall Street Physician (01/17/2019), "Should You Invest in the S&P 500 or the Total Stock Market?".



The IRAs.
When you have transferred your IRAs from Edward Jones to a low cost provider like Vanguard, you can use the IRAs to hold all or part of your bond allocation, your international stock allocation, and some additional U.S. stock allocation. This lets you avoid using the more expensive bond and international stock funds in your 401k.
After reading this comment, I am beginning to understand more about the future tax implications of where to place funds- I re-read that chapter in the Boglehead Guide- I didn't really have enough knowledge/background when I first read it to absorb it, but I'm working on it.

Questions.
More information is needed before its possible to give a complete example of how to arrange your portfolio.

Can you give the ticker symbol or share class or both for "John Hancock Bond Fund John Hancock 0.75" as offered in your 401k?
JSBHX and it's in the "Income" category
About how much (in dollars) will you contribute annually to your 401k?
max of $19,000
How much (in dollars) is the maximum annual employer match?
There is no max, just 3% of my salary, which is usually $170-190,000 (base plus production bonus that varies), so roughly $5,000 annually on the low side
About how much (in dollars) will you contribute annually to a taxable brokerage account?
This is where I am looking for guidance of where to put my investment money- is it better to put the max in that new Vanguard trad IRA ($6000) first or put that in the taxable account? My impression from the adviser is that the taxable account with E.J. is where we are putting the money for the house, and I think we only need about another $100,000 and then at that point I'm not sure what to do with it since it has to be used by age 59.5, correct? This may be a concept that I don't have correct. But, to answer your question, I'm thinking to put in another $50-70,000 this year into that account for the house.
About how much (in dollars) do you feel you might be able to contribute annually to investing (total, all accounts)?
$100,000
Does your 401k plan permit Roth contributions?
You are going to love this- yes it does and not only that, apparently that's where my contributions are going. My statements from John Hancock say "Retirement Account" which I thought was pretax, however, apparently when the account was started in 2013, I selected the Roth option, so all of that $100,000 in the 401K is a Roth 401K- so, I'm not sure what to do at this point. Should I continue with the Roth option or should I switch to the pretax option? The plan allows for all pre-tax, all Roth, or any combination of both. I'm uncertain which is the best option as I believe my tax rate would be lower in retirement.
Does your employer’s 401k plan allow non-Roth after-tax contributions?
No
If so it can such contributions be distributed while you are still working there (“in-service distribution”)?
In-service distributions are available at 59.5
If the plan also offers a Roth 401k option, can the non-Roth after-tax contributions be rolled over to the Roth 401k part of the plan (“in-plan Roth rollover”)?
Non-roth after tax contribution isn't available, but the plan allows for In-Plan Roth Rollover for participants who have attained age 59.5

Thank you so much for your advice and time in helping me. I am striving to understand all of the ins and outs of these investing questions. I appreciate the approachability of the Bogleheads for someone who is the first in my family to attend college with no finance background. Until recently (the past 6 months) I had avoided looking into my accounts because I felt like I didn't know enough to be responsible for my future money needs and wanted the adviser "the expert" to work everything out for me. Reading "The only Investment Guide you will ever need" by Tobias, "White Coat Investor's Guide" and Blog, and the "Bogleheads Guide to Investing" has empowered me to be responsible for my financial future. I am grateful to get this feedback from you to help me steer in the right direction by asking questions that allow me to dig down through the layers of information that I need to understand. I look forward to your response. Thank you again for your time, Lynn
Portfolio illustration.
The overall portfolio could be something like this. Total current portfolio = $229k. New annual contributions = $???? The desired asset allocation is 34% bonds, 13% international stocks, and 53% domestic stocks.

Taxable account @ Vanguard
Vanguard Total Stock Mkt Idx Adm (VTSAX) ER 0.04%
Vanguard Total Intl Stock Index Admiral VTIAX ) ER 0.11%

your 401k (44% of total; $100k: adds $???/yr + employer match)
27%, 500 Index Fund ER 0.64%
17%, John Hancock Bond Fund (JHBSX??) 0.75%

your traditional IRA @ Vanguard (29% of total; $67k)
12%, Vanguard Total Stock Mkt Idx Adm (VTSAX) ER 0.04%
17%, Vanguard Total Bond Market Index Adm (VBTLX ) ER 0.05%

your Roth IRA @ Vanguard (14% of total; $32k; adds $6/yr via backdoor?)
07%, Vanguard Total Stock Mkt Idx Adm (VTSAX) ER 0.04%
07%,Vanguard Total Intl Stock Index Admiral VTIAX ) ER 0.11%

his Roth IRA @ Vanguard (13% of total; $30k adds $6/yr via backdoor?)
07%, Vanguard Total Stock Mkt Idx Adm (VTSAX) ER 0.04%
06%, Vanguard Total Intl Stock Index Admiral VTIAX ) ER 0.11%
[/quote]

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ruralavalon
Posts: 15215
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Location: Illinois

Re: What's next when 401K/tIRA are maxed?

Post by ruralavalon » Sun Apr 14, 2019 8:41 am

[quote=3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
So, we have an E.J. Adviser and through him, opened an account to save money for a new house that has $200,000- this is a taxable account that has 10 Mutual funds and 5 ETFs and 1 CD (I have all of the funds listed, but I can't find any expense ratio info on my account website). We had $4500 in capital gains from that account last year that we had to pay taxes on. This money must be used prior to retirement per the advisor
3blindmice wrote:
Sat Apr 13, 2019 11:30 am
My impression from the adviser is that the taxable account with E.J. is where we are putting the money for the house, and I think we only need about another $100,000 and then at that point I'm not sure what to do with it since it has to be used by age 59.5, correct? This may be a concept that I don't have correct. But, to answer your question, I'm thinking to put in another $50-70,000 this year into that account for the house.
I am puzzled by the advisor's statement that you have to use the money in the taxable account before retirement, or by age 59.5. Can you elaborate on what the advisor said?

Money in a taxable account can be used at any time either before or after retirement, either before or after age 59.5 years. I know of no restriction on when you can use that money.
[quote=3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
Right now I have about $60,000 sitting in a Money Market fund (on top of my emergency fund) at only 1.5% interest. We have a short-term goal of building a house in the next 1-2 years, so the MM fund and the E.J. taxable account will be for that.
I take it from what you said that you expect to buy a home in about 1-2 years, using the $200k currently in the taxable account plus the $60k in the money market fund plus another $50-100k in new contributions. Is my understanding correct?

. . . . .

What is the ticker symbol gor the "500 Index Fund John Hancock 0.64 Large Blend" in your 401k?

Is there a High Deductible Health Plan (HDHP) offered at work, so that you are eligible to use a Health Savings Account (HSA)?

What is the ticker symbol for "US Government Securities American Funds 0.87 Intermediate Government" as offered in your 401k?

. . . . .

Morningstar is a useful source of fund information.

JHancock Bond Fund R6 (JHBSX ) is an intermediate-term (average effective duration = 5.99 years) investment-grade (average credit quality = BBB) bond fund. Its performance has been similar to the Bloomberg Barclays U.S. Aggregate Bond Index, with the obvious exception of 2008 when it did not hold up well compared to that bond index. Morningstar, JHBSX graph. It seems well diversified. Morningstar, JHBSX, portfolio tab.
Last edited by ruralavalon on Sun Apr 14, 2019 8:58 am, edited 2 times in total.
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Mr.BB
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Re: What's next when 401K/tIRA are maxed?

Post by Mr.BB » Sun Apr 14, 2019 8:54 am

spammagnet wrote:
Wed Apr 10, 2019 2:58 pm
To see just how much you're paying in fees, open an account at PersonalCapital.com. It's free. Sales calls from the representative are rare. They are easily dissuaded from further contact without resorting to being rude.

The reason for that account is they have an excellent composite view of your entire holdings. In particular, it shows the total expenses within your mutual funds and compares them to industry standards. You may be surprised and/or nauseated by what you find out about expenses. It also a good composite allocation view of your entire portfolio.

I doubt that fee calculation considers termination fees or charges directly to your accounts by EJ. Even without that, you'll be in pain.
You can also just put the a wrong phone number (to avoid sale calls) when setting up your Personal Capital account..(Setting up your Personal Capital account is easy to do and it will give you a better overview of you holdings and especially your expenses (which I bet you will be shocked at!)
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

Topic Author
3blindmice
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Re: What's next when 401K/tIRA are maxed?

Post by 3blindmice » Sun Apr 14, 2019 2:56 pm

Thank you so much for your time and advice.
ruralavalon wrote:
Sun Apr 14, 2019 8:41 am
[quote=3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
So, we have an E.J. Adviser and through him, opened an account to save money for a new house that has $200,000- this is a taxable account that has 10 Mutual funds and 5 ETFs and 1 CD (I have all of the funds listed, but I can't find any expense ratio info on my account website). We had $4500 in capital gains from that account last year that we had to pay taxes on. This money must be used prior to retirement per the advisor
3blindmice wrote:
Sat Apr 13, 2019 11:30 am
My impression from the adviser is that the taxable account with E.J. is where we are putting the money for the house, and I think we only need about another $100,000 and then at that point I'm not sure what to do with it since it has to be used by age 59.5, correct? This may be a concept that I don't have correct. But, to answer your question, I'm thinking to put in another $50-70,000 this year into that account for the house.
I am puzzled by the advisor's statement that you have to use the money in the taxable account before retirement, or by age 59.5. Can you elaborate on what the advisor said?
He said the joint taxable account should be used by 59.5, I'm uncertain as to why. I think possibly just to be very clear about what that account was to be used for (the house)???
Money in a taxable account can be used at any time either before or after retirement, either before or after age 59.5 years. I know of no restriction on when you can use that money.
Good to know as I was thinking if I got a good interest rate on a mortgage I might just use part of the taxable account for the house and keep some in the account to continue growing.
[quote=3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
Right now I have about $60,000 sitting in a Money Market fund (on top of my emergency fund) at only 1.5% interest. We have a short-term goal of building a house in the next 1-2 years, so the MM fund and the E.J. taxable account will be for that.
I take it from what you said that you expect to buy a home in about 1-2 years, using the $200k currently in the taxable account plus the $60k in the money market fund plus another $50-100k in new contributions. Is my understanding correct?
Yes, this is correct- my budget is $350-375,000 but I'm wanting to save more just in case as crazy things can happen with a new construction on raw land- like the well has to be twice as deep as expected or the road/driveway is difficult to lay down, etc.
. . . . .
What is the ticker symbol gor the "500 Index Fund John Hancock 0.64 Large Blend" in your 401k?
JFIVX
I was wondering what your thoughts are on the fact I have been contributing to my 401K as a Roth instead of pretax- I'm thinking I need to change that to pretax for future contributions, correct? Or at least split it 50/50 with my future contributions? This also helps me think about my traditional IRA as that money is contributed post tax and will also be taxed upon withdrawal... another poster indicated that it doesn't make sense to contribute to the traditional IRA. What's your opinion?
Is there a High Deductible Health Plan (HDHP) offered at work, so that you are eligible to use a Health Savings Account (HSA)?
Yes and I have it at the Credit Union with 2.5% interest, however, I just opened a Fidelity HSA and am in the middle of trying to transfer the account. I plan to contribute the full $7000 annually. I am unsure which fund in the Fidelity HSA to use- Here are the options if you have any opinions about it (this document lists all of the possible funds, ticker symbols, and expense ratios: https://www.fidelity.com/bin-public/060 ... nsider.pdf
I was thinking possibly Fidelity 500 Index FXAIX 0.015%, Fidelity Small Cap Index FSSNX 0.035%, and Fidelity Internations FSPSX 0.045% or the target fund Fidelity Freedom fund 2045 0.08 (which is when I will be 65).
What is the ticker symbol for "US Government Securities American Funds 0.87 Intermediate Government" as offered in your 401k?
RGVGX

Thank you again for taking the time to look at my situation. It has been very helpful as I am learning.
. . . . .
Morningstar is a useful source of fund information.

JHancock Bond Fund R6 (JHBSX ) is an intermediate-term (average effective duration = 5.99 years) investment-grade (average credit quality = BBB) bond fund. Its performance has been similar to the Bloomberg Barclays U.S. Aggregate Bond Index, with the obvious exception of 2008 when it did not hold up well compared to that bond index. Morningstar, JHBSX graph. It seems well diversified. Morningstar, JHBSX, portfolio tab.
Last edited by 3blindmice on Sun Apr 14, 2019 8:55 pm, edited 1 time in total.

spammagnet
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Re: What's next when 401K/tIRA are maxed?

Post by spammagnet » Sun Apr 14, 2019 4:26 pm

3blindmice wrote:
Sun Apr 14, 2019 2:56 pm
... Is there a High Deductible Health Plan (HDHP) offered at work, so that you are eligible to use a Health Savings Account (HSA)?
Yes and I have it at the Credit Union with 2.5% interest, however, I just opened a Fidelity HSA and am in the middle of trying to transfer the account. ...
To clarify, and assuming you have the means to do so, are you leaving investments in the HSA untouched as a retirement fund and paying health expenses out of current post-tax cash flow?

Topic Author
3blindmice
Posts: 12
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Re: What's next when 401K/tIRA are maxed?

Post by 3blindmice » Sun Apr 14, 2019 4:35 pm

spammagnet wrote:
Sun Apr 14, 2019 4:26 pm
3blindmice wrote:
Sun Apr 14, 2019 2:56 pm
... Is there a High Deductible Health Plan (HDHP) offered at work, so that you are eligible to use a Health Savings Account (HSA)?
Yes and I have it at the Credit Union with 2.5% interest, however, I just opened a Fidelity HSA and am in the middle of trying to transfer the account. ...
To clarify, and assuming you have the means to do so, are you leaving investments in the HSA untouched as a retirement fund and paying health expenses out of current post-tax cash flow?
Yes, that is my plan, to use it as a retirement health fund.

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ruralavalon
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Re: What's next when 401K/tIRA are maxed?

Post by ruralavalon » Tue Apr 16, 2019 10:46 am

Prioritizing investments.
Here is a general account funding priority that usually works well for many people (when there is no high interest debt):
1) Contribute to the work-based plans (401k, 403b, 457, SIMPLE IRA, TSP, etc.) enough to get the full employer match (the match is like free money, your best possible investment);
2) Contribute to a Health Savings Account (HSA) if available (unlike many other tax deductions, there are no income restrictions to contribute to an HSA),;
3) Contribute the maximum to an IRA, traditional or Roth (or backdoor Roth technique), depending on eligibility and personal circumstances;
4) Contribute the remainder of the maximum employee contribution to the work-based accounts; and
5) Contribute to a taxable investing account.
Please see the wiki article "Prioritizing investments".


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

In my opinion the funds to use in your 401k are:
1) John Hancock 500 Index Fund (81% of U.S. stock market) (JFIVX) ER 0.64%; and
2) American Funds US Government Sec R6 (RGVGX) ER 0.87%.

American Funds US Government Sec R6 (RGVGX) has an average effective duration = 5.18 years, an average credit quality = AAA, and held up very well in the 2008 stock market collapse. All-in-all, it provides greater safety than the John Hancock bond fund discussed earlier. In my opinion portfolio safety is the primary purpose of a bond allocation.

For the HSA account I suggest Fidelity® US Bond Index Fund (FXNAX) ER 0.025%.


Other accounts, accounts to invest?
How much money is currently in the HSA Account?

Is there an amount from your taxable account that you would want to use now for retirement/long-term investing, instead of keeping it segregated in very safe investments for a home purchase in a few years?


Traditional vs Roth.
3blindmice wrote:
Mon Apr 08, 2019 7:56 pm
Tax Filing Status: Married, file jointly
Adjusted Gross Income $200,00 (combined me and hubby)
Tax Rate: 24% Federal, 5.49% State
3blindmice wrote:
Sat Apr 13, 2019 11:30 am
You are going to love this- yes it does and not only that [allow Roth 401k contributions], apparently that's where my contributions are going. My statements from John Hancock say "Retirement Account" which I thought was pretax, however, apparently when the account was started in 2013, I selected the Roth option, so all of that $100,000 in the 401K is a Roth 401K- so, I'm not sure what to do at this point. Should I continue with the Roth option or should I switch to the pretax option? The plan allows for all pre-tax, all Roth, or any combination of both. I'm uncertain which is the best option as I believe my tax rate would be lower in retirement. [emphasis added]
Will you be eligible for a significant pension?

For most people traditional 401k contributions will likely be better.

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

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

Wiki article, "Traditional vs Roth".
"Tax considerations:
* If your current marginal tax rate is 15% or less, prefer a Roth.
* If you expect to have higher marginal rates than your current marginal rate for most of your career, prefer a Roth.
* If you will have a traditional account or a pension large enough to meet your expected retirement expenses (and you expect to take that pension shortly after retiring), prefer a Roth.
* Otherwise, prefer a traditional account."

It seems (absent a significant pension) that traditional deductible contributions to your 401k will likely be better.
niceguy7376 wrote:
Wed Apr 10, 2019 9:49 pm
It was not clear to me if OP is contributing to a 401k and a DEDUCTIBLE Trad IRA.

I am curious why you are not eligible to do a Direct IRA contribution because you said 200 K income and contribute to 401k (hopefully a trad 401k). That should put you within the ROTH IRA contribution limits.

If you are somehow not eligible for ROTH IRA, then I assume that you are contributing to a NON DEDUCTIBLE Trad IRA. I personally would not recommend a non DEDUCTIBLE Trad IRA and would rather do a taxable account.
As iceguy7376 suggests, will this also make you eligible for direct contributions to Roth IRAs?




Example portfolio.
Here is an example portfolio that you could consider. This is a three-fund type portfolio, modified as necessary to accommodate the fund offerings in your 401k. Total current portfolio = $229k. New annual contributions = $105k or more. The desired asset allocation is 34% bonds, 13% international stocks, and 53% domestic stocks.

The percentages given are percentages of the total portfolio, not of a given account. The suggestion is to switch both the existing balances and the new contributions to the funds indicated. All percentages and dollar amounts are rounded off, so may not add up exactly. Sometimes I state 00% to indicate funds you might want to add in the future.

Taxable account @ Vanguard (00%, $00k; adds $68k/yr, after home purchase)
00%, Vanguard Total Stock Mkt Idx Adm (VTSAX) ER 0.04%
00%, Vanguard Total Intl Stock Index Admiral (VTIAX ) ER 0.11%
00%, Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX) ER 0.09%

your 401k (44% of total; $100k: adds $19kr + $5k or more employer contribution = $24k or more/yr)
27%, John Hancock 500 Index Fund (81% of U.S. stock market) (JFIVX) ER 0.64%
17%, American Funds US Government Sec R6 (RGVGX) ER 0.87%.

your traditional IRA @ Vanguard (29% of total; $67k)
12%, Vanguard Total Stock Mkt Idx Adm (VTSAX) ER 0.04%
17%, Vanguard Total Bond Market Index Adm (VBTLX ) ER 0.05%

your Roth IRA @ Vanguard (14% of total; $32k; adds $6/yr via diecrt contrbution?)
07%, Vanguard Total Stock Mkt Idx Adm (VTSAX) ER 0.04%
07%, Vanguard Total Intl Stock Index Admiral VTIAX ) ER 0.11%

his Roth IRA @ Vanguard (13% of total; $30k adds $6/yr via direct contribution?)
07%, Vanguard Total Stock Mkt Idx Adm (VTSAX) ER 0.04%
06%, Vanguard Total Intl Stock Index Admiral VTIAX ) ER 0.11%

HSA @ Fidelity (??% of total; $???; adds $7k/yr)
Fidelity® US Bond Index Fund (FXNAX) ER 0.025%
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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