Growing Family and Time for A Portfolio Review!

[AZDiamondbacks23]

Hi All!

Our family has grown, and it’s about time I work towards getting my allocations right and putting everything together. We’ve recently combined our brokerage account together, so now looking at all the retirement accounts together seems like a great place to start. This site is a wealth of information.

I’m self employed and income can vary, but I’d use $150k a year. DW makes about $45k. Total monthly expenses are around 6.5k.

Grinded in my 20’s and found a few rental homes to remodel and rent out at really low purchase prices. Then made sure I was always putting money away. Had a few very good years in my industry throughout COVID. Always tried maxing out Roth and more recently SEP IRA to 25% of W2 income. Married almost 3 years. Finally trying to get allocations set up as a total combined portfolio. If the wife works long enough in her field, she’ll have a smaller pension, but not counting on that right now.

I know I’m ahead of the game, but I think getting this all organized will be a great help.

Here it goes!:

____________________

Emergency funds: 50k

Debt: Primary Home Mortgage of $518k @ 2.59% 30 year fixed

Tax Filing Status: Married Filing Jointly

Tax Rate: 24% Federal, 2.98% State

State of Residence: Arizona

Age: 34 & 33, Kids 0 &1

Desired Asset allocation: 80% stocks / 20% bonds
Originally going S&P 60%, Small Cap 10%, International 10%, Intermediate Bond fund 20%
But the more I’ve read here about 3 fund portfolio of 65% total stock market, 15% total international 20% total bond fund might work better

Total Assets around $3.1 millions (including real estate)
***stock/bond/cash investment portfolio alone: around 1.4 million

3 Rental properties (all 3 free and clear):
Value $275k : Monthly Rent $1,150
Value $275k : Monthly Rent $1,250
Value $400k : Monthly Rent $1,950

Primary home value $1,200,000

Current retirement assets

Taxable 66.7%, Tax deferred 18.7%, Tax free 13.9%

Taxable (Brokerage) Vanguard (Total 919k or 66% of total investment portfolio)
23.7% $330,000 in cash (VMFXX) (.11%)
26.8% $373,000 in Vanguard 500 Index Fund (VFIAX) (.04%)
6.7% $93,000 in Vanguard total bond fund (VBTLX) (.05%)
3.5% $48,000 in Vanguard Small Cap (VSMAX) (.05%)
3.7% $52,000 Vanguard Total International Stock (VTIAX) (.11%)
1.6% $23,000 Vanguard Target Retirement 2045 Fund (VTIVX) (.08%)

His Traditional IRA Vanguard (Total 25,900 or 1.8% of total investment portfolio)
1.3% $19,000 Vanguard Target Retirement 2045 Fund (VTIVX) (.08%)
.2% $3,600 Vanguard Total Stock Market Index (VTSAX) (.04%)
.2% $3,300 in cash in cash (VMFXX) (.11%)

Her Traditional IRA Vanguard (Total 12,500 or .9% of total investment portfolio)
.9% $12,500 Vanguard Target Retirement 2045 Fund (VTIVX) (.08%)

His Roth IRA at Vanguard (Total 120,500 or 8.6% of total investment portfolio)
9% $120,500 Vanguard Target Retirement 2045 Fund (VTIVX) (.08%)

Her Roth IRA Vanguard (Total 23,400 or 1.6% of total investment portfolio)
1.6% $23,400 Vanguard Target Retirement 2045 Fund (VTIVX) (.08%)

Her HSA Optum Bank (Total 7,400 or .5% of total investment portfolio)
.5% $7,400 Schwab Target 2040 Index (SWYGX) (.08%)

His HSA Fidelity (Total 22,500 or 1.6% of total investment portfolio)
1.6% $22,500 Fidelity Freedom Index 2045 (FIOFX)(.12%)

529 Fidelity (Total 22,500 or 1.6% of total investment portfolio)
1.6% $22,500 AZ Portfolio 2039 Fidelity (AZX203907)(.15%)

His SEP IRA Vanguard (Total 223,500 or 16% of total investment portfolio)
3.1% $43,300 in cash (VMFXX) (.11%)
.4% $6,700 in Vanguard total bond fund (VBTLX) (.05%)
11.8% $165,000 Vanguard Target Retirement 2045 Fund (VTIVX) (.08%)
.6% $8,500 Vanguard Total Stock Market Index (VTSAX) (.04%)

IBonds (Total 10,000 or .7% of total investment portfolio)
.7% $10,000 (purchased 1/23 will sell next year)

Contributions

New annual Contributions (estimates)
$xx his IRA/Roth IRA : $6500 (either Roth or Trad)
$xx her IRA/Roth IRA : $6500 (either Roth or Trad)
$xx his SEP IRA : $31,250 (25% of W2)
$xx his/her HSA : $7,750
$xx taxable (for retirement… maybe $20k+ a year?)
$xx 529 : $5000?

Questions:
1.Is there anything that stands out?

2.Should I get rid of the target date funds and just go with the 3 fund portfolio (VTSAX, VTIAX, VBTLX)? There’s a small gain in the brokerage fund w/them.

3.I made an example chart below of how I could rearrange and get to a 3 fund portfolio. From reading here, I should have all my bonds in a Trad IRA or SEP IRA, and US Total Stock & Intl in Brokerage/Roth accounts?

4. Over a few weeks, just start using all those cash positions towards the 3 fund portfolio, instead of going all in on the same day?

5. Is there any Roth Conversions/ SEP conversion that are recommended (or not allowed because I have a SEP & Trad)

Thank you!

Easier to read asset chart:



POTENTIAL FUTURE ALLOCATION:

[retired@50]

Taxable (Brokerage) Vanguard (Total 919k or 66% of total investment portfolio)
23.7% $330,000 in cash (VMFXX) (.11%)
26.8% $373,000 in Vanguard 500 Index Fund (VFIAX) (.04%)
6.7% $93,000 in Vanguard total bond fund (VBTLX) (.05%)
3.5% $48,000 in Vanguard Small Cap (VSMAX) (.05%)
3.7% $52,000 Vanguard Total International Stock (VTIAX) (.11%)
1.6% $23,000 Vanguard Target Retirement 2045 Fund (VTIVX) (.08%)

His Traditional IRA Vanguard (Total 25,900 or 1.8% of total investment portfolio)
.2% $3,300 in cash in cash (VMFXX) (.11%)

His SEP IRA Vanguard (Total 223,500 or 16% of total investment portfolio)
3.1% $43,300 in cash (VMFXX) (.11%)

Questions:
1.Is there anything that stands out?

2.Should I get rid of the target date funds and just go with the 3 fund portfolio (VTSAX, VTIAX, VBTLX)? There’s a small gain in the brokerage fund w/them.

3.I made an example chart below of how I could rearrange and get to a 3 fund portfolio. From reading here, I should have all my bonds in a Trad IRA or SEP IRA, and US Total Stock & Intl in Brokerage/Roth accounts?

4. Over a few weeks, just start using all those cash positions towards the 3 fund portfolio, instead of going all in on the same day?

5. Is there any Roth Conversions/ SEP conversion that are recommended (or not allowed because I have a SEP & Trad)

Thank you!

Welcome to the forum.

1. What stands out are the red lines above. In the taxable account you should eliminate the bond and target date fund. See the tax efficient fund placement wiki for details. Get the cash that is sitting in the retirement accounts invested.

2. Frankly, with the low price (expense ratio) of target date funds nowadays, I'd stick with them in your retirement accounts just for simplicity. They will also help you avoid any wash sales if you ever need to engage in tax loss harvesting. TDFs are basically a 3 fund portfolio anyway, maybe with a touch of international bonds. They're fine.

3. Yes, relocate bond holdings to tax-deferred accounts.

4. You can drag it out (aka DCA), or do it all at once. 20 years from now, you'll never know the difference.

5. It appears as though neither of you is in a good position to use the backdoor Roth IRA strategy since you both have existing tax deferred IRAs. However, if your income stays below the Roth contribution threshold, then using the conventional Roth contribution still makes sense. As for Roth conversions, those are probably not warranted now. Perhaps they could make sense in a low income year - maybe during retirement before Social Security and RMDs begin.

See wiki links for concepts I mentioned in my replies.
tax efficient fund placement. https://www.bogleheads.org/wiki/Tax-eff ... _placement
wash sale. https://www.bogleheads.org/wiki/Wash_sale
tax loss harvesting. https://www.bogleheads.org/wiki/Tax_loss_harvesting
backdoor Roth strategy. https://www.bogleheads.org/wiki/Backdoor_Roth
dollar cost averaging (DCA). https://www.bogleheads.org/wiki/Dollar_cost_averaging
Roth conversion. https://www.bogleheads.org/wiki/Roth_conversion

Regards,

[AZDiamondbacks23]

Thanks retired@50 for answering all those questions!

On #2 about the wash sales for future tax loss harvesting. Shouldn't I be ok without triggering any wash sales as long as the dividends aren't automatically reinvested (if I have those same funds in some of the other accounts)?

Thanks!

[retired@50]

Thanks retired@50 for answering all those questions!

On #2 about the wash sales for future tax loss harvesting. Shouldn't I be ok without triggering any wash sales as long as the dividends aren't automatically reinvested (if I have those same funds in some of the other accounts)?

Thanks!

If you hold the same fund in taxable and in an IRA, then it would depend on if you're making periodic contributions to the IRA throughout the year. Each "buy" in an IRA (whether from a contribution or a dividend reinvestment) would potentially be an issue with the 60 day window around the date of a tax loss harvest transaction.

The simpler (never have to think about it) solution is usually to not hold the same funds in taxable and in IRAs.

If I were in your shoes, I'd stick with the target date funds in the IRAs and just use stock index funds you already own in your taxable account - VFIAX, VSMAX, VTIAX. When those funds permit TLH opportunities, then you can TLH into similar but not substantially identical funds.

Regards,

[pizzy]

Monthly expenses: $6,500

How much of that is mortgage, taxes, and insurance?

[AZDiamondbacks23]

Monthly expenses: $6,500

How much of that is mortgage, taxes, and insurance?

Right at $2950 a month for PITI. Out of that amount, $740 is taxes/insurance.