Improving my retirement allocation

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Topic Author
NuBogleHead
Posts: 3
Joined: Sun Jul 29, 2018 12:49 am

Improving my retirement allocation

Post by NuBogleHead » Sat Aug 01, 2020 12:17 pm

Can you help inform me on how I should better allocate my retirement and savings? Risk tolerance is high and I anticipate us keeping at least the same level of income for the next 15 yrs.

USA. Married, both 37, infant born this year, and a combined W2 income of 180k( P1 makes 130k and P2 makes 50k). No other income. Our savings rate is 50%+ and we have no mortgage, but rent. Our only debt is a 7k government-subsidized 2.8% student loan with no intention of paying it off beyond the monthly minimum of < $100.

401k - We currently both max out our 401K into a Roth 401k but our companies also give us traditional 401k as an option, and we invest 100% into S&P500 index fund ($39k added annually).
IRA - We do a backdoor ROTH IRA at the end of the year ($11k added annually).
401K After-tax contribution (that I plan on converting to ROTH) - I currently put in 12K annually spread out events every paycheck. I think I can increase this to 56k per IRS limits (?)

The current state of our retirement and savings: (Everything is with fidelity)

ROTH 401K - 200k - 100% S&P500 index
Trad 401k - 100K - 100K S&P500 index
ROTH IRA - 90K - S&P500 index
TRAD IRA - 80K - S&P500 index

Savings - 140k across 3 savings accounts that earn 1%. (Ally and CapOne 360)
Checking - 15k across 2 checking accounts. No interest.

Thoughts on how to do better?

delamer
Posts: 10233
Joined: Tue Feb 08, 2011 6:13 pm

Re: Improving my retirement allocation

Post by delamer » Sat Aug 01, 2020 1:03 pm

No guarantees that you’ll do “better” but I’d add US small/medium caps and international stocks to the mix.

The latter two are generally considered more volatile but also have the potential for greater returns than the S&P 500.

But again, no guarantees.

Triple digit golfer
Posts: 5515
Joined: Mon May 18, 2009 5:57 pm

Re: Improving my retirement allocation

Post by Triple digit golfer » Sat Aug 01, 2020 1:06 pm

I would recommend adding international equities up to 40% of equities.

Add some bonds if you want to dampen bear markets, or if you can accept the volatility you can go without.

I wouldn't add small and mid cap funds.

User avatar
FiveK
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Joined: Sun Mar 16, 2014 2:43 pm

Re: Improving my retirement allocation

Post by FiveK » Sat Aug 01, 2020 1:42 pm

Why Roth 401k instead of traditional 401k?

In other words, what is your estimated future marginal tax rate when you would be withdrawing, vs. the marginal rate you would save now?

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FiveK
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Joined: Sun Mar 16, 2014 2:43 pm

Re: Improving my retirement allocation

Post by FiveK » Sat Aug 01, 2020 1:45 pm

NuBogleHead wrote:
Sat Aug 01, 2020 12:17 pm
IRA - We do a backdoor ROTH IRA at the end of the year ($11k added annually).
...
ROTH IRA - 90K - S&P500 index
TRAD IRA - 80K - S&P500 index
Different topic: are you aware of the pro-rata rule as it applies to the backdoor Roth process? That $80K in traditional IRAs looks problematic.

tashnewbie
Posts: 511
Joined: Thu Apr 23, 2020 12:44 pm

Re: Improving my retirement allocation

Post by tashnewbie » Sat Aug 01, 2020 2:00 pm

Double check whether you need to use the backdoor method to contribute to Roth IRA. For MFJ, for 2019, ability to contribute directly stopped at $203k of MAGI. You are obviously under that and under the beginning of the phase out range (your MAGI looks to be no more than $141k, which is gross income minus 401k contributions).

If you don’t need to use backdoor method now and don’t anticipate your income increasing over the next 15 years, then it doesn’t really matter that you have a traditional IRA. If either of those ever changes though, that TIRA will complicate backdoor conversions. It may be worth just transferring that TIRA into the 401k of whoever owns the TIRA, to simplify the number of accounts, as long as 401k allows rollover and has good, low cost options.

Looks like you’re in the 22% marginal federal tax bracket, which means the question of whether you should do traditional or Roth 401k is a toss up. Since you’re planning to do after tax 401k contributions and convert to Roth, it might make sense to have a mix of pretax too by using traditional 401k contributions.

FarmWife
Posts: 17
Joined: Wed Jul 15, 2020 9:07 am

Re: Improving my retirement allocation

Post by FarmWife » Sat Aug 01, 2020 2:23 pm

From what I read here, Bogle and Buffet would say you are doing fine. Simple, mix of tax deferred, tax exempt.

Plans for college funding with the infant?

Consider a taxable investment account also once you max out your other options. Having a huge 401k someday (and trad IRA) with RMD's may prove problematic for taxes, a taxable account may give you some income flexibility to keep taxes under control.

We carry a lot of cash, too, probably too much. Is the 140k just a buffer for you or do have a more immediate plan for spending it?

Topic Author
NuBogleHead
Posts: 3
Joined: Sun Jul 29, 2018 12:49 am

Re: Improving my retirement allocation

Post by NuBogleHead » Sat Aug 01, 2020 3:07 pm

tashnewbie wrote:
Sat Aug 01, 2020 2:00 pm
Double check whether you need to use the backdoor method to contribute to Roth IRA. For MFJ, for 2019, ability to contribute directly stopped at $203k of MAGI. You are obviously under that and under the beginning of the phase out range (your MAGI looks to be no more than $141k, which is gross income minus 401k contributions).

If you don’t need to use backdoor method now and don’t anticipate your income increasing over the next 15 years, then it doesn’t really matter that you have a traditional IRA. If either of those ever changes though, that TIRA will complicate backdoor conversions. It may be worth just transferring that TIRA into the 401k of whoever owns the TIRA, to simplify the number of accounts, as long as 401k allows rollover and has good, low cost options.

Looks like you’re in the 22% marginal federal tax bracket, which means the question of whether you should do traditional or Roth 401k is a toss up. Since you’re planning to do after tax 401k contributions and convert to Roth, it might make sense to have a mix of pretax too by using traditional 401k contributions.
Can you tell me more about transferring my TIRA into my 401k? Both are currently with Fidelity.

For the longest, I made very little money, and I always knew that my pay would go up, but as my pay increases, I am less sure if I want to get the larger pay (and additional work).

Thanks for your response.

User avatar
FiveK
Posts: 9603
Joined: Sun Mar 16, 2014 2:43 pm

Re: Improving my retirement allocation

Post by FiveK » Sat Aug 01, 2020 3:14 pm

NuBogleHead wrote:
Sat Aug 01, 2020 3:07 pm
Can you tell me more about transferring my TIRA into my 401k? Both are currently with Fidelity.
How to Roll Over Traditional IRA to 401(k) Without Tax Penalties has some information. If you don't need to clear the tIRA balance for the purpose of using the backdoor Roth process, however, there may be no good reason to move the tIRA to a 401k.

Topic Author
NuBogleHead
Posts: 3
Joined: Sun Jul 29, 2018 12:49 am

Re: Improving my retirement allocation

Post by NuBogleHead » Sat Aug 01, 2020 3:15 pm

FarmWife wrote:
Sat Aug 01, 2020 2:23 pm
From what I read here, Bogle and Buffet would say you are doing fine. Simple, mix of tax deferred, tax exempt.

Plans for college funding with the infant?

Consider a taxable investment account also once you max out your other options. Having a huge 401k someday (and trad IRA) with RMD's may prove problematic for taxes, a taxable account may give you some income flexibility to keep taxes under control.

We carry a lot of cash, too, probably too much. Is the 140k just a buffer for you or do have a more immediate plan for spending it?
If the cash isn't needed, how do you suggest it be invested? No immediate plans. An HYSA seemed the most obvious choice considering I don't have made any plans for it.
Last edited by NuBogleHead on Sun Aug 02, 2020 8:46 pm, edited 1 time in total.

tashnewbie
Posts: 511
Joined: Thu Apr 23, 2020 12:44 pm

Re: Improving my retirement allocation

Post by tashnewbie » Sat Aug 01, 2020 3:15 pm

NuBogleHead wrote:
Sat Aug 01, 2020 3:07 pm
tashnewbie wrote:
Sat Aug 01, 2020 2:00 pm
Double check whether you need to use the backdoor method to contribute to Roth IRA. For MFJ, for 2019, ability to contribute directly stopped at $203k of MAGI. You are obviously under that and under the beginning of the phase out range (your MAGI looks to be no more than $141k, which is gross income minus 401k contributions).

If you don’t need to use backdoor method now and don’t anticipate your income increasing over the next 15 years, then it doesn’t really matter that you have a traditional IRA. If either of those ever changes though, that TIRA will complicate backdoor conversions. It may be worth just transferring that TIRA into the 401k of whoever owns the TIRA, to simplify the number of accounts, as long as 401k allows rollover and has good, low cost options.

Looks like you’re in the 22% marginal federal tax bracket, which means the question of whether you should do traditional or Roth 401k is a toss up. Since you’re planning to do after tax 401k contributions and convert to Roth, it might make sense to have a mix of pretax too by using traditional 401k contributions.
Can you tell me more about transferring my TIRA into my 401k? Both are currently with Fidelity.
Check your 401k plan documents and with your plan administrator (Fidelity) about whether incoming rollovers are allowed. If they are and your plan fees and fund expense ratios aren’t high, it’d simplify your number of accounts to do a rollover. There’s probably a rollover form with instructions that you can access from your plan portal and Fidelity should be able to help.

tashnewbie
Posts: 511
Joined: Thu Apr 23, 2020 12:44 pm

Re: Improving my retirement allocation

Post by tashnewbie » Sat Aug 01, 2020 3:18 pm

NuBogleHead wrote:
Sat Aug 01, 2020 3:15 pm
FarmWife wrote:
Sat Aug 01, 2020 2:23 pm
From what I read here, Bogle and Buffet would say you are doing fine. Simple, mix of tax deferred, tax exempt.

Plans for college funding with the infant?

Consider a taxable investment account also once you max out your other options. Having a huge 401k someday (and trad IRA) with RMD's may prove problematic for taxes, a taxable account may give you some income flexibility to keep taxes under control.

We carry a lot of cash, too, probably too much. Is the 140k just a buffer for you or do have a more immediate plan for spending it?
If the cash isn't needed, how do you suggest it be invested? No immediate plans. An HYSA seemed the most obvious choice considering I have made any plans for it.
You do or don’t have plans for the money in HYSA? I’d keep enough in it to have the emergency fund I wanted, and I’d invest the rest at your desired asset allocation (I’d probably only do stocks in a taxable account). If you have plans to use the non-EF money within the next 5 years, probably best not to invest it.

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