35(Him) and 34(Her) - Long Island NY -- Simplify Portfolio

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Topic Author
LITeacher
Posts: 131
Joined: Mon Aug 07, 2017 11:29 pm

35(Him) and 34(Her) - Long Island NY -- Simplify Portfolio

Post by LITeacher »

Current Liquid Cash: $201,000

Debt: $383,000 mortgage @ 2.875% ($800,000 value)

Tax Filing Status: Married Filing Jointly

Income:
His: ~$140,000
Hers: $90,000

State of Res: NY

Age: 35 (Him) and 34 (Her)

Asset Allocation: I keep my retirement portfolio around 80/20

Current retirement assets: $510,000 broken down as follows:
His 403B at Vanguard:
--$90,000 VBTLX (Total Bond Admiral Shares) (E.R. 0.05)
--$62,000 VTIAX (Total Int’l Stock Admiral Shares) (E.R. 0.11)
--$7,000 VFIAX (SP500 Index Fund Admiral Shares) (E.R. 0.04)
His Roth IRA at Vanguard:
--$117,000 (VTSAX Admiral Shares) (E.R . 0.04)
His 457 (NYSDCP):
--$9,000 in Int’l Equity Portfolio (E.R. 0.02)
--$30,000 Large Cap Stocks (NYSDCB Equity Index Unitized Account) (E.R. 0.02)
--$7,000 Mid-Cap Stocks (NYSDCB Russell 2500 Index Unitized Account) (E.R. 0.02)
--$1,600 Bonds (NYSDCB US Debt Index Unitized Account) (E.R. 0.02)
Her Roth IRA at Vanguard:
--$73,000 (VTSAX Admiral Shares) (E.R. 0.04)
Her OLD 401K at John Hancock:
--$112,000 (SP500 Index Fund) (0.78, cheapest in this plan)
Her NEW 401K at Principal:
--$330 at LargeCap SP500 Index (E.R. 0.05)
--$60 at MidCap SP400 Index (E.R. 0.05)
--$20 at SmallCap SP600 Index (E.R. 0.05)

Annual Contributions
Max His Roth IRA
Max Her Roth IRA
Max His NYS457B
Annual $4,000 His 403B
6% Contribution to her NEW 401K
$10000 annually to NY 529 for our son

Questions:
1. What should I do with her old John Hancock 401k? The plan is terrible with high E.R.’s so I’m thinking I should move it to an IRA at Vanguard? Or would you rollover to her new 401k at Principal which they also allow?
2. Would you simplify our retirement investments at all? I tried to make her new 401K at Principal be all stock since I balance it with the other accounts. I have her contributing 80% to LargeCap, 15% to MidCap and 5% to SmallCap from her paycheck.
3. What would you do with the $200k liquid cash? I probably need about $40k for 6 months emergency so I guess it’s more like 160K.
exodusNH
Posts: 1009
Joined: Wed Jan 06, 2021 8:21 pm

Re: 35(Him) and 34(Her) - Long Island NY -- Simplify Portfolio

Post by exodusNH »

LITeacher wrote: Wed Oct 13, 2021 11:29 am Current Liquid Cash: $201,000

Debt: $383,000 mortgage @ 2.875% ($800,000 value)

Tax Filing Status: Married Filing Jointly

Income:
His: ~$140,000
Hers: $90,000

State of Res: NY

Age: 35 (Him) and 34 (Her)

Asset Allocation: I keep my retirement portfolio around 80/20

Current retirement assets: $510,000 broken down as follows:
His 403B at Vanguard:
--$90,000 VBTLX (Total Bond Admiral Shares) (E.R. 0.05)
--$62,000 VTIAX (Total Int’l Stock Admiral Shares) (E.R. 0.11)
--$7,000 VFIAX (SP500 Index Fund Admiral Shares) (E.R. 0.04)
His Roth IRA at Vanguard:
--$117,000 (VTSAX Admiral Shares) (E.R . 0.04)
His 457 (NYSDCP):
--$9,000 in Int’l Equity Portfolio (E.R. 0.02)
--$30,000 Large Cap Stocks (NYSDCB Equity Index Unitized Account) (E.R. 0.02)
--$7,000 Mid-Cap Stocks (NYSDCB Russell 2500 Index Unitized Account) (E.R. 0.02)
--$1,600 Bonds (NYSDCB US Debt Index Unitized Account) (E.R. 0.02)
Her Roth IRA at Vanguard:
--$73,000 (VTSAX Admiral Shares) (E.R. 0.04)
Her OLD 401K at John Hancock:
--$112,000 (SP500 Index Fund) (0.78, cheapest in this plan)
Her NEW 401K at Principal:
--$330 at LargeCap SP500 Index (E.R. 0.05)
--$60 at MidCap SP400 Index (E.R. 0.05)
--$20 at SmallCap SP600 Index (E.R. 0.05)

Annual Contributions
Max His Roth IRA
Max Her Roth IRA
Max His NYS457B
Annual $4,000 His 403B
6% Contribution to her NEW 401K
$10000 annually to NY 529 for our son

Questions:
1. What should I do with her old John Hancock 401k? The plan is terrible with high E.R.’s so I’m thinking I should move it to an IRA at Vanguard? Or would you rollover to her new 401k at Principal which they also allow?
2. Would you simplify our retirement investments at all? I tried to make her new 401K at Principal be all stock since I balance it with the other accounts. I have her contributing 80% to LargeCap, 15% to MidCap and 5% to SmallCap from her paycheck.
3. What would you do with the $200k liquid cash? I probably need about $40k for 6 months emergency so I guess it’s more like 160K.
I would definitely pull her old 401k into the new one. The only reason to pay 0.78 when she can get the same fund for 0.05 is if the new 401k has fees that aren't reflected in the ER. I'd avoid rolling into a IRA just to avoid issues with being able to do Roth recharacterizations.

Why do you have that much cash? Have you simply been saving it because you're concerned about investing in the market?
tashnewbie
Posts: 2062
Joined: Thu Apr 23, 2020 12:44 pm

Re: 35(Him) and 34(Her) - Long Island NY -- Simplify Portfolio

Post by tashnewbie »

LITeacher wrote: Wed Oct 13, 2021 11:29 am Questions:
1. What should I do with her old John Hancock 401k? The plan is terrible with high E.R.’s so I’m thinking I should move it to an IRA at Vanguard? Or would you rollover to her new 401k at Principal which they also allow?
I would move it into the current 401k, assuming it doesn't have a high administrative fee.
2. Would you simplify our retirement investments at all? I tried to make her new 401K at Principal be all stock since I balance it with the other accounts. I have her contributing 80% to LargeCap, 15% to MidCap and 5% to SmallCap from her paycheck.
What's the percentage of your holdings in US Large Cap and US Mid & Small Cap?

To approximate total US stock market, I think the ratio is about 84% large to 16% mid/small which is 5:1 (4:1 is close enough in my opinion). See this wiki: Approximating Total Stock Market

You could just hold Large Cap/S&P 500 for your US stock exposure in these tax-advantaged accounts. The performance of S&P 500 to TSM has been very similar since TSM became an option (30 years ago?).
3. What would you do with the $200k liquid cash? I probably need about $40k for 6 months emergency so I guess it’s more like 160K.
What are your marginal tax brackets? It looks like you're probably in 24% federal.

Will you be eligible for a pension and if so, how much? Social Security too?

How did you accumulate this much cash? Was it just regular monthly excess cashflow? Unless there was some specific reason you were accumulating it (or perhaps you had a windfall), then you should think about adjusting the amounts you're contributing to the 403b and 401k.

For 2021, I think it would make sense to defer more taxes by maxing the 403b and/or the 401k, at least until you're in the 22% fed bracket. You could use the $200k to cashflow regular expenses, if paychecks become too small.

Other than that, you could open a taxable brokerage account and invest in tax-efficient index funds like VTSAX (Vanguard's TSM index fund).

Edited to add: Series I Savings Bonds might be worth considering right now. You could buy $20k combined between you and your spouse now, and then another $20k in January. The rates are adjusted semi-annually in May and November (when your bonds' rate changes depends on when you purchased them). You can't sell them within the first 12 months, and you lose 3 months' interest if sold within the first 5 years. May 2021 rate is 3.54% (you would get this annualized rate for 6 months if purchased before November 1), and the expected variable rate for November 2021 is 7.12%.
Topic Author
LITeacher
Posts: 131
Joined: Mon Aug 07, 2017 11:29 pm

Re: 35(Him) and 34(Her) - Long Island NY -- Simplify Portfolio

Post by LITeacher »

exodusNH wrote: Wed Oct 13, 2021 11:54 am
LITeacher wrote: Wed Oct 13, 2021 11:29 am Current Liquid Cash: $201,000

Debt: $383,000 mortgage @ 2.875% ($800,000 value)

Tax Filing Status: Married Filing Jointly

Income:
His: ~$140,000
Hers: $90,000

State of Res: NY

Age: 35 (Him) and 34 (Her)

Asset Allocation: I keep my retirement portfolio around 80/20

Current retirement assets: $510,000 broken down as follows:
His 403B at Vanguard:
--$90,000 VBTLX (Total Bond Admiral Shares) (E.R. 0.05)
--$62,000 VTIAX (Total Int’l Stock Admiral Shares) (E.R. 0.11)
--$7,000 VFIAX (SP500 Index Fund Admiral Shares) (E.R. 0.04)
His Roth IRA at Vanguard:
--$117,000 (VTSAX Admiral Shares) (E.R . 0.04)
His 457 (NYSDCP):
--$9,000 in Int’l Equity Portfolio (E.R. 0.02)
--$30,000 Large Cap Stocks (NYSDCB Equity Index Unitized Account) (E.R. 0.02)
--$7,000 Mid-Cap Stocks (NYSDCB Russell 2500 Index Unitized Account) (E.R. 0.02)
--$1,600 Bonds (NYSDCB US Debt Index Unitized Account) (E.R. 0.02)
Her Roth IRA at Vanguard:
--$73,000 (VTSAX Admiral Shares) (E.R. 0.04)
Her OLD 401K at John Hancock:
--$112,000 (SP500 Index Fund) (0.78, cheapest in this plan)
Her NEW 401K at Principal:
--$330 at LargeCap SP500 Index (E.R. 0.05)
--$60 at MidCap SP400 Index (E.R. 0.05)
--$20 at SmallCap SP600 Index (E.R. 0.05)

Annual Contributions
Max His Roth IRA
Max Her Roth IRA
Max His NYS457B
Annual $4,000 His 403B
6% Contribution to her NEW 401K
$10000 annually to NY 529 for our son

Questions:
1. What should I do with her old John Hancock 401k? The plan is terrible with high E.R.’s so I’m thinking I should move it to an IRA at Vanguard? Or would you rollover to her new 401k at Principal which they also allow?
2. Would you simplify our retirement investments at all? I tried to make her new 401K at Principal be all stock since I balance it with the other accounts. I have her contributing 80% to LargeCap, 15% to MidCap and 5% to SmallCap from her paycheck.
3. What would you do with the $200k liquid cash? I probably need about $40k for 6 months emergency so I guess it’s more like 160K.
I would definitely pull her old 401k into the new one. The only reason to pay 0.78 when she can get the same fund for 0.05 is if the new 401k has fees that aren't reflected in the ER. I'd avoid rolling into a IRA just to avoid issues with being able to do Roth recharacterizations.

Why do you have that much cash? Have you simply been saving it because you're concerned about investing in the market?
The cash is sort of a very unique situation - my parents came into a lot of money recently (around $5million) and have started to give money to my brother and me. I haven't touched my "windfall" gift yet. I anticipate this continuing each year but I don't want to depend on it so I didn't include that in the post.
exodusNH
Posts: 1009
Joined: Wed Jan 06, 2021 8:21 pm

Re: 35(Him) and 34(Her) - Long Island NY -- Simplify Portfolio

Post by exodusNH »

LITeacher wrote: Wed Oct 13, 2021 12:31 pm The cash is sort of a very unique situation - my parents came into a lot of money recently (around $5million) and have started to give money to my brother and me. I haven't touched my "windfall" gift yet. I anticipate this continuing each year but I don't want to depend on it so I didn't include that in the post.
Ah! OK. I was trying to get a feeling for why you had that.

We have an article here about managing a windfall: https://www.bogleheads.org/wiki/Managing_a_windfall

The general advice is that should should invest it according to your AA. In this case, I'd say that you might want to use it to let your wife contribute her full $19,500 to her 401k. This might mean she needs to contribute 80% of her salary to the 401k for the rest of the year. If you could contribute more to your retirement accounts, do something similar. You'd add this money to your EF / short-term cash and use it to top off her salary from the extra contributions. 401k contributions are calendar year; once Dec 31 comes, you cannot reclaim that space. I don't know if the 403b is something similar. With the IRAs, you have until April 15ish.

You could also fully fund your 2022 IRAs on Jan 3.
Outer Marker
Posts: 2079
Joined: Sun Mar 08, 2009 8:01 am

Re: 35(Him) and 34(Her) - Long Island NY -- Simplify Portfolio

Post by Outer Marker »

LITeacher wrote: Wed Oct 13, 2021 11:29 am Current Liquid Cash: $201,000

Debt: $383,000 mortgage @ 2.875% ($800,000 value)

Tax Filing Status: Married Filing Jointly

Income:
His: ~$140,000
Hers: $90,000

<snip>

Annual Contributions
Max His Roth IRA
Max Her Roth IRA
Max His NYS457B
Annual $4,000 His 403B
6% Contribution to her NEW 401K
$10000 annually to NY 529 for our son

Questions:
1. What should I do with her old John Hancock 401k? The plan is terrible with high E.R.’s so I’m thinking I should move it to an IRA at Vanguard? Or would you rollover to her new 401k at Principal which they also allow?
2. Would you simplify our retirement investments at all? I tried to make her new 401K at Principal be all stock since I balance it with the other accounts. I have her contributing 80% to LargeCap, 15% to MidCap and 5% to SmallCap from her paycheck.
3. What would you do with the $200k liquid cash? I probably need about $40k for 6 months emergency so I guess it’s more like 160K.
1. By all means roll her old 401K into her new one. Don't put it in into an IRA, since you would effectively lose the ability to do "Backdoor Roth" contributions due to the pro-rata rule. Since you're already over the income limit for Roth contributions, I assume that's how you're funding them, correct?

2. Your investments could be simplified by using Total Market and Total International where available, i.e. your Roths, and just using the S&P 500 in your 401K plans. The difference between TSM and the S&P is so slight, its probably not worth the effort to try and replicate it with small allocations to small and mid caps. Then again, it doesn't really hurt either. I'd come down in favor of streamlining.

3. As to the extra cash, make sure your Roths, etc. are fully funded and give yourself a generous emergency fund. Apply the rest to your mortgage.

4. If you have access to a Stable Value fund in your 401K's consider using that vs. Total Bond in this rate environment. Bonds are paying next to nothing and there's no point in taking interest rate risk with your "safe" money.
Topic Author
LITeacher
Posts: 131
Joined: Mon Aug 07, 2017 11:29 pm

Re: 35(Him) and 34(Her) - Long Island NY -- Simplify Portfolio

Post by LITeacher »

Outer Marker wrote: Wed Oct 13, 2021 1:20 pm
LITeacher wrote: Wed Oct 13, 2021 11:29 am Current Liquid Cash: $201,000

Debt: $383,000 mortgage @ 2.875% ($800,000 value)

Tax Filing Status: Married Filing Jointly

Income:
His: ~$140,000
Hers: $90,000

<snip>

Annual Contributions
Max His Roth IRA
Max Her Roth IRA
Max His NYS457B
Annual $4,000 His 403B
6% Contribution to her NEW 401K
$10000 annually to NY 529 for our son

Questions:
1. What should I do with her old John Hancock 401k? The plan is terrible with high E.R.’s so I’m thinking I should move it to an IRA at Vanguard? Or would you rollover to her new 401k at Principal which they also allow?
2. Would you simplify our retirement investments at all? I tried to make her new 401K at Principal be all stock since I balance it with the other accounts. I have her contributing 80% to LargeCap, 15% to MidCap and 5% to SmallCap from her paycheck.
3. What would you do with the $200k liquid cash? I probably need about $40k for 6 months emergency so I guess it’s more like 160K.
1. By all means roll her old 401K into her new one. Don't put it in into an IRA, since you would effectively lose the ability to do "Backdoor Roth" contributions due to the pro-rata rule. Since you're already over the income limit for Roth contributions, I assume that's how you're funding them, correct?

2. Your investments could be simplified by using Total Market and Total International where available, i.e. your Roths, and just using the S&P 500 in your 401K plans. The difference between TSM and the S&P is so slight, its probably not worth the effort to try and replicate it with small allocations to small and mid caps. Then again, it doesn't really hurt either. I'd come down in favor of streamlining.

3. As to the extra cash, make sure your Roths, etc. are fully funded and give yourself a generous emergency fund. Apply the rest to your mortgage.

4. If you have access to a Stable Value fund in your 401K's consider using that vs. Total Bond in this rate environment. Bonds are paying next to nothing and there's no point in taking interest rate risk with your "safe" money.
Actually we've contributed to Roth IRAs normally so far. Our highest AGI so far has been 177K back in 2018. Last year my wife was furloughed so it was even lower with unemployment. I'm not sure what's going to happen this year yet. I'm getting closer to the limit amount but I think our 401k and 403b contributions still keep us within the limits? I also have a 403b that I could still max (I do about 4k a year) and my wife has her 401k --- that should still be able to keep us within.
Outer Marker
Posts: 2079
Joined: Sun Mar 08, 2009 8:01 am

Re: 35(Him) and 34(Her) - Long Island NY -- Simplify Portfolio

Post by Outer Marker »

If you're under the limit that's fine, but you could be bumping up against it in the future, so I'd want to keep the backdoor "open."

Per Schwab's website, "for the tax year 2021 to contribute to a Roth IRA, and if you're married and file jointly, your MAGI must be under $206,000 for the tax year 2020 and 208,000 for the tax year 2021. "

Since your wife has good 401K options, there's no benefit to rolling it into an IRA - only downside in potentially not being able to do backdoor roth contributions in the future.
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