Pre Retirement Portfolio Review

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Retirement Nerd
Posts: 19
Joined: Tue Apr 16, 2019 3:01 pm

Pre Retirement Portfolio Review

Post by Retirement Nerd » Mon Jul 15, 2019 6:32 pm

Greetings Bogleheads

I am approaching retirement in 6 months and I am looking for input on my portfolio design and plan.

Emergency Funds: We have 1-2 years of expenses available in cash holdings

Debt: We owe $600K at 4.375% (30 year) on our second home in Fl Market Value $2.2 million. We own our first home debt free Market Value $650K. Plan to retire mortgage within 2 years.

Tax Filing Status: My SO and I file separately

Tax Rate: Federal 35%. State 6.85% (I think)

State of residence: New York with plan to become Fl resident within 2 years

Age: Me 59 SO 60 No children or legacy plans at this time.

Desired Asset Allocation: Targeting 55% Stock and 45% Bond as a starting point with 20-30% international

Our current portfolio is high 7 figures. I will have Passive Income of $100K for approximately 5 years.

Current Retirement Assets

Taxable

5.70% Vanguard TE MM (VMSXX) (0.15%)
2.71% AKRE Focus Fund (AKREX) (1.32%)
2.97% Vanguard Div Growth. (VDIGX) (0.22%)
1.4 % Vanguard Total Int Stock (VTIAX) (0.11%)
5.00% Vanguard FTSE ex US. (VFWAX) (0.11%)
23.60 % Vanguard Total Stock Market (VTSAX) (0.04%)
4.43%. New Horizons Fund (PRNHX) ( 0.77%)
12.70.% Vanguard Short Term TE Bond (VWSUX) (0.09%)
8.93% Vanguard Int Term TE Bond. (VWIUX). (0.02%)


401K

1.43% American Funds New World (RNWGX) (0.65%)
3.82% DFA Large Cap International (DFALX) (0.23%)
2.63%. DFA Real Estate (DFREX) (0.19%)
8.70 % Vanguard Target 2020. (VTWNX) (0.13)

Roth 401K

3.71% Double Line Low Duration Bond (DLSNX) (0.68%)
5.69 % Vanguard Total Bond Market (VBTLX) (0.05%)
3.30% Vanguard Total Int Bond (VTABX) (0.11%)

Simple IRA
2.00 % Vanguard Total Int Bond (VTABX) (0.11%)
1.19 % T Price Ultra Short Bond. (TRBUX) (0.35%)

Contributions

I did not complete this section as portfolio additions will cease in 6 months

Available Funds

I will be transferring all accounts to Vanguard within 6-12 months


We plan to roll the 401K into our Vanguard accounts at retirement. Our current fixed income projected expenses are $120K. I have been using several programs to try and predict discretionary spending including Maxifi, I-ORP, Quicken, Living off your money worksheet and FireCalc. The range on spending from these programs is between $200K and $295K.

We plan to use a variable withdrawal strategy based on McClung’s Prime Harvesting with some modest modifications.


Questions

#1 We have always managed our own finances during the accumulation phase. I guess I am asking if my plan is sounds and if there are any glaring errors that I am missing?

#2 I am concerned that the discretionary spending values above are too high. I am planning to use an initial $250K total spending value but I don’t want to short change us during the “go-go” years. Thoughts?

#3 We plan to self fund our long term care and we are mulling either some type of deferred annuity product or a reverse mortgage product. Any thoughts?

Thank you for taking the time to review my portfolio.

Lou

User avatar
Watty
Posts: 17209
Joined: Wed Oct 10, 2007 3:55 pm

Re: Pre Retirement Portfolio Review

Post by Watty » Mon Jul 15, 2019 7:12 pm

Retirement Nerd wrote:
Mon Jul 15, 2019 6:32 pm
I guess I am asking if my plan is sounds and if there are any glaring errors that I am missing?
A couple of things to include in your plans;

1) Social Security. You can check this web site to get a suggested claiming strategy. It was created by a poster here who has written a book on Social Security.

https://opensocialsecurity.com/

2) Your retirement spending will vary through different stages of retirement. In early retirement many people do things like traveling a lot and remodeling. I have seen relatives get into about their mid 70's and naturally slow down even though they were in relatively good health for their age. At that point they didn't want to travel or spend much so their expenses went way down and they were more interested in downsizing than buying new stuff.

3) In the taxable account you may want to set the mutual funds to not automatically reinvest dividends and capital gains distributions if they are being reinvested. That will allow you use those funds for your living expenses and to use them for rebalancing.

4) You need to look at your taxes three ways, as a couple and as if one of you survives the other. A survivor will then be filing taxes in the higher single tax brackets.

Retirement Nerd wrote:
Mon Jul 15, 2019 6:32 pm
#3 We plan to self fund our long term care and we are mulling either some type of deferred annuity product or a reverse mortgage product. Any thoughts?
Your expenses may actually go down if you go into long term care, especially if you are in the lower level of assisted living or if just one of you is surviving when long term care is needed. I don't see any obvious need for any special plans for long term care.

You can see some current estimates of what LTC would cost in different areas.

https://www.genworth.com/aging-and-you/ ... -care.html

bluquark
Posts: 795
Joined: Mon Oct 22, 2018 2:30 pm

Re: Pre Retirement Portfolio Review

Post by bluquark » Mon Jul 15, 2019 7:28 pm

Looking narrowly at the portfolio:

- Trade in all the stock in your trad 401k, including Vanguard Target 2020, for Vanguard Target 2000 (which is a 90% bond fund), or another low-ER bond fund if available in your 401k plan, and proportionally exchange munis from taxable for stock. This tax-efficient bond placement will give you better yields.

- Merge the VTIAX into the VFWAX to simplify -- international doesn't have many capital gains anyway so I assume that won't be expensive.

- I'm not religiously opposed to active management but I draw the line at 0.50% ER -- the active manager would need to be godlike to outweigh fees higher than that. I would replace the AKREX+RNWGX with VWUSX (Vanguard Large-Cap Growth) and PRNHX with VMGMX (Vanguard Mid-Cap Growth), which are passive funds with similar factor exposure. I would eat a capital gains tax hit to do so. Note that I see on the news that AKREX has recently lost a co-manager so it's a good time to drop it.

Topic Author
Retirement Nerd
Posts: 19
Joined: Tue Apr 16, 2019 3:01 pm

Re: Pre Retirement Portfolio Review

Post by Retirement Nerd » Mon Jul 15, 2019 7:46 pm

Watty

#1 Agreed, I was following the recommended outline for posting and forgot to add SS.

#3 The growth portion of the portfolio is an interesting topic. I tend to agree with you but others, McClung in particular, suggest reinvesting until equity are 20% above retirement date value. He uses the bond portion of portfolio to fund ongoing spending and replenishes by selling equities when the 20% threshold is reached.

Topic Author
Retirement Nerd
Posts: 19
Joined: Tue Apr 16, 2019 3:01 pm

Re: Pre Retirement Portfolio Review

Post by Retirement Nerd » Mon Jul 15, 2019 7:54 pm

Bluquark

I agree with you on the regarding the active managed funds, they are remnants of my Brinker Marketimer portfolio. The capital gains hit is what has kept me from liquidating that portion. I try to be as tax efficient as possible and it just difficult pulling the trigger on that one.

livesoft
Posts: 68037
Joined: Thu Mar 01, 2007 8:00 pm

Re: Pre Retirement Portfolio Review

Post by livesoft » Mon Jul 15, 2019 7:55 pm

Your plan is fine, but I wouldn't expect it not to change as you get going. You have so much money that you will be fine and don't need to worry about the details.
Wiki This signature message sponsored by sscritic: Learn to fish.

Topic Author
Retirement Nerd
Posts: 19
Joined: Tue Apr 16, 2019 3:01 pm

Re: Pre Retirement Portfolio Review

Post by Retirement Nerd » Mon Jul 15, 2019 8:01 pm

Livesoft
As my handle suggests I am a nerd and enjoy the weeds but thank you for your input :happy

bluquark
Posts: 795
Joined: Mon Oct 22, 2018 2:30 pm

Re: Pre Retirement Portfolio Review

Post by bluquark » Mon Jul 15, 2019 8:01 pm

Retirement Nerd wrote:
Mon Jul 15, 2019 7:54 pm
Bluquark

I agree with you on the regarding the active managed funds, they are remnants of my Brinker Marketimer portfolio. The capital gains hit is what has kept me from liquidating that portion. I try to be as tax efficient as possible and it just difficult pulling the trigger on that one.
Even if you are planning to wait on the step-up basis for heirs on those and the cost basis is near zero, a 1% ER will eat up the 15% long-term capital gains tax saving in 15 years. And the time-value of that 15% is also not worth much at current low bond yields. I would pull the trigger -- I am very cautious about taxes as well but within limits.

User avatar
Watty
Posts: 17209
Joined: Wed Oct 10, 2007 3:55 pm

Re: Pre Retirement Portfolio Review

Post by Watty » Mon Jul 15, 2019 8:14 pm

Retirement Nerd wrote:
Mon Jul 15, 2019 7:46 pm
#3 The growth portion of the portfolio is an interesting topic. I tend to agree with you but others, McClung in particular, suggest reinvesting until equity are 20% above retirement date value. He uses the bond portion of portfolio to fund ongoing spending and replenishes by selling equities when the 20% threshold is reached.
You may very well want to reinvest the dividends into equities but you have five or six equity funds. It would be cleaner to put any equity reinvestments into the total stock fund or the total international fund.

NMBob
Posts: 251
Joined: Thu Apr 23, 2015 8:13 pm

Re: Pre Retirement Portfolio Review

Post by NMBob » Wed Aug 21, 2019 9:36 am

no one posts chuck akre's actual results and two decade plus history of management , fbr focus/akrex, before they all rush to say sell his fund? Above average returns with less than average volatility while tax efficient.

Portfolio Initial Balance Final Balance CAGR Stdev Best Year Worst Year Max. Drawdown Sharpe Ratio Sortino Ratio US Mkt Correlation
akrex $10,000 $46,647 17.43% 11.08% 38.90% 2.53% -8.63% 1.48 2.85 0.89
Vanguard 500 Index Investor $10,000 $32,176 12.97% 12.65% 32.18% -4.52% -16.31% 1.00 1.64 1.00

morningstar 3 yr tax cost ratio - .11 (category is 1.85)

bluquark
Posts: 795
Joined: Mon Oct 22, 2018 2:30 pm

Re: Pre Retirement Portfolio Review

Post by bluquark » Wed Aug 21, 2019 6:07 pm

NMBob wrote:
Wed Aug 21, 2019 9:36 am
no one posts chuck akre's actual results and two decade plus history of management , fbr focus/akrex, before they all rush to say sell his fund? Above average returns with less than average volatility while tax efficient.
The 1.32% ER will drag down AKREX sooner or later. If it outperformed index funds in the past, that's the survivor effect at work. Pick 1000 different random active strategies and at least a dozen in there will significalty outperform S&P500 over the next decade, and that's the only ones anybody will be talking about a decade from now. The moment one of them finally falls to the earth, everyone stops talking about it, and it's on to the next exciting one in the merry-go-round.

Personally, in this era of low rates, I'm planning for a 5% real return in my retirement portfolio. 1.32% is an entire quarter of my expected returns, I don't believe any active manager's wisdom is godlike enough to consistently outdo that.

NMBob
Posts: 251
Joined: Thu Apr 23, 2015 8:13 pm

Re: Pre Retirement Portfolio Review

Post by NMBob » Wed Aug 21, 2019 6:49 pm

sorry , but just give Chuck Akre his due. He has been well above the pack in two different funds , fbr focus and akre focus consecutively, when they were both new and older, so forget about the survivor claims. He is simply one of the very best fund managers the past quarter century. folks should be informed of that and his results when they are being told to dump the fund and take a likely very significant cap gains tax hit, right before retirement. Kind of a somewhat informed decision as opposed to uninformed.
Last edited by NMBob on Wed Aug 21, 2019 9:58 pm, edited 1 time in total.

User avatar
G12
Posts: 1524
Joined: Mon Apr 16, 2007 2:35 pm

Re: Pre Retirement Portfolio Review

Post by G12 » Wed Aug 21, 2019 7:22 pm

NMBob wrote:
Wed Aug 21, 2019 9:36 am
no one posts chuck akre's actual results and two decade plus history of management , fbr focus/akrex, before they all rush to say sell his fund? Above average returns with less than average volatility while tax efficient.

Portfolio Initial Balance Final Balance CAGR Stdev Best Year Worst Year Max. Drawdown Sharpe Ratio Sortino Ratio US Mkt Correlation
akrex $10,000 $46,647 17.43% 11.08% 38.90% 2.53% -8.63% 1.48 2.85 0.89
Vanguard 500 Index Investor $10,000 $32,176 12.97% 12.65% 32.18% -4.52% -16.31% 1.00 1.64 1.00

morningstar 3 yr tax cost ratio - .11 (category is 1.85)
Only 4% portfolio turnover per M*, quite good for active.

chw
Posts: 690
Joined: Thu May 24, 2012 4:22 pm

Re: Pre Retirement Portfolio Review

Post by chw » Wed Aug 21, 2019 7:45 pm

I would say with a high 7 figure portfolio, and 250k expected income need, you are good to go. Above this, you could still be ok, but without exact #s, hard to confirm. The $100k year passive income should be a good buffer to possibly spend above the 250k level if need. Good thoughts by others so far, but would add some others...

- If you have any non-deductible IRA contributions, consider doing a reverse rollover of the deductible and investment earnings to your current 401k (if you have good investment options in the 401k). Separating the non-deductible contributions will allow you to do a tax free Roth conversion not subject to the pro-rata rule. You can rollover the 401k in the year following the conversion if you desire (though keeping the 401k protects those assets from creditors and lawsuits).
- Appears you have the resources to delay Social Security to age 70- definitely review the open Social Security website for optimal claiming strategy.
- I don’t believe you should need a reverse mortgage or annuity, unless your spending level vastly exceeds your expected 250k year. If needed, look at annuities later in life before a reverse mortgage.
- Look at Roth conversions to see if they make sense based on your tax bracket in retirement vs what you will have when RMDs kick in. Generally converting to the upper level of tax bracket you will have when RMDs kick in can be a good strategy.
- I have found the early years of retirement are a good time to assess ways to avoid and minimize taxes now, and through the years leading up to RMD.

Topic Author
Retirement Nerd
Posts: 19
Joined: Tue Apr 16, 2019 3:01 pm

Re: Pre Retirement Portfolio Review

Post by Retirement Nerd » Thu Aug 22, 2019 5:17 am

chw wrote:
Wed Aug 21, 2019 7:45 pm
I would say with a high 7 figure portfolio, and 250k expected income need, you are good to go. Above this, you could still be ok, but without exact #s, hard to confirm. The $100k year passive income should be a good buffer to possibly spend above the 250k level if need. Good thoughts by others so far, but would add some others...

- If you have any non-deductible IRA contributions, consider doing a reverse rollover of the deductible and investment earnings to your current 401k (if you have good investment options in the 401k). Separating the non-deductible contributions will allow you to do a tax free Roth conversion not subject to the pro-rata rule. You can rollover the 401k in the year following the conversion if you desire (though keeping the 401k protects those assets from creditors and lawsuits).
- Appears you have the resources to delay Social Security to age 70- definitely review the open Social Security website for optimal claiming strategy.
- I don’t believe you should need a reverse mortgage or annuity, unless your spending level vastly exceeds your expected 250k year. If needed, look at annuities later in life before a reverse mortgage.
- Look at Roth conversions to see if they make sense based on your tax bracket in retirement vs what you will have when RMDs kick in. Generally converting to the upper level of tax bracket you will have when RMDs kick in can be a good strategy.
- I have found the early years of retirement are a good time to assess ways to avoid and minimize taxes now, and through the years leading up to RMD.
Thank you for your thoughts. I will look into each of them.
L

simas
Posts: 426
Joined: Wed Apr 04, 2007 5:50 pm

Re: Pre Retirement Portfolio Review

Post by simas » Mon Oct 07, 2019 4:29 pm

chw wrote:
Wed Aug 21, 2019 7:45 pm
I would say with a high 7 figure portfolio, and 250k expected income need, you are good to go. Above this, you could still be ok, but without exact #s, hard to confirm. The $100k year passive income should be a good buffer to possibly spend above the 250k level if need. Good thoughts by others so far, but would add some others...

- If you have any non-deductible IRA contributions, consider doing a reverse rollover of the deductible and investment earnings to your current 401k (if you have good investment options in the 401k). Separating the non-deductible contributions will allow you to do a tax free Roth conversion not subject to the pro-rata rule. You can rollover the 401k in the year following the conversion if you desire (though keeping the 401k protects those assets from creditors and lawsuits).

- Appears you have the resources to delay Social Security to age 70- definitely review the open Social Security website for optimal claiming strategy.
- I don’t believe you should need a reverse mortgage or annuity, unless your spending level vastly exceeds your expected 250k year. If needed, look at annuities later in life before a reverse mortgage.
- Look at Roth conversions to see if they make sense based on your tax bracket in retirement vs what you will have when RMDs kick in. Generally converting to the upper level of tax bracket you will have when RMDs kick in can be a good strategy.
- I have found the early years of retirement are a good time to assess ways to avoid and minimize taxes now, and through the years leading up to RMD.
In the section highlighted in bold - how does it actually work? I.e. I have two IRAs now
- traditional IRA 50k (i.e. Schwab)
- rollover IRA 200k (i.e. Fidelity)
i have basis of 40k (after tax contributions).

what instructions should I give to the current plan custodians to move monies into 401k plan?
for those who have done it, how does 1099R look(ed) like for you?

Thank you!

HomeStretch
Posts: 2052
Joined: Thu Dec 27, 2018 3:06 pm

Re: Pre Retirement Portfolio Review

Post by HomeStretch » Mon Oct 07, 2019 5:44 pm

simas wrote:
Mon Oct 07, 2019 4:29 pm
how does it actually work? I.e. I have two IRAs now
- traditional IRA 50k (i.e. Schwab)
- rollover IRA 200k (i.e. Fidelity)
i have basis of 40k (after tax contributions).

what instructions should I give to the current plan custodians to move monies into 401k plan?
for those who have done it, how does 1099R look(ed) like for you?
1. Check with your current 401k provider whether rollovers in are allowed and, if so, what forms are required.

2. Use a direct trustee-to-trustee transfer if possible

3. I was concerned (perhaps unnecessarily) that somehow the basis would also get rolled over to the 401k in error. So I kept just the basis (nondeductible contributions) in tIRA #1 and the pretax contributions/earnings in tIRA #2. I sold all holdings in tIRA #2 so 100% of the account balance (in cash) was transferred into the 401k and then reinvested.

4. After the rollover of tIRA #2 into the 401k was completed, I did a Roth conversion for the tIRA #1 balance of the basis and pretax earnings (which I paid a couple $ tax on when I did my return) as the account grew a bit after I split it out. The pretax IRA balance needs to be zero on December 31 of the year you do the Roth conversion to avoid the pro rata rule. I kept tIRA #2 open for future back door Roths.

5. I received a 1099-R for the IRA rollover to the 401k and a 1099-R and 5498 for the Roth conversion. The Roth conversion was reported by me on Form 8606 as part of my federal tax return. The basis (non deductible contributions) had been reported on prior years’ Form 8606.

6. I kept copies of the IRA and 401k account statements showing the dates and amounts of the transfers out and in as part of my tax return backup in case of any IRS questions.
Last edited by HomeStretch on Tue Oct 08, 2019 8:49 am, edited 1 time in total.

simas
Posts: 426
Joined: Wed Apr 04, 2007 5:50 pm

Re: Pre Retirement Portfolio Review

Post by simas » Tue Oct 08, 2019 8:42 am

Thank you sir.

1. The plan I hope to roll money into is Solo401 where I am the Plan trustee and Plan Administrator with Fidelity providing me with investment only retirement accounts. According to my plan support, the plan documents allow incoming transfers. As for how exactly I have to process it with Fidelity , I am yet to figure out.

2. My IRAs are at Schwab and Vanguard, so I will ping them

3. it is a little confusing to me, isn't in the eyes of IRS all IRA accounts are essentially one and there is no way to separate basis and pre-tax (the essence of pro-rata rule)? is there a specific reference point in one of the published guidance documents (590a/590b/etc) that talks about IRA->qualified plan transfer being excluded from pro-rata is this assumed by default because pro-rata does not cover such transfer. Would @spiritrider know?

4. That is my plan as well. However I looked at my form 8606 and saw that while I was tracking basis (line 3 and line 14), my form 8606 is blank for line 6.

5. what was one 1099-R for you? IRA ->401k , taxable amount not determined or something else? same for Roth conversion, taxable amount not determined and when you entered your full basis leaving the total mount of conversion minus basis as taxable, correct?

Thank you for your help

HomeStretch
Posts: 2052
Joined: Thu Dec 27, 2018 3:06 pm

Re: Pre Retirement Portfolio Review

Post by HomeStretch » Tue Oct 08, 2019 8:58 am

I did a rollover of the pretax contributions/earnings in a Vanguard IRA to a Fidelity Solo 401k 3-4 years ago. At the time, I spoke with a Fidelity retirement specialist who walked me through the process. It went smoothly.

Going from memory, I recall the 1099R for the IRA-to-401k correctly showing the distribution as taxable and the tax basis not determined box checked off. Then when i did my taxes, $0 showed up as taxable on my 1040 line with the label “Rollover”. As for the 1099R, I believe the distribution was labeled as a Roth conversion as both the tIRA and rIRA were at the same brokerage. My 1040 has a couple dollars as a taxable distribution as the tIRA with the basis earned a few dollars prior to conversion.

I don’t think the IRA-to-401k transfer matters when applying the pro-rata rule. What matters is the December 31 aggregate balance across all your traditional IRAs including Simple and SEP IRAs I believe. If the account balances are zero on 12/31, no pro rata applies. If there is a balance, then it does apply. That’s why it’s recommended to make sure all the rollovers are completed and the IRA balances are zero before doing a same-year Roth conversion.

chw
Posts: 690
Joined: Thu May 24, 2012 4:22 pm

Re: Pre Retirement Portfolio Review

Post by chw » Wed Oct 09, 2019 12:32 pm

simas wrote:
Mon Oct 07, 2019 4:29 pm
chw wrote:
Wed Aug 21, 2019 7:45 pm
I would say with a high 7 figure portfolio, and 250k expected income need, you are good to go. Above this, you could still be ok, but without exact #s, hard to confirm. The $100k year passive income should be a good buffer to possibly spend above the 250k level if need. Good thoughts by others so far, but would add some others...

- If you have any non-deductible IRA contributions, consider doing a reverse rollover of the deductible and investment earnings to your current 401k (if you have good investment options in the 401k). Separating the non-deductible contributions will allow you to do a tax free Roth conversion not subject to the pro-rata rule. You can rollover the 401k in the year following the conversion if you desire (though keeping the 401k protects those assets from creditors and lawsuits).

- Appears you have the resources to delay Social Security to age 70- definitely review the open Social Security website for optimal claiming strategy.
- I don’t believe you should need a reverse mortgage or annuity, unless your spending level vastly exceeds your expected 250k year. If needed, look at annuities later in life before a reverse mortgage.
- Look at Roth conversions to see if they make sense based on your tax bracket in retirement vs what you will have when RMDs kick in. Generally converting to the upper level of tax bracket you will have when RMDs kick in can be a good strategy.
- I have found the early years of retirement are a good time to assess ways to avoid and minimize taxes now, and through the years leading up to RMD.
In the section highlighted in bold - how does it actually work? I.e. I have two IRAs now
- traditional IRA 50k (i.e. Schwab)
- rollover IRA 200k (i.e. Fidelity)
i have basis of 40k (after tax contributions).

what instructions should I give to the current plan custodians to move monies into 401k plan?
for those who have done it, how does 1099R look(ed) like for you?

Thank you!
It should work this way I believe:

1) Confirm your current 401k custodian can accept rollovers from your traditional and rollover IRAs.
2) Assuming the custodian can accept rollovers, convert your traditional IRA positions to cash, and rollover all but the 40K basis of after tax contributions to your 401k plan. At the same time, you can roll the full amount of your rollover IRA to your 401k plan as well. The custodian will let you know whether they prefer to pull the funds into the 401k plan, or if they should be pushed out to them. Important: Make sure the rollovers are completed as a trustee to trustee transfer/rollover.
3) When the rollovers are completed in step 2, rollover the 40k in after tax contributions to your Roth IRA. This step assumes you have only 1 Traditional, and the 1 Rollover IRA mentioned previously.
4) If for some reason you wish to re-rollover the 401k balance to a Traditional IRA (perhaps due to better fund options, lower expenses), do not do the rollover until the year after you complete Step 2 above.

Let me know if you have additional questions.

simas
Posts: 426
Joined: Wed Apr 04, 2007 5:50 pm

Re: Pre Retirement Portfolio Review

Post by simas » Wed Oct 09, 2019 8:06 pm

chw wrote:
Wed Oct 09, 2019 12:32 pm
simas wrote:
Mon Oct 07, 2019 4:29 pm
chw wrote:
Wed Aug 21, 2019 7:45 pm
I would say with a high 7 figure portfolio, and 250k expected income need, you are good to go. Above this, you could still be ok, but without exact #s, hard to confirm. The $100k year passive income should be a good buffer to possibly spend above the 250k level if need. Good thoughts by others so far, but would add some others...

- If you have any non-deductible IRA contributions, consider doing a reverse rollover of the deductible and investment earnings to your current 401k (if you have good investment options in the 401k). Separating the non-deductible contributions will allow you to do a tax free Roth conversion not subject to the pro-rata rule. You can rollover the 401k in the year following the conversion if you desire (though keeping the 401k protects those assets from creditors and lawsuits).

- Appears you have the resources to delay Social Security to age 70- definitely review the open Social Security website for optimal claiming strategy.
- I don’t believe you should need a reverse mortgage or annuity, unless your spending level vastly exceeds your expected 250k year. If needed, look at annuities later in life before a reverse mortgage.
- Look at Roth conversions to see if they make sense based on your tax bracket in retirement vs what you will have when RMDs kick in. Generally converting to the upper level of tax bracket you will have when RMDs kick in can be a good strategy.
- I have found the early years of retirement are a good time to assess ways to avoid and minimize taxes now, and through the years leading up to RMD.
In the section highlighted in bold - how does it actually work? I.e. I have two IRAs now
- traditional IRA 50k (i.e. Schwab)
- rollover IRA 200k (i.e. Fidelity)
i have basis of 40k (after tax contributions).

what instructions should I give to the current plan custodians to move monies into 401k plan?
for those who have done it, how does 1099R look(ed) like for you?

Thank you!
It should work this way I believe:

1) Confirm your current 401k custodian can accept rollovers from your traditional and rollover IRAs.
2) Assuming the custodian can accept rollovers, convert your traditional IRA positions to cash, and rollover all but the 40K basis of after tax contributions to your 401k plan. At the same time, you can roll the full amount of your rollover IRA to your 401k plan as well. The custodian will let you know whether they prefer to pull the funds into the 401k plan, or if they should be pushed out to them. Important: Make sure the rollovers are completed as a trustee to trustee transfer/rollover.
3) When the rollovers are completed in step 2, rollover the 40k in after tax contributions to your Roth IRA. This step assumes you have only 1 Traditional, and the 1 Rollover IRA mentioned previously.
4) If for some reason you wish to re-rollover the 401k balance to a Traditional IRA (perhaps due to better fund options, lower expenses), do not do the rollover until the year after you complete Step 2 above.

Let me know if you have additional questions.
Thank you for your help. How important is the information in form 8606 during all of this? I have basis tracked but total amount of money in IRA (line 6) is empty in my 8606 forms.

As for custodian , I run a custom 401k plan using Fidelity investment only retirement accounts (meaning I as plan administrator make decisions and take responsibility). I confirmed with firm that wrote the plan for me and supports it (updates, etc) that plan documents allow incoming transfers. I have not yet talked to Fidelity on how exactly I should do it and will try to stop by the branch soon.

chw
Posts: 690
Joined: Thu May 24, 2012 4:22 pm

Re: Pre Retirement Portfolio Review

Post by chw » Thu Oct 10, 2019 11:17 am

simas wrote:
Wed Oct 09, 2019 8:06 pm
chw wrote:
Wed Oct 09, 2019 12:32 pm
simas wrote:
Mon Oct 07, 2019 4:29 pm
chw wrote:
Wed Aug 21, 2019 7:45 pm
I would say with a high 7 figure portfolio, and 250k expected income need, you are good to go. Above this, you could still be ok, but without exact #s, hard to confirm. The $100k year passive income should be a good buffer to possibly spend above the 250k level if need. Good thoughts by others so far, but would add some others...

- If you have any non-deductible IRA contributions, consider doing a reverse rollover of the deductible and investment earnings to your current 401k (if you have good investment options in the 401k). Separating the non-deductible contributions will allow you to do a tax free Roth conversion not subject to the pro-rata rule. You can rollover the 401k in the year following the conversion if you desire (though keeping the 401k protects those assets from creditors and lawsuits).

- Appears you have the resources to delay Social Security to age 70- definitely review the open Social Security website for optimal claiming strategy.
- I don’t believe you should need a reverse mortgage or annuity, unless your spending level vastly exceeds your expected 250k year. If needed, look at annuities later in life before a reverse mortgage.
- Look at Roth conversions to see if they make sense based on your tax bracket in retirement vs what you will have when RMDs kick in. Generally converting to the upper level of tax bracket you will have when RMDs kick in can be a good strategy.
- I have found the early years of retirement are a good time to assess ways to avoid and minimize taxes now, and through the years leading up to RMD.
In the section highlighted in bold - how does it actually work? I.e. I have two IRAs now
- traditional IRA 50k (i.e. Schwab)
- rollover IRA 200k (i.e. Fidelity)
i have basis of 40k (after tax contributions).

what instructions should I give to the current plan custodians to move monies into 401k plan?
for those who have done it, how does 1099R look(ed) like for you?

Thank you!
It should work this way I believe:

1) Confirm your current 401k custodian can accept rollovers from your traditional and rollover IRAs.
2) Assuming the custodian can accept rollovers, convert your traditional IRA positions to cash, and rollover all but the 40K basis of after tax contributions to your 401k plan. At the same time, you can roll the full amount of your rollover IRA to your 401k plan as well. The custodian will let you know whether they prefer to pull the funds into the 401k plan, or if they should be pushed out to them. Important: Make sure the rollovers are completed as a trustee to trustee transfer/rollover.
3) When the rollovers are completed in step 2, rollover the 40k in after tax contributions to your Roth IRA. This step assumes you have only 1 Traditional, and the 1 Rollover IRA mentioned previously.
4) If for some reason you wish to re-rollover the 401k balance to a Traditional IRA (perhaps due to better fund options, lower expenses), do not do the rollover until the year after you complete Step 2 above.

Let me know if you have additional questions.
Thank you for your help. How important is the information in form 8606 during all of this? I have basis tracked but total amount of money in IRA (line 6) is empty in my 8606 forms.

As for custodian , I run a custom 401k plan using Fidelity investment only retirement accounts (meaning I as plan administrator make decisions and take responsibility). I confirmed with firm that wrote the plan for me and supports it (updates, etc) that plan documents allow incoming transfers. I have not yet talked to Fidelity on how exactly I should do it and will try to stop by the branch soon.
1) The question about line 6 on Form 8606- Form 8606 should have been filed each year you had a non-deductible basis. I believe line 6 may report blank in years with no Roth conversions if using tax software. This year if you do complete the Roth conversion after the "reverse" rollover to your 401k, it is important to complete Form 8606 to report the final basis left (if any) of your non-deductible contributions. Line 6 will likely be zero or a nominal amount (this was the case for me due to interest being credited to my Traditional IRA after I had rolled over the funds to my 401k).

2) Regarding your question about your being the plan administrator for your 401k plan- you will likely need professional tax assistance about this to confirm the allowance of the rollover from the Traditional IRA to the 401k plan. It seems that you should be ok, but not sure how the IRS views this when the taxpayer is the plan administrator for the 401k plan.

HomeStretch
Posts: 2052
Joined: Thu Dec 27, 2018 3:06 pm

Re: Pre Retirement Portfolio Review

Post by HomeStretch » Thu Oct 10, 2019 11:58 am

Your 401k custodian is the brokerage firm that holds the physical plan assets. If that is Fidelity, you should have no problem rolling a Fidelity or Schwab tIRA into a 401k at Fidelity. You as 401k plan administrator should be able to sign the paperwork needed for Fidelity to initiate the rollover. It’s good that the 401k third party administrator (TPA) confirmed rollovers are accepted by the plan. Be sure to forward info about the rollover to the TPA if they handle administrative matters like your Form 5500 filing.

User avatar
WoodSpinner
Posts: 829
Joined: Mon Feb 27, 2017 1:15 pm

Re: Pre Retirement Portfolio Review

Post by WoodSpinner » Thu Oct 10, 2019 12:18 pm

OP,

One thought on restructuring your Taxable holdings...

Consider funding a Donor Advised Fund using direct shares (perhaps AKREX). This should allow you to itemize and then use the funds to support your charitable giving over time.

WoodSpinner

simas
Posts: 426
Joined: Wed Apr 04, 2007 5:50 pm

Re: Pre Retirement Portfolio Review

Post by simas » Thu Oct 10, 2019 3:46 pm

chw wrote:
Thu Oct 10, 2019 11:17 am
1) The question about line 6 on Form 8606- Form 8606 should have been filed each year you had a non-deductible basis. I believe line 6 may report blank in years with no Roth conversions if using tax software. This year if you do complete the Roth conversion after the "reverse" rollover to your 401k, it is important to complete Form 8606 to report the final basis left (if any) of your non-deductible contributions. Line 6 will likely be zero or a nominal amount (this was the case for me due to interest being credited to my Traditional IRA after I had rolled over the funds to my 401k).

2) Regarding your question about your being the plan administrator for your 401k plan- you will likely need professional tax assistance about this to confirm the allowance of the rollover from the Traditional IRA to the 401k plan. It seems that you should be ok, but not sure how the IRS views this when the taxpayer is the plan administrator for the 401k plan.
Thank you! I have not done Roth conversions in a decade (which when I did wiped out basis and I paid taxes on all other amounts treating it as income) , in most recent years we do not qualify for Roth but have done non-deductible contributions slowly increasing basis in forms 8606 but having zeros anywhere else.

This makes me feel a little more secure in moving ahead with integration of IRA into my 401k plan and conversion of the remaining amount to Roth. I have not had a chance to talk to Fidelity (provider of investment sub-accounts for my Solo 401k) or Vanguard (custodian of one the IRAs I want to fully roll into 401k plan) , and will try to do so. Wondering what Vanguard would need from me to properly code custodian to custodian transfer (so I have less surprises with 1099R down the road).

Have not filled 5500 yet as assets have been below 250k threshold. If I move ahead then I definitely have to file going forward. I think the finance buff had a guide on this form filling (https://thefinancebuff.com/form-5500ez- ... -401k.html)

Topic Author
Retirement Nerd
Posts: 19
Joined: Tue Apr 16, 2019 3:01 pm

Re: Pre Retirement Portfolio Review

Post by Retirement Nerd » Thu Oct 10, 2019 7:33 pm

WoodSpinner wrote:
Thu Oct 10, 2019 12:18 pm
OP,

One thought on restructuring your Taxable holdings...

Consider funding a Donor Advised Fund using direct shares (perhaps AKREX). This should allow you to itemize and then use the funds to support your charitable giving over time.

WoodSpinner
Thank you, I will look into this concept.
L

Post Reply