Finally figuring out personal finances

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Topic Author
jzh
Posts: 6
Joined: Mon Jan 24, 2022 3:03 am

Finally figuring out personal finances

Post by jzh »

After five years of neglecting my finances (aside from basic not having debts/loans and maxing out 401k, ROTH IRA, HSA), I recently decided to sit down and hash out my personal finances. I’ve read a lot over the past few weeks about the topic and am ready to go about to simplify my money. I think I have a good grip on what I need to do, but I’d like to get a double check, and have a few smaller questions I’d like to ask, before I move all my money around.

A bit of a background on where I’m currently at — I quit my job in the middle of last year and am spending about a year to breathe, take care of myself, and travel for a little bit, and I’ll probably start looking for jobs in 6-8 months. I’d like to live abroad for 3-5 years before making any longer term decisions on where I’ll end up (or might just end up not being super tied to a location). For now, I don’t plan on buying a house or any big investments, just keeping some money / kind of using my emergency fund with extra leeway, and I’d like to just put the rest of my money into long term investments. I have a tech background so I’m not super concerned about needing to find a job / make money if I need to.

Here’s my current situation:

Emergency funds: yes, 12 months worth

Debt: None

Tax Filing Status: Single

Tax Rate: 2021: 24% Federal, 9% State, 2022: 12% Federal, 6% State, potentially more if I get a job?

State of Residence: CA

Age: 26

Desired Asset allocation: 95% stocks / 5% bonds
Desired International allocation: 36% of stocks

Please provide an approximate size of your total portfolio; $500k-600k

Show us your current portfolio including all investment and retirement accounts (yourself and spouse or civil partner, if applicable) as it's important to look at the portfolio as a unified whole rather than look at accounts in isolation. Also include the available funds in your employer provided retirement plans.

Show each fund or holding as a percentage of the entire portfolio, not as a percentage of the account that holding is in. If this instruction is not clear, see the example under the Key Points section below. For example:

Current retirement assets

Taxable
26% = $147k Wealthfront (0.25% management fee + ~0.2% expense?)
22% = $126k Bond (48128LQH5, originally 4%, now following ftse and around 0.2%, expires end of 2029) (no expense?)
20% = $115k CD
4% = $23k Bond (48128L3W7, 3%, due 2035)
4.4% = $25k Cash

401k w/ ADP
9.9%=$56k traditional 2060 Vanguard Retirement (VTTSX) (includes employer contribution) (0.15% operating expense)
9.0%=$51k roth 2060 Vanguard Retirement (VTTSX) (0.15% operating expense)

Roth IRA at TD
2.6% = $14.7k Bond (48128LQH5, originally 4%, now following ftse and around 0.2%, expires end of 2029)
0.003% = $1.6k Cash

HSA at UMB
1.5% = $8.5k Cash
_______________________________________________________________

Contributions

New annual Contributions
$6k Roth IRA (if I do get a job this year)

Available funds
Funds available at Fidelity
Vanguard Total Stock Market Index Fund ETF (VTI) (0%)
Vanguard Total International Stock Index Fund ETF (VXUS) (0%)
Vanguard Total Bond Market Index Fund ETF (BND) (0%)

Questions:
1. I’m planning on rolling my traditional / roth 401ks into corresponding traditional / roth IRA accounts. Additionally, since I’m not planning on working (much) this year, I was thinking of rolling over as much of my traditional 401 IRA into my ROTH IRA as I can at the 12% rate (around $40k, or however less I end up making from working) at the end of the year. Are there other things I should be aware of in a no / low employment year?

2. I’d like to move all my wealthfront money (~$150k)to my broker. I’d currently have a loss here too of about 3k, but I imagine that’s mostly because the stock market is generally down, and seems like it could be nice to not have to pay any extra taxes from moving money around (I think that’s how this works if I’m losing money?) Is there anything I should know about moving a lot of taxable money?

3. A lot of my funds are currently in bonds that my dad did (I just did whatever he was doing and at the time it seemed better than the measly interest I was getting on my savings accounts) I was thinking of selling them early (for a slight loss, sub $1k total, at least the ones that have already been called, and redirect them to stocks). It feels bad to sell them at a loss, but I think it would suck more waiting 8 more years to be able to do anything else with that money, especially at the current 0.2% rate.

3b. Since I’d like to leave about 5% of my portfolio in bonds, would it make sense to keep the bond I have at 3% dividend unless it gets called? Or is a mutual bond fund a better idea with its diversification?

4. At the end of the day (realistically year), I’d like to have the fewest brokerages to keep tabs on. I was thinking of having the following, all at Fidelity.
~12.8% Roth IRA (roll over Roth IRA from TD Ameritrade, and roll over from former employer my Roth 401k)
~1.5% HSA (roll over from UMB)
~10.7% Traditional IRA (roll over from former employer my traditional 401k)
~75% Taxable account (moved from wealthfront and other banks)
Anything I should be extra careful about moving all this money around? I know there’s a transfer fee for TD Ameritrade Roth IRA ($75) and for my HSA ($25) and potentially a few other transfer fees that I’m willing to pay to consolidate everything. I was thinking that I would start DCAing slowly over the rest of the year by putting in 10k a week into my new allocations.

5. I’ve read the tax efficient funds wik, but I think it doesn’t apply to me too much if I chose ETFs. Is that correct? I would probably just put all my accounts with VTI and split my taxable account between VTI / VXUS / BND. Or should I be trying to put the different ones in my traditional / roth IRAs?

6. Finally, I’m pursuing the expat / abroad life for the next few years. Any tips here?
Last edited by jzh on Tue Jan 25, 2022 2:16 am, edited 1 time in total.
SnowBog
Posts: 3083
Joined: Fri Dec 21, 2018 11:21 pm

Re: Finally figuring out personal finances

Post by SnowBog »

jzh wrote: Mon Jan 24, 2022 11:00 pm I have a tech background so I’m not super concerned about needing to find a job / make money if I need to.
Interesting... We see many posts on here saying the opposite. That those in tech need to keep skills / work experience up to date.

But maybe that's a difference from those trying to continue to grow/advance in the field vs. just picking up odd jobs / income when they want...
SnowBog
Posts: 3083
Joined: Fri Dec 21, 2018 11:21 pm

Re: Finally figuring out personal finances

Post by SnowBog »

jzh wrote: Mon Jan 24, 2022 11:00 pm 5. I’ve read the tax efficient funds wik, but I think it doesn’t apply to me too much if I chose ETFs. Is that correct? I would probably just put all my accounts with VTI and split my taxable account between VTI / VXUS / BND. Or should I be trying to put the different ones in my traditional / roth IRAs?
Recommend reading https://www.bogleheads.org/wiki/Tax-eff ... _placement.

But in short, it's most tax efficient to keep bonds in a tax-deferred account.
SnowBog
Posts: 3083
Joined: Fri Dec 21, 2018 11:21 pm

Re: Finally figuring out personal finances

Post by SnowBog »

jzh wrote: Mon Jan 24, 2022 11:00 pm 4. At the end of the day (realistically year), I’d like to have the fewest brokerages to keep tabs on. I was thinking of having the following, all at Fidelity.
Not uncommon for Fidelity to be a "one stop shop". https://www.bogleheads.org/wiki/Fidelity:_one_stop_shop

Would recommend asking about "in kind" transfer. When possible, your existing shares will be transferred, so there are no tax implications (assuming you keep your current funds).
SnowBog
Posts: 3083
Joined: Fri Dec 21, 2018 11:21 pm

Re: Finally figuring out personal finances

Post by SnowBog »

jzh wrote: Mon Jan 24, 2022 11:00 pm 2. ... I’d currently have a loss here too of about 3k, but I imagine that’s mostly because the stock market is generally down, and seems like it could be nice to not have to pay any extra taxes from moving money around (I think that’s how this works if I’m losing money?)

3. ... I was thinking of selling them early (for a slight loss, sub $1k total, at least the ones that have already been called, and redirect them to stocks). It feels bad to sell them at a loss.
Read up on Tax Loss Harvesting.
https://www.bogleheads.org/wiki/Tax_loss_harvesting

Losses can reduce your taxable income by $3k a year, or reduce investment gains (no limit) until the loss is used up.
SnowBog
Posts: 3083
Joined: Fri Dec 21, 2018 11:21 pm

Re: Finally figuring out personal finances

Post by SnowBog »

jzh wrote: Mon Jan 24, 2022 11:00 pm ... I quit my job in the middle of last year and am spending about a year to breathe, take care of myself, and travel for a little bit, and I’ll probably start looking for jobs in 6-8 months.
...
Tax Rate: 24% Federal, 9% State
...
New annual Contributions
$6k Roth IRA
I'm a bit confused here...

If you quit your job, where is your income coming from?

If you don't have income, how are you in the 24% federal tax bracket / 9% state?

If you don't have "earned income" (aka paid for work), you can't contribute to an IRA (Roth or otherwise).
SnowBog
Posts: 3083
Joined: Fri Dec 21, 2018 11:21 pm

Re: Finally figuring out personal finances

Post by SnowBog »

jzh wrote: Mon Jan 24, 2022 11:00 pm 1. I’m planning on rolling my traditional / roth 401ks into corresponding traditional / roth IRA accounts. Additionally, since I’m not planning on working (much) this year, I was thinking of rolling over as much of my traditional 401 IRA into my ROTH IRA as I can at the 12% rate (around $40k, or however less I end up making from working) at the end of the year. Are there other things I should be aware of in a no / low employment year?
Unless your 401k has high fees and/or bad fund choices, there may be advantages to keeping 401k. https://www.bogleheads.org/wiki/401(k)

This is especially true if you ever make too much to contribute directly to a Roth IRA. If you don't have any traditional IRA funds, you can still do a "Backdoor Roth" contribution.

But converting into a Roth IRA in a low income year can be advantageous.
Topic Author
jzh
Posts: 6
Joined: Mon Jan 24, 2022 3:03 am

Re: Finally figuring out personal finances

Post by jzh »

Thanks for taking the time to read through everything SnowBog!

Some responses (if I should be quoting posts instead, please let me know! new to this site):
Tech: I guess I’m not super tied to the tech sector and am generally a fast learner. I also sometimes do some tech on the side for fun projects that I feel pretty good about my tech skills.

Tax-efficient placements: Yeah, that was the wiki I was reading about and then got really confused, because I’m not fully sure about mutual funds vs ETF tax implications still (even after reading the mutual funds vs etf wiki). I’ll put my bonds in my 401k then!

In kind transfer: I finally went in and looked at wealthfront was doing! I thought I’d just start over but I think I might try to do the in-kind transfer, since there is some overlap. Great tip!

Tax loss harvesting: Man, after reading the wiki, I’m still as intimidated, I think I’m going to transfer my only stock assets (wealthfront) over and wait 6 months since I’m not really sure how long I’ve had any of my assets…. before moving everything to VTI / VXUS / BND

Tax rates / income: Oops sorry, those are my tax percentages for 2021, I’ll update the original post. I’m planning on rolling over traditional to roth, so maxing out at the Fed 12% bracket and state 6% bracket. Also didn’t realize no contributions are allowed when you’re not working. I might work the last 4 or 5 months of the year, so this could change.
SnowBog
Posts: 3083
Joined: Fri Dec 21, 2018 11:21 pm

Re: Finally figuring out personal finances

Post by SnowBog »

General thoughts:
  • Don't ignore health insurance. If you don't currently have it, you should. One accident/illness could see a massive change in your finances.
  • At your age, your savings rate will be far more impactful over time than tweaking fund selections...
  • At most ages, the best financial things you can do is a) live below your means, b) save the rest c) focus on growing your career / income.
  • These are a bit opposite to what you are doing, so I assume that you have good reasons for your time off (and congrats on building up sizable balance from only a few years of work to make ends meet :beer).
  • Be mindful of things like social security credits. Assuming you'll return to the US, you'd want to minimally get 40 credits to qualify for disability. Your "retirement" benefits are based on your highest 35 earnings years.
  • Consider other insurance, such as short- and long-term disability. For example, what if you have an accident/illness and find yourself unable to work again. (This, along with health insurance, is often covered by employers.)
SnowBog
Posts: 3083
Joined: Fri Dec 21, 2018 11:21 pm

Re: Finally figuring out personal finances

Post by SnowBog »

jzh wrote: Tue Jan 25, 2022 2:14 am Tax-efficient placements: Yeah, that was the wiki I was reading about and then got really confused, because I’m not fully sure about mutual funds vs ETF tax implications still (even after reading the mutual funds vs etf wiki). I’ll put my bonds in my 401k then!
In a taxable account, an ETF may have a marginally more tax efficient structure than a mutual fund equivalent. (Except Vanguard, where they are basically the same.). But this is a rounding error...

The wiki link refers to the "placement" of funds.

Without repeating it...

Bond funds (ETF or MF - does but matter) pay "interest" - which is taxable income - and essentially taxed at whatever your federal/state income tax rates are. There are no advantages for "long term" or "qualified"...

Stock funds (again ETF or MF doesn't matter) often pay "dividends". Depending on how long you've owned shares, none|some|most|all of those dividends may be "qualified" dividends, where you'll essentially pay "long term capital gains" taxes which are lower then regular taxes.
Topic Author
jzh
Posts: 6
Joined: Mon Jan 24, 2022 3:03 am

Re: Finally figuring out personal finances

Post by jzh »

SnowBog wrote: Tue Jan 25, 2022 2:00 am
jzh wrote: Mon Jan 24, 2022 11:00 pm 1. I’m planning on rolling my traditional / roth 401ks into corresponding traditional / roth IRA accounts. Additionally, since I’m not planning on working (much) this year, I was thinking of rolling over as much of my traditional 401 IRA into my ROTH IRA as I can at the 12% rate (around $40k, or however less I end up making from working) at the end of the year. Are there other things I should be aware of in a no / low employment year?
Unless your 401k has high fees and/or bad fund choices, there may be advantages to keeping 401k. https://www.bogleheads.org/wiki/401(k)

This is especially true if you ever make too much to contribute directly to a Roth IRA. If you don't have any traditional IRA funds, you can still do a "Backdoor Roth" contribution.

But converting into a Roth IRA in a low income year can be advantageous.
Thanks for bringing this to my attention. I might just roll my roth 401k for now, and see where I’m at at the end of the year to see how much I can roll over at the lower tax rate.
Topic Author
jzh
Posts: 6
Joined: Mon Jan 24, 2022 3:03 am

Re: Finally figuring out personal finances

Post by jzh »

SnowBog wrote: Tue Jan 25, 2022 2:19 am General thoughts:
  • Don't ignore health insurance. If you don't currently have it, you should. One accident/illness could see a massive change in your finances.
  • At your age, your savings rate will be far more impactful over time than tweaking fund selections...
  • At most ages, the best financial things you can do is a) live below your means, b) save the rest c) focus on growing your career / income.
  • These are a bit opposite to what you are doing, so I assume that you have good reasons for your time off (and congrats on building up sizable balance from only a few years of work to make ends meet :beer).
  • Be mindful of things like social security credits. Assuming you'll return to the US, you'd want to minimally get 40 credits to qualify for disability. Your "retirement" benefits are based on your highest 35 earnings years.
  • Consider other insurance, such as short- and long-term disability. For example, what if you have an accident/illness and find yourself unable to work again. (This, along with health insurance, is often covered by employers.)
Super appreciate all the time you’ve put into reading and responding to my post!!
  • I’ve been in the process of working with a health insurance broker to help me figure out international health insurance and we’re in the final stages, hoping to get it done before Feb starts.
  • Good to know tweaking fund selections won’t impact it thatttt much
  • Haha, yes I’m just taking one year off to give myself a reset and figure out what I want to do for the next while. I don’t plan on being funemployed for any long period of time. In general I don’t spend much in a year <$20k overall so have been able to save a lot!
  • Wow I literally had never heard of social security credits before. Thanks for the tip!
  • I’ll take a look at other insurance!
  • Also I think I have a way better understanding on tax efficiency & ETF / mutual funds now - that last post was super useful!
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