Personal Finance / Portfolio Review - mid 40s high earner in high tax state (CA)

[NewLearner9]

Hi Bogleheads – Was fortunate to get introduced to BogleHeads (read the book in Jan 2023) and have since been reading up as much on the forum! Have taken some baby steps in optimizing my finances and now reaching out to ask for active suggestions from my more experienced friends on this forum. I appreciate your suggestion/recommendation for my situation described below - thanks in advance!

Background

I am in IT Sales with 100% W2 income and my wife is a Special-Ed teaching aid with a local primary school district. My comp jumped dramatically, primarily due to bonuses/commissions, in the last couple of years while my wife has a steady W2. We are fortunate to have a high income for now and recognize our opportunity for early retirement is within reach in the next 9-11 yrs when we expect our kids to leave the nest and if we so desire to take that path. Lifestyle-wise we are used to living below and having a heavy savings culture.

Age
45 and 43
2 kids (13, 10)

Annual Income
Him(100% W2): $700K(includes $256K base + $410K bonus + $18K -36K in RSUs based on yrly perf)
Her(100% W2): $42K

Tax
Married Filing Jointly with 2022 AGI @ ~ $685K
Fed 37%, CA 10.3%

Debt - Home
Remaining Mortgage: $379,000 @ 2.25% (12 yrs remaining); Current est. Home Value - $2M

Two Cars – both fully paid
MB C350 2009 Model w ~50K miles + Honda Sport Civic 2018 model w ~ 30K miles

---------------------------------

Assets $1,325,000 (Primarily in US w ~90k in India)

Emergency Fund
His:
$159K (SPAXX) Fidelity Gov't Cash Reserves Money Market Fund
Additional $110K CD Ladder ($50K – 3 months @ 4.5% APY; $50K – 6 months @ 4.95% APY; $10K – 3 months @ 4.9% APY)
Her:
$50K total ($25K – regular savings @ 3.9% APY + $25K CD – 18 months @ 4.75% APY)
Brokerage $375,000 (100% Individual stocks – overall down 25% since peak!)

His Backdoor Roth $12,800
30% (FSKAX) 0.015%
20% (FTIHX) 0.060%
40% (FXAIX) 0.020%
1% (SPAXX) 0.42%

His 401K $485,000
6% Vanguard Institutional 500 Index Trust 0.011%
19% Vanguard Target Retirement 2045 Select 0.045%
14% Vanguard Mid Cap Index (VMCPX) 0.03%
13% Vanguard Small Cap Index (VSCPX) 0.03%
38% Vanguard Growth Index (VIGIX) 0.04%
11% Vanguard Inst Total International Stk Mkt Index Trust 0.05%

His MegaBackdoor Roth $20,000 (started in 2023)
90% Vanguard Institutional 500 Index Trust 0.011%
10% Vanguard Inst Total International Stk Mkt Index Trust 0.05%

Her Backdoor Roth $12,800
30% (FSKAX) 0.015%
20% (FTIHX) 0.060%
40% (FXAIX) 0.020%
1% (SPAXX) 0.42%

Her 457b $2,550 (started in 2023)
20% Vanguard Total Bond Market Index (VBTLX) 0.05%
24% Vanguard Total Intl Stock Index Admiral (VTIAX) 0.11%
56% Vanguard Total Stock Mkt Idx Adm (VTSAX) 0.04%

HSA $44,000
98% (FZROX)
2% (FZILX)
----------------------------------------

Annual Contributions
His 401K $22,500; Employer match $19,800
Her 457b $22,500 (has additional 403b option and unused ($0 contri) till date; No employer match)
His Roth – Megabackdoor @ $20,000 + Backdoor @ $6,500
Her Roth - Backdoor @ $6,500
His ESPP - $15,000/Yr (15% discounted company stocks)
HSA $7,750
Her Pension (CalPERS) - Employee pays $2,600 + Employer contri @ $8,500


---------------------------------------

India Assets/Investments - $90K
80% in NRE/NRO savings accounts @ 6% APY
20% in India-based individual stocks
Additionally, own a couple of pieces of land probably worth ~30K or so

----------------------------------------

Questions

1) Will value your review of our investments in the 401k, 457b, ROTHs, and HSA accounts. What changes/enhancements/rebalances would you recommend to these?

2) I feel lucky to have a high amt of emergency funds and expect to receive my 2023 annual bonus in the next 4-5 months. Currently, I owe ~50K in 2022 taxes which I plan to pay by the extended (due to CA weather/storm) Oct deadline. However, I feel I may be missing in deploying the extra amount appropriately. Things top of my mind are:

a) Opening 529s (thinking of CollegeShare) AND Custodial Roths and using this mix for college education for both kids. I used online calcs/forums for a scenario for 140K college cost per child and am arriving at $25K lumpsum + $750/mnt in 529 and $2000/yr Roth for the 13 yr old and another $20K lumpsum + $600/mnt in 529 and $1000/yr Roth for the 10 yr old. Are there any suggestions/recommendations on the overall approach?

b) I “struggle” with spending in general! E.g., When I bought my house (newly built) in 2012, I opted for the base/standard options (tiles in kitchen/bathrooms, no major cabinetry in my living room etc) and so far, haven’t had any major expenses on it. Given that we spend 90% of our time in the house, I am thinking of spending on a nice upgrade/renovation. I still think this is not a need but a want – however, I see this as an opportunity to create the “best possible experience” and memories for my family/friends. The alternate here being, buying investment real-estate and/or a vacation property near a beach/lake etc – I am averse to this option but am getting increasing “pressure” (invariably comes up in conversations) from family/friends. Given this, what will be your advice for me?

3) Purely, from an overall Tax-efficiency purpose, we are thinking of maximizing both 457 and 403 options available to my wife. If we do this, she will be contributing ~100% (after the Pension/Union Dues and any tax etc) of her paycheck. If we go with this scenario, I am willing to pay her an equivalent amt of her current monthly take-home that she can use for her expenses. Are there any pros/cons to this approach? again, I am thinking this will help us get into a lower tax bracket for MFJ.

4) As it relates to my situation in India, I am again looking to deploy the local cash I am carrying in my bank accounts in the most tax-efficient/inflation-beating opportunities. Some options I am exploring where i need suggestions are:
a) Investing in Equity Linked Saving funds (ELSS) up to the 1.5 Lakh tax-free limit. Are there any suggestions/recommendations on this?
b) Investing in top Index Funds available for US Citizens in India's domestic market.
c) Invest in real-estate/land – again am generally averse to this (due to overheads in managing these) but have seen high ROI on these from the couple of properties I own today.

5) What are our blind spots?

6) What other things should we do now to organize/optimize our finances for future years?

Thank you again and can’t wait to learn from the collective wisdom of this group!!

[mcraepat9]

Hi Bogleheads – Was fortunate to get introduced to BogleHeads (read the book in Jan 2023) and have since been reading up as much on the forum! Have taken some baby steps in optimizing my finances and now reaching out to ask for active suggestions from my more experienced friends on this forum. I appreciate your suggestion/recommendation for my situation described below - thanks in advance!

Background

I am in IT Sales with 100% W2 income and my wife is a Special-Ed teaching aid with a local primary school district. My comp jumped dramatically, primarily due to bonuses/commissions, in the last couple of years while my wife has a steady W2. We are fortunate to have a high income for now and recognize our opportunity for early retirement is within reach in the next 9-11 yrs when we expect our kids to leave the nest and if we so desire to take that path. Lifestyle-wise we are used to living below and having a heavy savings culture.

Age
45 and 43
2 kids (13, 10)

Annual Income
Him(100% W2): $700K(includes $256K base + $410K bonus + $18K -36K in RSUs based on yrly perf)
Her(100% W2): $42K

Tax
Married Filing Jointly with 2022 AGI @ ~ $685K
Fed 37%, CA 10.3%

Debt - Home
Remaining Mortgage: $379,000 @ 2.25% (12 yrs remaining); Current est. Home Value - $2M

Two Cars – both fully paid
MB C350 2009 Model w ~50K miles + Honda Sport Civic 2018 model w ~ 30K miles

---------------------------------

Assets $1,325,000 (Primarily in US w ~90k in India)

Emergency Fund
His:
$159K (SPAXX) Fidelity Gov't Cash Reserves Money Market Fund
Additional $110K CD Ladder ($50K – 3 months @ 4.5% APY; $50K – 6 months @ 4.95% APY; $10K – 3 months @ 4.9% APY)
Her:
$50K total ($25K – regular savings @ 3.9% APY + $25K CD – 18 months @ 4.75% APY)
Brokerage $375,000 (100% Individual stocks – overall down 25% since peak!)

His Backdoor Roth $12,800
30% (FSKAX) 0.015%
20% (FTIHX) 0.060%
40% (FXAIX) 0.020%
1% (SPAXX) 0.42%

His 401K $485,000
6% Vanguard Institutional 500 Index Trust 0.011%
19% Vanguard Target Retirement 2045 Select 0.045%
14% Vanguard Mid Cap Index (VMCPX) 0.03%
13% Vanguard Small Cap Index (VSCPX) 0.03%
38% Vanguard Growth Index (VIGIX) 0.04%
11% Vanguard Inst Total International Stk Mkt Index Trust 0.05%

His MegaBackdoor Roth $20,000 (started in 2023)
90% Vanguard Institutional 500 Index Trust 0.011%
10% Vanguard Inst Total International Stk Mkt Index Trust 0.05%

Her Backdoor Roth $12,800
30% (FSKAX) 0.015%
20% (FTIHX) 0.060%
40% (FXAIX) 0.020%
1% (SPAXX) 0.42%

Her 457b $2,550 (started in 2023)
20% Vanguard Total Bond Market Index (VBTLX) 0.05%
24% Vanguard Total Intl Stock Index Admiral (VTIAX) 0.11%
56% Vanguard Total Stock Mkt Idx Adm (VTSAX) 0.04%

HSA $44,000
98% (FZROX)
2% (FZILX)
----------------------------------------

Annual Contributions
His 401K $22,500; Employer match $19,800
Her 457b $22,500 (has additional 403b option and unused ($0 contri) till date; No employer match)
His Roth – Megabackdoor @ $20,000 + Backdoor @ $6,500
Her Roth - Backdoor @ $6,500
His ESPP - $15,000/Yr (15% discounted company stocks)
HSA $7,750
Her Pension (CalPERS) - Employee pays $2,600 + Employer contri @ $8,500


---------------------------------------

India Assets/Investments - $90K
80% in NRE/NRO savings accounts @ 6% APY
20% in India-based individual stocks
Additionally, own a couple of pieces of land probably worth ~30K or so

----------------------------------------

Questions

1) Will value your review of our investments in the 401k, 457b, ROTHs, and HSA accounts. What changes/enhancements/rebalances would you recommend to these? It's fairly obvious you are doing well. The one thing that stands out is your 401k investments are too complicated! Your 401k has too many funds (including a target date fund, which is designed to be a single-fund solution) and I find it hard to believe you have a coherent strategy there. If you are going to do the Three Fund Portfolio in all other accounts, it probably makes sense to bring this account along as well and simplify as you have done with your other accounts.

2) I feel lucky to have a high amt of emergency funds and expect to receive my 2023 annual bonus in the next 4-5 months. Currently, I owe ~50K in 2022 taxes which I plan to pay by the extended (due to CA weather/storm) Oct deadline. However, I feel I may be missing in deploying the extra amount appropriately. Things top of my mind are:

a) Opening 529s (thinking of CollegeShare) AND Custodial Roths and using this mix for college education for both kids. I used online calcs/forums for a scenario for 140K college cost per child and am arriving at $25K lumpsum + $750/mnt in 529 and $2000/yr Roth for the 13 yr old and another $20K lumpsum + $600/mnt in 529 and $1000/yr Roth for the 10 yr old. Are there any suggestions/recommendations on the overall approach? I think you have plenty of liquidity and investments overall to do anything you want on this front. Maxing their Roths make sense, but of course will be limited by their actual earned income. I also think it's better to err on the side of underfunding these, as you will be annoyed if you overfund 529s and end up having to pay a penalty to get cash out.

b) I “struggle” with spending in general! E.g., When I bought my house (newly built) in 2012, I opted for the base/standard options (tiles in kitchen/bathrooms, no major cabinetry in my living room etc) and so far, haven’t had any major expenses on it. Given that we spend 90% of our time in the house, I am thinking of spending on a nice upgrade/renovation. I still think this is not a need but a want – however, I see this as an opportunity to create the “best possible experience” and memories for my family/friends. The alternate here being, buying investment real-estate and/or a vacation property near a beach/lake etc – I am averse to this option but am getting increasing “pressure” (invariably comes up in conversations) from family/friends. Given this, what will be your advice for me? You earned the money. You get to (not) spend it any way you want. Family and friends did not earn the money. Their commentary is not relevant. Your ethos is that you don't spend extra money on things you don't value (like upgrading the tiles). I think you have plenty of cushion in your assets to upgrade your home if you want, but sit down with your wife and decide on what changes that you value and would actually make you happier. Just because you can afford first class airfare doesn't mean you have to buy it. But deciding on what spending improves your lifestyle and happiness is a fun exercise. People in your station in life I often say can have anything they want, but not everything they want. Figure out what you want and when you want it, and make your budget

3) Purely, from an overall Tax-efficiency purpose, we are thinking of maximizing both 457 and 403 options available to my wife. If we do this, she will be contributing ~100% (after the Pension/Union Dues and any tax etc) of her paycheck. If we go with this scenario, I am willing to pay her an equivalent amt of her current monthly take-home that she can use for her expenses. Are there any pros/cons to this approach? again, I am thinking this will help us get into a lower tax bracket for MFJ.Assuming you have the liquidity, yes you should definitely maxing all tax deferred options available to both of you regardless of which spouse earns the funds. Whether you pay your spouse an equivalent amount for her out of pocket expenses is more of a relationship question than anything else - some relationships have joint accounts, others have separate accounts with the higher earning spouse cutting checks to the lower earning spouse as necessary. Really more about what you define as "ours", "yours" and "mine". But of course tax advantaged investing will be more beneficial to you than taxable investing.

4) As it relates to my situation in India, I am again looking to deploy the local cash I am carrying in my bank accounts in the most tax-efficient/inflation-beating opportunities. Some options I am exploring where i need suggestions are: Cannot opine on Indian investments, sorry
a) Investing in Equity Linked Saving funds (ELSS) up to the 1.5 Lakh tax-free limit. Are there any suggestions/recommendations on this?
b) Investing in top Index Funds available for US Citizens in India's domestic market.
c) Invest in real-estate/land – again am generally averse to this (due to overheads in managing these) but have seen high ROI on these from the couple of properties I own today.

5) What are our blind spots? I don't think you have one. While I personally am not a big fan of taxable interest or individual stocks, it's clear you have enough liquidity and funds to burn some on these endeavors. You have enough cash to achieve whatever you want.

6) What other things should we do now to organize/optimize our finances for future years? Seems like just keeping your investing plan simple and figuring out what expenditures you aren't making, but should make, that would improve the life you are living now. Nobody wants to be the richest man in the graveyard. That doesn't mean you have to go to Vegas and bet it all on roulette or fly private jets everywhere, but I suspect there are some relatively modest life upgrades you can make that you and your wife would really enjoy (and get good value out of)!

Thank you again and can’t wait to learn from the collective wisdom of this group!!

Good luck!

[Wannaretireearly]

You are doing the big things right. Keep on truckin.
Save one year of expenses every year, a great piece of advice I’ve heard here.

[ray.james]

Questions

1) Will value your review of our investments in the 401k, 457b, ROTHs, and HSA accounts. What changes/enhancements/rebalances would you recommend to these?

Too many funds. You do not need s&p 500 and a total market fund in each account. Especially when balances are under 100K. it makes no difference to split. If a individual fund is less than 5% of your total family retirement savings, it does not need a separate fund as it would not change the yield/returns needle. In your case that number is 50K. So one suggestion is to consolidate and skip micro optimizations.

2) I feel lucky to have a high amt of emergency funds and expect to receive my 2023 annual bonus in the next 4-5 months. Currently, I owe ~50K in 2022 taxes which I plan to pay by the extended (due to CA weather/storm) Oct deadline. However, I feel I may be missing in deploying the extra amount appropriately. Things top of my mind are:

a) Opening 529s (thinking of CollegeShare) AND Custodial Roths and using this mix for college education for both kids. I used online calcs/forums for a scenario for 140K college cost per child and am arriving at $25K lumpsum + $750/mnt in 529 and $2000/yr Roth for the 13 yr old and another $20K lumpsum + $600/mnt in 529 and $1000/yr Roth for the 10 yr old. Are there any suggestions/recommendations on the overall approach?

I would superfund the 529. The value of 529 is in tax free growth and earnings. It is simply a function of time. If you put 100k for a 17 year old and it earned 10%, the net tax benefit is on 10K of earnings. But if you super fund a 50K to a 10 year old, it grows at 10%pa, at 18/college time, the net benefit is on $57,000. Especially at your marginal tax bracket -( 37% + 9.3% + 3.8%) that is huge. Come up with how much you want to contribute. A 4 year UC costs around 150K. Lets say you want to fund 100k and the rest is on kid. Now calculate back to current age needed contribution with 6% real return. I would also pull down from you/spouse emergency fund savings beyond 12 months and would do this.

b) I “struggle” with spending in general! E.g., When I bought my house (newly built) in 2012, I opted for the base/standard options (tiles in kitchen/bathrooms, no major cabinetry in my living room etc) and so far, haven’t had any major expenses on it. Given that we spend 90% of our time in the house, I am thinking of spending on a nice upgrade/renovation. I still think this is not a need but a want – however, I see this as an opportunity to create the “best possible experience” and memories for my family/friends. The alternate here being, buying investment real-estate and/or a vacation property near a beach/lake etc – I am averse to this option but am getting increasing “pressure” (invariably comes up in conversations) from family/friends. Given this, what will be your advice for me?

One things missing from your post what are your current annual expenses? this question ties into both your emergency fund size and needs/wants ratio of current income

3) Purely, from an overall Tax-efficiency purpose, we are thinking of maximizing both 457 and 403 options available to my wife. If we do this, she will be contributing ~100% (after the Pension/Union Dues and any tax etc) of her paycheck. If we go with this scenario, I am willing to pay her an equivalent amt of her current monthly take-home that she can use for her expenses. Are there any pros/cons to this approach? again, I am thinking this will help us get into a lower tax bracket for MFJ.

Yes, tax advantages savings impact is huge. As your wealth and income grows, the issue is not current taxation rate but taxation rate on earnings as well. Your marginal bracket is ( 47% + 9.3% + 3.8%). So if you had a 5% returns on your cd's your actual net rate is 2.3% - less than inflation. Our household is combined joint accounts. But if your spouse likes separate you can fund 25k into her account in lieu of maximizing retirement savings. Sometimes with 401k, 457, 4013b, pension- it can be too much. But she is starting from zero. So this is a non-issue.

4) As it relates to my situation in India, I am again looking to deploy the local cash I am carrying in my bank accounts in the most tax-efficient/inflation-beating opportunities. Some options I am exploring where i need suggestions are:
a) Investing in Equity Linked Saving funds (ELSS) up to the 1.5 Lakh tax-free limit. Are there any suggestions/recommendations on this?
b) Investing in top Index Funds available for US Citizens in India's domestic market.
c) Invest in real-estate/land – again am generally averse to this (due to overheads in managing these) but have seen high ROI on these from the couple of properties I own today.

5) What are our blind spots?

6) What other things should we do now to organize/optimize our finances for future years?

Thank you again and can’t wait to learn from the collective wisdom of this group!!

[NewLearner9]

Hi Bogleheads – Was fortunate to get introduced to BogleHeads (read the book in Jan 2023) and have since been reading up as much on the forum! Have taken some baby steps in optimizing my finances and now reaching out to ask for active suggestions from my more experienced friends on this forum. I appreciate your suggestion/recommendation for my situation described below - thanks in advance!

Background

I am in IT Sales with 100% W2 income and my wife is a Special-Ed teaching aid with a local primary school district. My comp jumped dramatically, primarily due to bonuses/commissions, in the last couple of years while my wife has a steady W2. We are fortunate to have a high income for now and recognize our opportunity for early retirement is within reach in the next 9-11 yrs when we expect our kids to leave the nest and if we so desire to take that path. Lifestyle-wise we are used to living below and having a heavy savings culture.

Age
45 and 43
2 kids (13, 10)

Annual Income
Him(100% W2): $700K(includes $256K base + $410K bonus + $18K -36K in RSUs based on yrly perf)
Her(100% W2): $42K

Tax
Married Filing Jointly with 2022 AGI @ ~ $685K
Fed 37%, CA 10.3%

Debt - Home
Remaining Mortgage: $379,000 @ 2.25% (12 yrs remaining); Current est. Home Value - $2M

Two Cars – both fully paid
MB C350 2009 Model w ~50K miles + Honda Sport Civic 2018 model w ~ 30K miles

---------------------------------

Assets $1,325,000 (Primarily in US w ~90k in India)

Emergency Fund
His:
$159K (SPAXX) Fidelity Gov't Cash Reserves Money Market Fund
Additional $110K CD Ladder ($50K – 3 months @ 4.5% APY; $50K – 6 months @ 4.95% APY; $10K – 3 months @ 4.9% APY)
Her:
$50K total ($25K – regular savings @ 3.9% APY + $25K CD – 18 months @ 4.75% APY)
Brokerage $375,000 (100% Individual stocks – overall down 25% since peak!)

His Backdoor Roth $12,800
30% (FSKAX) 0.015%
20% (FTIHX) 0.060%
40% (FXAIX) 0.020%
1% (SPAXX) 0.42%

His 401K $485,000
6% Vanguard Institutional 500 Index Trust 0.011%
19% Vanguard Target Retirement 2045 Select 0.045%
14% Vanguard Mid Cap Index (VMCPX) 0.03%
13% Vanguard Small Cap Index (VSCPX) 0.03%
38% Vanguard Growth Index (VIGIX) 0.04%
11% Vanguard Inst Total International Stk Mkt Index Trust 0.05%

His MegaBackdoor Roth $20,000 (started in 2023)
90% Vanguard Institutional 500 Index Trust 0.011%
10% Vanguard Inst Total International Stk Mkt Index Trust 0.05%

Her Backdoor Roth $12,800
30% (FSKAX) 0.015%
20% (FTIHX) 0.060%
40% (FXAIX) 0.020%
1% (SPAXX) 0.42%

Her 457b $2,550 (started in 2023)
20% Vanguard Total Bond Market Index (VBTLX) 0.05%
24% Vanguard Total Intl Stock Index Admiral (VTIAX) 0.11%
56% Vanguard Total Stock Mkt Idx Adm (VTSAX) 0.04%

HSA $44,000
98% (FZROX)
2% (FZILX)
----------------------------------------

Annual Contributions
His 401K $22,500; Employer match $19,800
Her 457b $22,500 (has additional 403b option and unused ($0 contri) till date; No employer match)
His Roth – Megabackdoor @ $20,000 + Backdoor @ $6,500
Her Roth - Backdoor @ $6,500
His ESPP - $15,000/Yr (15% discounted company stocks)
HSA $7,750
Her Pension (CalPERS) - Employee pays $2,600 + Employer contri @ $8,500


---------------------------------------

India Assets/Investments - $90K
80% in NRE/NRO savings accounts @ 6% APY
20% in India-based individual stocks
Additionally, own a couple of pieces of land probably worth ~30K or so

----------------------------------------

Questions

1) Will value your review of our investments in the 401k, 457b, ROTHs, and HSA accounts. What changes/enhancements/rebalances would you recommend to these? It's fairly obvious you are doing well. The one thing that stands out is your 401k investments are too complicated! Your 401k has too many funds (including a target date fund, which is designed to be a single-fund solution) and I find it hard to believe you have a coherent strategy there. If you are going to do the Three Fund Portfolio in all other accounts, it probably makes sense to bring this account along as well and simplify as you have done with your other accounts.

2) I feel lucky to have a high amt of emergency funds and expect to receive my 2023 annual bonus in the next 4-5 months. Currently, I owe ~50K in 2022 taxes which I plan to pay by the extended (due to CA weather/storm) Oct deadline. However, I feel I may be missing in deploying the extra amount appropriately. Things top of my mind are:

a) Opening 529s (thinking of CollegeShare) AND Custodial Roths and using this mix for college education for both kids. I used online calcs/forums for a scenario for 140K college cost per child and am arriving at $25K lumpsum + $750/mnt in 529 and $2000/yr Roth for the 13 yr old and another $20K lumpsum + $600/mnt in 529 and $1000/yr Roth for the 10 yr old. Are there any suggestions/recommendations on the overall approach? I think you have plenty of liquidity and investments overall to do anything you want on this front. Maxing their Roths make sense, but of course will be limited by their actual earned income. I also think it's better to err on the side of underfunding these, as you will be annoyed if you overfund 529s and end up having to pay a penalty to get cash out.

b) I “struggle” with spending in general! E.g., When I bought my house (newly built) in 2012, I opted for the base/standard options (tiles in kitchen/bathrooms, no major cabinetry in my living room etc) and so far, haven’t had any major expenses on it. Given that we spend 90% of our time in the house, I am thinking of spending on a nice upgrade/renovation. I still think this is not a need but a want – however, I see this as an opportunity to create the “best possible experience” and memories for my family/friends. The alternate here being, buying investment real-estate and/or a vacation property near a beach/lake etc – I am averse to this option but am getting increasing “pressure” (invariably comes up in conversations) from family/friends. Given this, what will be your advice for me? You earned the money. You get to (not) spend it any way you want. Family and friends did not earn the money. Their commentary is not relevant. Your ethos is that you don't spend extra money on things you don't value (like upgrading the tiles). I think you have plenty of cushion in your assets to upgrade your home if you want, but sit down with your wife and decide on what changes that you value and would actually make you happier. Just because you can afford first class airfare doesn't mean you have to buy it. But deciding on what spending improves your lifestyle and happiness is a fun exercise. People in your station in life I often say can have anything they want, but not everything they want. Figure out what you want and when you want it, and make your budget

3) Purely, from an overall Tax-efficiency purpose, we are thinking of maximizing both 457 and 403 options available to my wife. If we do this, she will be contributing ~100% (after the Pension/Union Dues and any tax etc) of her paycheck. If we go with this scenario, I am willing to pay her an equivalent amt of her current monthly take-home that she can use for her expenses. Are there any pros/cons to this approach? again, I am thinking this will help us get into a lower tax bracket for MFJ.Assuming you have the liquidity, yes you should definitely maxing all tax deferred options available to both of you regardless of which spouse earns the funds. Whether you pay your spouse an equivalent amount for her out of pocket expenses is more of a relationship question than anything else - some relationships have joint accounts, others have separate accounts with the higher earning spouse cutting checks to the lower earning spouse as necessary. Really more about what you define as "ours", "yours" and "mine". But of course tax advantaged investing will be more beneficial to you than taxable investing.

4) As it relates to my situation in India, I am again looking to deploy the local cash I am carrying in my bank accounts in the most tax-efficient/inflation-beating opportunities. Some options I am exploring where i need suggestions are: Cannot opine on Indian investments, sorry
a) Investing in Equity Linked Saving funds (ELSS) up to the 1.5 Lakh tax-free limit. Are there any suggestions/recommendations on this?
b) Investing in top Index Funds available for US Citizens in India's domestic market.
c) Invest in real-estate/land – again am generally averse to this (due to overheads in managing these) but have seen high ROI on these from the couple of properties I own today.

5) What are our blind spots? I don't think you have one. While I personally am not a big fan of taxable interest or individual stocks, it's clear you have enough liquidity and funds to burn some on these endeavors. You have enough cash to achieve whatever you want.

6) What other things should we do now to organize/optimize our finances for future years? Seems like just keeping your investing plan simple and figuring out what expenditures you aren't making, but should make, that would improve the life you are living now. Nobody wants to be the richest man in the graveyard. That doesn't mean you have to go to Vegas and bet it all on roulette or fly private jets everywhere, but I suspect there are some relatively modest life upgrades you can make that you and your wife would really enjoy (and get good value out of)!

Thank you again and can’t wait to learn from the collective wisdom of this group!!

Good luck!

@mcraepat9 genuinely appreciate you taking the time to respond to my questions! Here are my key takeaways from your responses and a few clarifying Qs:
1) I do agree with your observation on my 401k portfolio and I feel the same way. I think I got unwieldy with it as I tried to roll over from my earlier employer and did some rebalancing over the past few. My specific clarifying Q here would be, that given this is my current largest investment bucket, is it ok to rebalance this to just have the single fund target date fund (2045 select) or should I pick a 3 fund as I have done in my other portfolios (HSA, ROTH IRA etc)? Also, I believe the mega backdoor is setup to mirror my allocation in the 401k. Appreciate any further thoughts/guidance on this topic.
2) Going with some of your suggestions a) discussing with my family on things we will value the most and reassessing need for home upgrades b) will maximize the 403b option available
3) It definitely has been a learning experience with investing in individual stocks (clearly I learned that I am not as good as I thought ☹) vs the Boglehead-recommended simplicity in index funds. Now that I have data points, I feel it will serve me well as I try to share this with others.
Again, much appreciate the time and suggestions!

[NewLearner9]

Questions

1) Will value your review of our investments in the 401k, 457b, ROTHs, and HSA accounts. What changes/enhancements/rebalances would you recommend to these?

Too many funds. You do not need s&p 500 and a total market fund in each account. Especially when balances are under 100K. it makes no difference to split. If a individual fund is less than 5% of your total family retirement savings, it does not need a separate fund as it would not change the yield/returns needle. In your case that number is 50K. So one suggestion is to consolidate and skip micro optimizations.

2) I feel lucky to have a high amt of emergency funds and expect to receive my 2023 annual bonus in the next 4-5 months. Currently, I owe ~50K in 2022 taxes which I plan to pay by the extended (due to CA weather/storm) Oct deadline. However, I feel I may be missing in deploying the extra amount appropriately. Things top of my mind are:

a) Opening 529s (thinking of CollegeShare) AND Custodial Roths and using this mix for college education for both kids. I used online calcs/forums for a scenario for 140K college cost per child and am arriving at $25K lumpsum + $750/mnt in 529 and $2000/yr Roth for the 13 yr old and another $20K lumpsum + $600/mnt in 529 and $1000/yr Roth for the 10 yr old. Are there any suggestions/recommendations on the overall approach?

I would superfund the 529. The value of 529 is in tax free growth and earnings. It is simply a function of time. If you put 100k for a 17 year old and it earned 10%, the net tax benefit is on 10K of earnings. But if you super fund a 50K to a 10 year old, it grows at 10%pa, at 18/college time, the net benefit is on $57,000. Especially at your marginal tax bracket -( 37% + 9.3% + 3.8%) that is huge. Come up with how much you want to contribute. A 4 year UC costs around 150K. Lets say you want to fund 100k and the rest is on kid. Now calculate back to current age needed contribution with 6% real return. I would also pull down from you/spouse emergency fund savings beyond 12 months and would do this.

b) I “struggle” with spending in general! E.g., When I bought my house (newly built) in 2012, I opted for the base/standard options (tiles in kitchen/bathrooms, no major cabinetry in my living room etc) and so far, haven’t had any major expenses on it. Given that we spend 90% of our time in the house, I am thinking of spending on a nice upgrade/renovation. I still think this is not a need but a want – however, I see this as an opportunity to create the “best possible experience” and memories for my family/friends. The alternate here being, buying investment real-estate and/or a vacation property near a beach/lake etc – I am averse to this option but am getting increasing “pressure” (invariably comes up in conversations) from family/friends. Given this, what will be your advice for me?

One things missing from your post what are your current annual expenses? this question ties into both your emergency fund size and needs/wants ratio of current income

3) Purely, from an overall Tax-efficiency purpose, we are thinking of maximizing both 457 and 403 options available to my wife. If we do this, she will be contributing ~100% (after the Pension/Union Dues and any tax etc) of her paycheck. If we go with this scenario, I am willing to pay her an equivalent amt of her current monthly take-home that she can use for her expenses. Are there any pros/cons to this approach? again, I am thinking this will help us get into a lower tax bracket for MFJ.

Yes, tax advantages savings impact is huge. As your wealth and income grows, the issue is not current taxation rate but taxation rate on earnings as well. Your marginal bracket is ( 47% + 9.3% + 3.8%). So if you had a 5% returns on your cd's your actual net rate is 2.3% - less than inflation. Our household is combined joint accounts. But if your spouse likes separate you can fund 25k into her account in lieu of maximizing retirement savings. Sometimes with 401k, 457, 4013b, pension- it can be too much. But she is starting from zero. So this is a non-issue.

4) As it relates to my situation in India, I am again looking to deploy the local cash I am carrying in my bank accounts in the most tax-efficient/inflation-beating opportunities. Some options I am exploring where i need suggestions are:
a) Investing in Equity Linked Saving funds (ELSS) up to the 1.5 Lakh tax-free limit. Are there any suggestions/recommendations on this?
b) Investing in top Index Funds available for US Citizens in India's domestic market.
c) Invest in real-estate/land – again am generally averse to this (due to overheads in managing these) but have seen high ROI on these from the couple of properties I own today.

5) What are our blind spots?

6) What other things should we do now to organize/optimize our finances for future years?

Thank you again and can’t wait to learn from the collective wisdom of this group!!

@ray.james Thank you for the valuable insights!

My key takeaways and a few clarifying Qs:

1) On your suggestion related to simplifying the funds in the various accounts, I am interpreting that you are recommending a 3-fund strategy for my 401K since it is > $100K and consolidating to single funds (so say go with Target date funds if available) for the rest as they are <$50K. Have I got this right?

2) Working on your suggestion on super funding the 529 and coming up with the estimates for this.

3) As it relates to our expenses (including vacation/trips to India etc), I would say we are currently averaging ~100K/yr for the past several yrs. Welcome any feedback based on this.

4) Will look into the join accounts options for these. Currently, we have put ourselves as the primary beneficiaries of these.

Thanks again for the great suggestions and for responding to my Qs!

[NewLearner9]

You are doing the big things right. Keep on truckin.
Save one year of expenses every year, a great piece of advice I’ve heard here.

@Wannaretireearly much appreciate your response!

agree with the advice on the expenses and feel am currently in a fortunate situation on this front. Trying to get help on appropriately deploying the extra amount from an overall missing opportunities/growth/tax-efficiency perspective. Thanks

[pizzy]

I know this is Bogleheads, but upgrade those vehicles.

[NewLearner9]

I know this is Bogleheads, but upgrade those vehicles.

Oh boy, you picked up on a topic that has my family divided

Am all for selling the 2009 MB (expensive maintenance though has very low miles and is in relatively good condition) given the strong 2nd hand car market and replacing it with a Tesla Model 3. My wife would rather go with a new 7-seater/Van (so model Y if we go with Tesla). My kids on the other hand are opposed (yes they have strong opinions) to a Tesla and ok to buy other EVs. That said, I realized we primarily use one car (Honda) for 90% of our current transportation needs (say 5-7k miles/yr) and the MB is mostly lying around as backup when needed. Continuing to have discussions on this situation and welcome feedback/thoughts.

[pizzy]

I know this is Bogleheads, but upgrade those vehicles.

Oh boy, you picked up on a topic that has my family divided

Am all for selling the 2009 MB (expensive maintenance though has very low miles and is in relatively good condition) given the strong 2nd hand car market and replacing it with a Tesla Model 3. My wife would rather go with a new 7-seater/Van (so model Y if we go with Tesla). My kids on the other hand are opposed (yes they have strong opinions) to a Tesla and ok to buy other EVs. That said, I realized we primarily use one car (Honda) for 90% of our current transportation needs (say 5-7k miles/yr) and the MB is mostly lying around as backup when needed. Continuing to have discussions on this situation and welcome feedback/thoughts.

Sell what you have and get what you want and let your wife/kids pick the other. Win/win. Make this your present to yourselves for your awesome last few years. As a boglehead, you will keep them for a long time.

[HereToLearn]

I know this is Bogleheads, but upgrade those vehicles.

Oh boy, you picked up on a topic that has my family divided

Am all for selling the 2009 MB (expensive maintenance though has very low miles and is in relatively good condition) given the strong 2nd hand car market and replacing it with a Tesla Model 3. My wife would rather go with a new 7-seater/Van (so model Y if we go with Tesla). My kids on the other hand are opposed (yes they have strong opinions) to a Tesla and ok to buy other EVs. That said, I realized we primarily use one car (Honda) for 90% of our current transportation needs (say 5-7k miles/yr) and the MB is mostly lying around as backup when needed. Continuing to have discussions on this situation and welcome feedback/thoughts.

If replacing a car, think of the timing of when you may want to hand a car over to your children. Do HS seniors typically drive to the school your children attend? I handed down my then 13 year old car to my older child to use during his Sr year, and then to his younger brother a few years later. Each also took that same car to college during Sr year, and it is now back in my garage.

I agree with all of NewLearner's comments in red, other than that I am a huge fan of 529 plans, so I would fund those more unless you are certain that your children will remain in CA to attend college. Your children can only borrow $27K across all four years, so if you do not fund the balance, you will have to hope they can attain merit awards.

The schools my children recently attended are $84K for tuition, room & board for the upcoming school year. Costs have increased 3.75%/year for the past ten years.

You mentioned funding their Roth accounts. If you should end up with unused money in a 529 account, you can use $35K of the excess to fund the beneficiary's Roth w/o incurring tax liability, up to the typical Roth contribution and earnings limits.

I definitely agree that you should undertake whatever renovation or upgrade to your existing home that will make you and your family happy.

[ray.james]

1) On your suggestion related to simplifying the funds in the various accounts, I am interpreting that you are recommending a 3-fund strategy for my 401K since it is > $100K and consolidating to single funds (so say go with Target date funds if available) for the rest as they are <$50K. Have I got this right?

Sorry I did not explain this clearly. All together in retirement you have ~550k - 485k from your employer, all roths -40k. You are contributing 105k split across 401k, 457, employer match, roth ira's and MBDRs. Now treat it as one pot of 550k money and 105k contributions per year. What is an asset allocation you want?

Lets say you want to do 50-30-20 split of 3 fund. => 275 domestic, 165 international, rest in bonds.
So first roth's get the stock. Both Roth ira and Mega back door Roth - will be 1 fund - total stock market fund. All contributions will be total stock market. In your 401k - 235k - total stock market, 165 - total international and the rest in bonds. I am not advising you to follow 3 fund rule but to look at the retirement assets together and allocation as per your asset allocation.

As per your post - 10% of 20k per year mega backdoor roth =>2k in Vanguard Inst Total International Stk Mkt Index Trust - does not change your total returns per year/net worth by much even of it overperforms s&P 500 by a lot. So there is no purpose to using 2 funds and increase complexity.

[ray.james]

I agree with all of NewLearner's comments in red, other than that I am a huge fan of 529 plans, so I would fund those more unless you are certain that your children will remain in CA to attend college. Your children can only borrow $27K across all four years, so if you do not fund the balance, you will have to hope they can attain merit awards.

The schools my children recently attended are $84K for tuition, room & board for the upcoming school year. Costs have increased 3.75%/year for the past ten years.

Asking for my planning purposes. Did they choose out of state schools or private or Ivy? Was the choice made disregarding/over any UC admits? The final total cost of college is all over the place and makes it hard to plan. So trying to understand what led to this cost for undergraduate degrees?

[HereToLearn]

I agree with all of NewLearner's comments in red, other than that I am a huge fan of 529 plans, so I would fund those more unless you are certain that your children will remain in CA to attend college. Your children can only borrow $27K across all four years, so if you do not fund the balance, you will have to hope they can attain merit awards.

The schools my children recently attended are $84K for tuition, room & board for the upcoming school year. Costs have increased 3.75%/year for the past ten years.

Asking for my planning purposes. Did they choose out of state schools or private or Ivy? Was the choice made disregarding/over any UC admits? The final total cost of college is all over the place and makes it hard to plan. So trying to understand what led to this cost for undergraduate degrees?

I don't live in CA and my state's flagship is not on par with Berkeley. Both attended Ivies, and the Ivies and other top privates are all the same price, give or take a thousand or two, here or there.

I sent you a message.

[Hacksawdave]

You are doing the big things right. Keep on truckin.
Save one year of expenses every year, a great piece of advice I’ve heard here.

@Wannaretireearly much appreciate your response!

agree with the advice on the expenses and feel am currently in a fortunate situation on this front. Trying to get help on appropriately deploying the extra amount from an overall missing opportunities/growth/tax-efficiency perspective. Thanks

As you are in an effective 51.1% tax ratio on spare cash (37 fed, 10.3 CA and 3.8 NIIT taxes) I would look to consider municipal funds to park some in to lower your tax bills. The last thing you need is to park after-tax cash funds only to see more than half of the proceeds taxed again, plus more estimated payments to keep safe harbor. Vanguard has three CA tax-exempt funds if you decide to consider this option. I own all three of them.

The other item you touched upon is your wife’s 457b/403b combination. She can contribute to both. Not only can she contribute to both, but she can also max out both plans up to their contribution limits or her salary limits whichever comes first.

[niceguy7376]

How can 13 and 10 year old have Roth accounts?

[Hacksawdave]

How can 13 and 10 year old have Roth accounts?

Through a custodial Roth IRA. As long as they have income and pay taxes, babysitting and lawn mowing. Granted it could open a can of worms with more paperwork, but it gets them started early.

[NewLearner9]

You are doing the big things right. Keep on truckin.
Save one year of expenses every year, a great piece of advice I’ve heard here.

@Wannaretireearly much appreciate your response!

agree with the advice on the expenses and feel am currently in a fortunate situation on this front. Trying to get help on appropriately deploying the extra amount from an overall missing opportunities/growth/tax-efficiency perspective. Thanks

As you are in an effective 51.1% tax ratio on spare cash (37 fed, 10.3 CA and 3.8 NIIT taxes) I would look to consider municipal funds to park some in to lower your tax bills. The last thing you need is to park after-tax cash funds only to see more than half of the proceeds taxed again, plus more estimated payments to keep safe harbor. Vanguard has three CA tax-exempt funds if you decide to consider this option. I own all three of them.

The other item you touched upon is your wife’s 457b/403b combination. She can contribute to both. Not only can she contribute to both, but she can also max out both plans up to their contribution limits or her salary limits whichever comes first.

Thank you for the suggestions! will look into it

[NewLearner9]

1) On your suggestion related to simplifying the funds in the various accounts, I am interpreting that you are recommending a 3-fund strategy for my 401K since it is > $100K and consolidating to single funds (so say go with Target date funds if available) for the rest as they are <$50K. Have I got this right?

Sorry I did not explain this clearly. All together in retirement you have ~550k - 485k from your employer, all roths -40k. You are contributing 105k split across 401k, 457, employer match, roth ira's and MBDRs. Now treat it as one pot of 550k money and 105k contributions per year. What is an asset allocation you want?

Lets say you want to do 50-30-20 split of 3 fund. => 275 domestic, 165 international, rest in bonds.
So first roth's get the stock. Both Roth ira and Mega back door Roth - will be 1 fund - total stock market fund. All contributions will be total stock market. In your 401k - 235k - total stock market, 165 - total international and the rest in bonds. I am not advising you to follow 3 fund rule but to look at the retirement assets together and allocation as per your asset allocation.

As per your post - 10% of 20k per year mega backdoor roth =>2k in Vanguard Inst Total International Stk Mkt Index Trust - does not change your total returns per year/net worth by much even of it overperforms s&P 500 by a lot. So there is no purpose to using 2 funds and increase complexity.

Thank you for the clarification and this makes total sense! Are there any calculators/tools that can help me do this exercise?