3 Fund Portfolio After Maxing Out IRA?

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Topic Author
Tylerjkh
Posts: 11
Joined: Tue May 25, 2021 11:17 am

3 Fund Portfolio After Maxing Out IRA?

Post by Tylerjkh »

Hi Bogleheads,

I've finally gotten to the point where I'll soon be maxing out my ROTH each year, as well as the 3% match on my employers SIMPLE IRA. Yay!

I understand the order of investing is usually Employer Match-->ROTH--> Brokerage account.

I just opened a standard brokerage account with Vanguard for investing above and beyond both IRAs mentioned above.

My question is: now what? Do I still aim to maintain the "3 fund Portfolio" across all these accounts including the new brokerage? Buy VTSAX in there too for example, and reallocate my other accounts?

Mostly looking for some guidance on how to start this next phase of investing into index funds with a brokerage account. And how that ties into my portfolio allocations. I know I'm aiming to keep bonds in my Simple IRA because it's better than having them in the ROTH

Thanks!
-t
invest4
Posts: 1985
Joined: Wed Apr 24, 2019 2:19 am

Re: 3 Fund Portfolio After Maxing Out IRA?

Post by invest4 »

Do I understand correctly you are maxing out all tax advantaged accounts which are available to you (ex: Simple IRA, Roth, HSA, Mega Backdoor Roth,etc.)? I am not very familiar with Simple IRAs, but since you only cited the 3% match, it was not clear to me if you are contributing to the max. The others I mention just in case they might be available to you (sometimes people don't always know and need to ask their employer...for Mega Backdoor Roth for example.

As far as maintaining your overall asset allocation across the various accounts in total, the short answer is yes. Unfortunately, I have never had a taxable / brokerage account, but I am sure others will chime in.

As a side note, I don't know how much of a handle you have on bonds, but I have found them more complex than stocks and strongly encourage you to start or keep educating yourself so when you may seek larger allocation to bonds / fixed income, you will be informed and ready to go.

Best wishes.
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CyclingDuo
Posts: 6124
Joined: Fri Jan 06, 2017 8:07 am

Re: 3 Fund Portfolio After Maxing Out IRA?

Post by CyclingDuo »

Tylerjkh wrote: Mon May 13, 2024 11:12 pm Hi Bogleheads,

I've finally gotten to the point where I'll soon be maxing out my ROTH each year, as well as the 3% match on my employers SIMPLE IRA. Yay!

I understand the order of investing is usually Employer Match-->ROTH--> Brokerage account.

I just opened a standard brokerage account with Vanguard for investing above and beyond both IRAs mentioned above.

My question is: now what? Do I still aim to maintain the "3 fund Portfolio" across all these accounts including the new brokerage? Buy VTSAX in there too for example, and reallocate my other accounts?

Mostly looking for some guidance on how to start this next phase of investing into index funds with a brokerage account. And how that ties into my portfolio allocations. I know I'm aiming to keep bonds in my Simple IRA because it's better than having them in the ROTH

Thanks!
-t
What has changed since your original post back in 2021 and the advice you received?

viewtopic.php?t=349690

Is the auto loan paid off yet? Is your desired asset allocation still 90/10? Any change with the funds available from your employer?

I would use the most tax efficient funds within your new taxable brokerage account with equities - VTI and VXUS (or the Fidelity or Schwab or iShares versions). You don't have much need for bonds at your age, but would hold them within the SIMPLE IRA as was pointed out in your previous thread.

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
bonesly
Posts: 1423
Joined: Mon Dec 18, 2017 9:28 pm
Location: WA

Re: 3 Fund Portfolio After Maxing Out IRA?

Post by bonesly »

Tylerjkh wrote: Mon May 13, 2024 11:12 pm I understand the order of investing is usually Employer Match-->ROTH--> Brokerage account.

I just opened a standard brokerage account with Vanguard for investing above and beyond both IRAs mentioned above.
Priortizing Investments suggests Employer Match -> max Roth/Trad IRA -> max SIMPLE IRA -> Brokerage account. Did you max contributions to the SIMPLE IRA ($16K for 2024, so $1.3K/month contribution) or only put in 3% for the match?

From the Wiki article linked above:
2) Contribute to an employer retirement plan (for example, 401(k) or 403b) enough to get the full employer match.
5) Contribute the maximum to an IRA, traditional or Roth, depending on eligibility and personal circumstances.
6) Contribute the remainder of the maximum employee contribution to the work-based plan (e.g., SIMPLE IRA).
9) Invest inside a taxable account.

I feel like you're missing step 6) and have jumped to step 9).
Tylerjkh wrote: Mon May 13, 2024 11:12 pm My question is: now what? Do I still aim to maintain the "3 fund Portfolio" across all these accounts including the new brokerage? Buy VTSAX in there too for example, and reallocate my other accounts?
Fund choices should adhere to Tax-Efficient Fund Placement across Tax-Deferred, Tax-Free, and Taxable accounts. Bonds/cash, if any, should preferably be held only in the tax-deferred accounts leaving only stocks in tax-free and taxable accounts.

If you're on track to contribute $16K to the SIMPLE IRA, then you should put only stocks in the brokerage account (e.g., VTI and/or VXUS) and adjust the SIMPLE IRA to hold more bonds to maintain your overall Asset Allocation. If you aren't on track to max the SIMPLE IRA, fix that first.
Topic Author
Tylerjkh
Posts: 11
Joined: Tue May 25, 2021 11:17 am

Re: 3 Fund Portfolio After Maxing Out IRA?

Post by Tylerjkh »

Hello Bonesly,

Thank you for your response. No, I am not currently planning to max out the $16k in the SIMPLE IRA- primarily because of the funds available, fee structure and sales charge. But I suppose I don't understand the value in contributing to that account to max, above and beyond the 3% match. Why is step 6 important ?

There is a likely hood that I will be able to work towards maxing the SIMPLE as well in the next year or two.

At that point... continue with stocks in the brokerage ?
Topic Author
Tylerjkh
Posts: 11
Joined: Tue May 25, 2021 11:17 am

Re: 3 Fund Portfolio After Maxing Out IRA?

Post by Tylerjkh »

CyclingDuo wrote: Tue May 14, 2024 7:02 am
Tylerjkh wrote: Mon May 13, 2024 11:12 pm Hi Bogleheads,

I've finally gotten to the point where I'll soon be maxing out my ROTH each year, as well as the 3% match on my employers SIMPLE IRA. Yay!

I understand the order of investing is usually Employer Match-->ROTH--> Brokerage account.

I just opened a standard brokerage account with Vanguard for investing above and beyond both IRAs mentioned above.

My question is: now what? Do I still aim to maintain the "3 fund Portfolio" across all these accounts including the new brokerage? Buy VTSAX in there too for example, and reallocate my other accounts?

Mostly looking for some guidance on how to start this next phase of investing into index funds with a brokerage account. And how that ties into my portfolio allocations. I know I'm aiming to keep bonds in my Simple IRA because it's better than having them in the ROTH

Thanks!
-t
What has changed since your original post back in 2021 and the advice you received?

viewtopic.php?t=349690

Is the auto loan paid off yet? Is your desired asset allocation still 90/10? Any change with the funds available from your employer?

I would use the most tax efficient funds within your new taxable brokerage account with equities - VTI and VXUS (or the Fidelity or Schwab or iShares versions). You don't have much need for bonds at your age, but would hold them within the SIMPLE IRA as was pointed out in your previous thread.

CyclingDuo
Hi Cycling Duo,

Thanks for the response.

A few things have changed.. I can re-post with new details if it will better help this conversation. But in a Nutshell:

-Auto Loan Is Paid Off (personally debt free)
-Desired allocation is still 90/10 (Age 32)
-Employer Fund Options are still the same.

I am now a small business owner and have an SBA loan. (Bought out the old owner of my place of employment). I understand my contributions to my SIMPLE IRA for an "employee" (me) are tax deductible. So there may be a new angle here to max out my SIMPLE IRA and bring down taxable income. Also... now that I'm the boss I suppose there's the discussion of moving away from the SIMPLE IRA for the company and look for something else.

Question- why VTI or VXUS? I currently have admiral share versions VTSAX and VTIAX. Are these better than ETF? I understand the fees are lower?
Topic Author
Tylerjkh
Posts: 11
Joined: Tue May 25, 2021 11:17 am

Re: 3 Fund Portfolio After Maxing Out IRA?

Post by Tylerjkh »

invest4 wrote: Tue May 14, 2024 4:18 am Do I understand correctly you are maxing out all tax advantaged accounts which are available to you (ex: Simple IRA, Roth, HSA, Mega Backdoor Roth,etc.)? I am not very familiar with Simple IRAs, but since you only cited the 3% match, it was not clear to me if you are contributing to the max. The others I mention just in case they might be available to you (sometimes people don't always know and need to ask their employer...for Mega Backdoor Roth for example.

As far as maintaining your overall asset allocation across the various accounts in total, the short answer is yes. Unfortunately, I have never had a taxable / brokerage account, but I am sure others will chime in.

As a side note, I don't know how much of a handle you have on bonds, but I have found them more complex than stocks and strongly encourage you to start or keep educating yourself so when you may seek larger allocation to bonds / fixed income, you will be informed and ready to go.

Best wishes.
Hello Invest4!

I am maxing out the ROTH. My SIMPLE IRA is pre-tax. And I don't qualify for an HSA with my current Healthcare plan. I've been reading up on opting out of employer Healthcare in leiu of an HSA.. but it confuses me.

I am not contributing to the max of the SIMPLE. Only the 3% for the employer match. What is the benefit of contributing more to the pre-tax account? I will need to research MEGA Backdoor Roth. Never heard of this before today.

Thanks for the recommendation on bonds.. I know very little. Desired asset allocation is 90/10 and right now I have very little invested in bonds... but i need to learn more. They are in my SIMPLE pre-tax though.
sycamore
Posts: 6580
Joined: Tue May 08, 2018 12:06 pm

Re: 3 Fund Portfolio After Maxing Out IRA?

Post by sycamore »

Tylerjkh wrote: Wed May 15, 2024 12:56 am ...
Question- why VTI or VXUS? I currently have admiral share versions VTSAX and VTIAX. Are these better than ETF? I understand the fees are lower?
VTI and VTSAX are actually the same fund but different share classes. Tax efficiency is the same.

Ditto for vxus and VTIAX.

Expense ratio of the share classes are only a tiny bit different. In my opinion the ER difference is unimportant. Choose the vehicle (ETF or mutual fund) that you prefer.
User avatar
CyclingDuo
Posts: 6124
Joined: Fri Jan 06, 2017 8:07 am

Re: 3 Fund Portfolio After Maxing Out IRA?

Post by CyclingDuo »

Tylerjkh wrote: Wed May 15, 2024 12:56 amQuestion- why VTI or VXUS? I currently have admiral share versions VTSAX and VTIAX. Are these better than ETF? I understand the fees are lower?
Congrats on paying off the car!

I just mentioned the ETF versions because you didn't say which brokerage firm you were using for your new taxable account. Outside of Vanguard brokerage accounts, some other firms charge transaction fees for the mutual fund versions where they do not for the ETF versions of the Vanguard funds.

Did you go with the balanced fund that was suggested to you in your 2021 thread, and calculate the percentage of your overall portfolio to capture your 10% bond allocation?

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
Topic Author
Tylerjkh
Posts: 11
Joined: Tue May 25, 2021 11:17 am

Re: 3 Fund Portfolio After Maxing Out IRA?

Post by Tylerjkh »

CyclingDuo wrote: Wed May 15, 2024 7:41 am
Tylerjkh wrote: Wed May 15, 2024 12:56 amQuestion- why VTI or VXUS? I currently have admiral share versions VTSAX and VTIAX. Are these better than ETF? I understand the fees are lower?
Congrats on paying off the car!

I just mentioned the ETF versions because you didn't say which brokerage firm you were using for your new taxable account. Outside of Vanguard brokerage accounts, some other firms charge transaction fees for the mutual fund versions where they do not for the ETF versions of the Vanguard funds.

Did you go with the balanced fund that was suggested to you in your 2021 thread, and calculate the percentage of your overall portfolio to capture your 10% bond allocation?

CyclingDuo
Thank you, and Yes! Balanced Fund mixed with others to get the 10% bond in the SIMPLE.
invest4
Posts: 1985
Joined: Wed Apr 24, 2019 2:19 am

Re: 3 Fund Portfolio After Maxing Out IRA?

Post by invest4 »

Tylerjkh wrote: Wed May 15, 2024 1:04 am
invest4 wrote: Tue May 14, 2024 4:18 am Do I understand correctly you are maxing out all tax advantaged accounts which are available to you (ex: Simple IRA, Roth, HSA, Mega Backdoor Roth,etc.)? I am not very familiar with Simple IRAs, but since you only cited the 3% match, it was not clear to me if you are contributing to the max. The others I mention just in case they might be available to you (sometimes people don't always know and need to ask their employer...for Mega Backdoor Roth for example.

As far as maintaining your overall asset allocation across the various accounts in total, the short answer is yes. Unfortunately, I have never had a taxable / brokerage account, but I am sure others will chime in.

As a side note, I don't know how much of a handle you have on bonds, but I have found them more complex than stocks and strongly encourage you to start or keep educating yourself so when you may seek larger allocation to bonds / fixed income, you will be informed and ready to go.

Best wishes.
Hello Invest4!

I am maxing out the ROTH. My SIMPLE IRA is pre-tax. And I don't qualify for an HSA with my current Healthcare plan. I've been reading up on opting out of employer Healthcare in leiu of an HSA.. but it confuses me.

I am not contributing to the max of the SIMPLE. Only the 3% for the employer match. What is the benefit of contributing more to the pre-tax account? I will need to research MEGA Backdoor Roth. Never heard of this before today.

Thanks for the recommendation on bonds.. I know very little. Desired asset allocation is 90/10 and right now I have very little invested in bonds... but i need to learn more. They are in my SIMPLE pre-tax though.
By maxing out your SIMPLE IRA:

* Contributions will lower your taxable income for that year (lower taxes)

* Any growth in your SIMPLE IRA will not be taxed until you withdraw those monies (more money working for you for the long term)

Generally speaking, I would max out all of my tax advantaged accounts before I would invest in a taxable account. Thus far, there have been more tax advantaged space than I have money to fill them all. As a result, I have yet to open a taxable investment account.

Best wishes.
bonesly
Posts: 1423
Joined: Mon Dec 18, 2017 9:28 pm
Location: WA

Re: 3 Fund Portfolio After Maxing Out IRA?

Post by bonesly »

Tylerjkh wrote: Wed May 15, 2024 12:23 am No, I am not currently planning to max out the $16k in the SIMPLE IRA- primarily because of the funds available, fee structure and sales charge. But I suppose I don't understand the value in contributing to that account to max, above and beyond the 3% match. Why is step 6 important ?
You get a tax-break now for every dollar you contribute to the tax-deferred SIMPLE IRA. If you're in a low tax-bracket (say 12% or less), then this break may not buy you much and maxing out Roth and Taxable accounts becomes the priority, after getting the 3% match in the SIMPLE IRA. If you're in a moderate-to-high tax-bracket (say 22% or higher), then the tax-break now usually offsets the after-tax cost of maxing out a Roth IRA.

In addition to getting an immediate tax-break now, there's an opportunity to convert SIMPLE IRA funds to Roth IRA funds after you retire, but before you collect SocSec, when your expected tax-bracket is likely at its lowest point in your life-time (imagine getting the tax-break now on 22% and then being able to do Roth conversions in a 0% tax-bracket for tax-free growth the rest of your life!). This of course depends on your current tax-bracket and your estimated bracket in early retirement.

Maxing a Roth IRA is also valuable, because tax-free growth can't be beat, but if the cost of contributing is ≥ 32%, you really have to run the comparison math to see if that's the best value over your expected lifetime. In most cases maxing the Roth before maxing the employer tax-deferred plan, but NOT before investing in taxable is the best option, which is why the generic Wiki recommendation has step 5 (max Roth) before step 6 (max Trad 401k) before step 9 (invest in Taxable). However, generic is just that; it needs to be tailored for your particular situation and if your SIMPLE IRA has expense ratios in excess of 0.5% and/or sales charges (Class-A shares with a front-end load skimmed right off the contribution), then that's an overriding consideration that doesn't fit the generic Wiki recommendation.

Is your SIMPLE IRA that bad? :shock:
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