Help with 401K vs Taxable

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thedane
Posts: 9
Joined: Mon Jun 11, 2018 7:25 pm

Help with 401K vs Taxable

Post by thedane » Tue Jun 12, 2018 8:15 am

Been lurking on the forum for a while as a reader; but would love some input....

His age: 32. Approximate income of $110K /yr.
Her age: 31. Approximate income of $80K /yr.
Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 5-10% of stocks
Emergency funds: Covered for six months and beyond
Debt: Home mortgage; $137,710 outstanding balance, 3.5% interest rate on a 30-year fixed loan 6 years in with a property value of approximately $350K. One car loan of $20K @ 1.6% interest all of the above in his name. No credit card debt or other loans for either him/her.
Tax Filing Status: Single, no children (yet). Planning to get married in 2018 and will (probably) file jointly (?)
Tax Rate: 17% Federal, 3% AZ State (based on actuals from 2017 filing)
State of residence: Arizona
Other: No pensions. Have good healthcare plan via his employer. Not currently contributing to HSA.

Current retirement assets
His 401K Portfolio size: $250K
His Roth IRA: $20K
His Taxable: $20K, after emergency savings, sitting in various stocks/mutual funds

His 401K current allocation
5% - Short Term Bond Fund. ER: 0.13%
5% - Intermediate Bond Fund. ER: 0.18%
70% - NT Collective S&P 500 Index Fund. ER: 0.02%
5% - T. Rowe Price Mid-Cap Growth. ER: 0.50%
10% - Small-Cap Equity. ER: 0.80%
5% - International Equity Fund. ER: 0.87%


His Roth IRA at TD Ameritrade (looking to move to Vanguard)
13% - T. Rowe Price U.S. Bond Enhanced Index Fund. PBDIX. ER: 0.30%
28% - Vanguard Total Stock Market Index Fund ETF Shares. VTI. ER: 0.04%
2% - Payden Absolute Return Bond Fund Investor Class. PYARX. ER: 0.70%
30% - T. Rowe Price Personal Strategy Growth Fund. TRSGX. ER: 0.88%
27% - USAA World Growth Fund. USAWX. ER: 1.13%

His taxable account at TD Ameritrade (looking to move to Vanguard)
31% - Vanguard Total Stock Market Index Fund ETF Shares. VTI. ER: 0.04%
1% - Payden Absolute Return Bond Fund Investor Class. PYARX. ER: 0.70%
25% - USAA World Growth Fund. USAWX. ER: 1.13%
4% - SPDR® S&P Health Care Equipment ETF. XHE. ER: 0.35%
28% - iShares Core Aggressive Allocation ETF. AOA. ER: 0.25%
11% - USAA Tax Exempt Intermediate-Term Fund. USATX. ER: 0.52%

Contributions

Annual contributions
$7,700 his 401K, plus company match of 75% on first 3% saved; 25% on next 4% saved (not included in $7,700)
$5,500 his Roth IRA
$8,000 in taxable TD Ameritrade account

Available funds:

Funds available in his 401k
(Additional administrative fee of approximately $10 /quarter not included below)
Vanguard Retirement 2015. ER: 0.07%
Vanguard Retirement 2025. ER: 0.07%
Vanguard Retirement 2035. ER: 0.07%
Vanguard Retirement 2045. ER: 0.07%
Vanguard Retirement 2055. ER: 0.07%
Short-Term Bond Fund. ER: 0.13%
Intermediate Bond Fund. ER: 0.18%
Balanced Fund. ER: 0.31%
Dodge & Cox Stock Portfolio. ER: 0.20%
NT Collective S&P 500 Index. ER: 0.02%
Large-Cap Equity Fund. ER: 0.29%
Fidelity Contrafund. ER: 0.43%
Large-Cap Growth Fund. ER: 0.56%
T. Rowe Price Mid-Cap Growth. ER: 0.50%
Small-Cap Equity Fund. ER: 0.80%
International Equity Fund. ER: 0.87%

Funds available in His Roth IRA and taxable:
(Both are standard TD Ameritrade accounts)

Planned Next Steps

• Move his Roth IRA and taxable accounts from TD Ameritrade to Vanguard
• Change his taxable account and Roth investment to 90% vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) and 10% to Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) (?)
• Increase his contribution to 401K

Questions

1. Should I increase my 401K contribution and reduce my contribution to my taxable account?
2. Does it make sense to open an IRA and contribute there due to my limited 401K choices?
3. Is it worth moving his accounts from TD Ameritrade to Vanguard?
4. Should we contribute to HSA, if so, which one/how much?
5. Should we file jointly when we get married?
6. My fiancée has approximately:
  • $50K in Fidelity from prior 401Ks
    $8K in Fidelity current employer 401K, contributing 15% with a 6% match
    $6K in Fidelity Roth IRA
    $40K in Prudential current employer 403B account contributing 14% with a 6% match
7. Should she rollover the prior 401Ks to an IRA, I assume yes?

Flyer24
Posts: 137
Joined: Sun Apr 08, 2018 4:21 pm

Re: Help with 401K vs Taxable

Post by Flyer24 » Tue Jun 12, 2018 11:19 am

You should max out your 401k before contributing to taxable. I would also consider just using the Vanguard target retirement fund in your 401k. It has your best expense ratio.

thedane
Posts: 9
Joined: Mon Jun 11, 2018 7:25 pm

Re: Help with 401K vs Taxable

Post by thedane » Tue Jun 12, 2018 12:14 pm

Flyer24 wrote:
Tue Jun 12, 2018 11:19 am
You should max out your 401k before contributing to taxable. I would also consider just using the Vanguard target retirement fund in your 401k. It has your best expense ratio.
Thank you for the feedback. I used to contribute more to my 401K, but last year a fiduciary suggested I drop my 401K contribution due to the limited investment choices in the 401K account, and instead add to a taxable with greater/better choices.
I am working towards saving 50% of my income towards investments/retirement. Getting closer...

So would you agree that the below should be the best order of investment:
1: Fund 401K to employers match
2: Max out Roth IRA
3: Max out remainder 401K
4: IRA (?)
5: Taxable (?)

Grt2bOutdoors
Posts: 18849
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Help with 401K vs Taxable

Post by Grt2bOutdoors » Tue Jun 12, 2018 12:21 pm

thedane wrote:
Tue Jun 12, 2018 12:14 pm
Flyer24 wrote:
Tue Jun 12, 2018 11:19 am
You should max out your 401k before contributing to taxable. I would also consider just using the Vanguard target retirement fund in your 401k. It has your best expense ratio.
Thank you for the feedback. I used to contribute more to my 401K, but last year a fiduciary suggested I drop my 401K contribution due to the limited investment choices in the 401K account, and instead add to a taxable with greater/better choices.
I am working towards saving 50% of my income towards investments/retirement. Getting closer...

So would you agree that the below should be the best order of investment:
1: Fund 401K to employers match
2: Max out Roth IRA
3: Max out remainder 401K
4: IRA (?)
5: Taxable (?)
Use the Vanguard Target Retirement 2045 plan - i believe allocation is 90/10. Otherwise, your current allocation is okay, but the fees are slightly higher vs. 0.07 bps. Better/greater doesn't necessarily equate to "you will outperform" your already good plan.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

KlangFool
Posts: 9516
Joined: Sat Oct 11, 2008 12:35 pm

Re: Help with 401K vs Taxable

Post by KlangFool » Tue Jun 12, 2018 12:22 pm

thedane wrote:
Tue Jun 12, 2018 12:14 pm
Flyer24 wrote:
Tue Jun 12, 2018 11:19 am
You should max out your 401k before contributing to taxable. I would also consider just using the Vanguard target retirement fund in your 401k. It has your best expense ratio.
Thank you for the feedback. I used to contribute more to my 401K, but last year a fiduciary suggested I drop my 401K contribution due to the limited investment choices in the 401K account, and instead add to a taxable with greater/better choices.
I am working towards saving 50% of my income towards investments/retirement. Getting closer...

So would you agree that the below should be the best order of investment:
1: Fund 401K to employers match
2: Max out Roth IRA
3: Max out remainder 401K
4: IRA (?)
5: Taxable (?)
thedane,

1) That person is simply wrong. The followings are great funds with very low expense ratio.

<<Vanguard Retirement 2015. ER: 0.07%
Vanguard Retirement 2025. ER: 0.07%
Vanguard Retirement 2035. ER: 0.07%
Vanguard Retirement 2045. ER: 0.07%
Vanguard Retirement 2055. ER: 0.07%
Short-Term Bond Fund. ER: 0.13%
Intermediate Bond Fund. ER: 0.18%
Balanced Fund. ER: 0.31%
Dodge & Cox Stock Portfolio. ER: 0.20%
NT Collective S&P 500 Index. ER: 0.02%>>

2) There is no 17% tax bracket. For this discussion, we should look at marginal tax rate.

<<Tax Rate: 17% Federal, 3% AZ State (based on actuals from 2017 filing)>>

The federal marginal tax rate is probably 20+%. So, you are paying 20+% tax for every dollar that you do not contribute to Trad. 401K.

3) In summary, max up your Trad. 401K and contribute the tax savings into Roth IRAs.

KlangFool

UniversityEmployee9
Posts: 88
Joined: Wed Mar 18, 2015 10:01 am

Re: Help with 401K vs Taxable

Post by UniversityEmployee9 » Tue Jun 12, 2018 12:23 pm

thedane wrote:
Tue Jun 12, 2018 12:14 pm
Flyer24 wrote:
Tue Jun 12, 2018 11:19 am
You should max out your 401k before contributing to taxable. I would also consider just using the Vanguard target retirement fund in your 401k. It has your best expense ratio.
Thank you for the feedback. I used to contribute more to my 401K, but last year a fiduciary suggested I drop my 401K contribution due to the limited investment choices in the 401K account, and instead add to a taxable with greater/better choices.
I am working towards saving 50% of my income towards investments/retirement. Getting closer...

So would you agree that the below should be the best order of investment:
1: Fund 401K to employers match
2: Max out Roth IRA
3: Max out remainder 401K
4: IRA (?)
5: Taxable (?)
Many people recommend maxing out the HSA as step two.

Regarding your step four: the annual contribution limit for IRAs (both traditional and Roth) is $5500 as of 2018. This is a universal limit. If you contribute $5500 to a Roth you can contribute $0 to a traditional.

Otherwise, your order of investment is correct.

Flyer24
Posts: 137
Joined: Sun Apr 08, 2018 4:21 pm

Re: Help with 401K vs Taxable

Post by Flyer24 » Tue Jun 12, 2018 12:28 pm

thedane wrote:
Tue Jun 12, 2018 12:14 pm
Flyer24 wrote:
Tue Jun 12, 2018 11:19 am
You should max out your 401k before contributing to taxable. I would also consider just using the Vanguard target retirement fund in your 401k. It has your best expense ratio.
Thank you for the feedback. I used to contribute more to my 401K, but last year a fiduciary suggested I drop my 401K contribution due to the limited investment choices in the 401K account, and instead add to a taxable with greater/better choices.
I am working towards saving 50% of my income towards investments/retirement. Getting closer...

So would you agree that the below should be the best order of investment:
1: Fund 401K to employers match
2: Max out Roth IRA
3: Max out remainder 401K
4: IRA (?)
5: Taxable (?)
Replace your step 4 with an HSA.

thedane
Posts: 9
Joined: Mon Jun 11, 2018 7:25 pm

Re: Help with 401K vs Taxable

Post by thedane » Tue Jun 12, 2018 12:39 pm

Flyer24 wrote:
Tue Jun 12, 2018 12:28 pm
thedane wrote:
Tue Jun 12, 2018 12:14 pm
Flyer24 wrote:
Tue Jun 12, 2018 11:19 am
You should max out your 401k before contributing to taxable. I would also consider just using the Vanguard target retirement fund in your 401k. It has your best expense ratio.
Thank you for the feedback. I used to contribute more to my 401K, but last year a fiduciary suggested I drop my 401K contribution due to the limited investment choices in the 401K account, and instead add to a taxable with greater/better choices.
I am working towards saving 50% of my income towards investments/retirement. Getting closer...

So would you agree that the below should be the best order of investment:
1: Fund 401K to employers match
2: Max out Roth IRA
3: Max out remainder 401K
4: IRA (?)
5: Taxable (?)
Replace your step 4 with an HSA.
I don't think I qualify for HSA as I am covered via a pretty good health insurance via work (Cigna Silver Open Access Plus) deductible $750 Individual; $1,500 Family and out of pocket max limits of: $5,500 Individual / $11,000 Family
Or am I missing something...?

KlangFool
Posts: 9516
Joined: Sat Oct 11, 2008 12:35 pm

Re: Help with 401K vs Taxable

Post by KlangFool » Tue Jun 12, 2018 1:00 pm

thedane wrote:
Tue Jun 12, 2018 12:39 pm
Flyer24 wrote:
Tue Jun 12, 2018 12:28 pm
thedane wrote:
Tue Jun 12, 2018 12:14 pm
Flyer24 wrote:
Tue Jun 12, 2018 11:19 am
You should max out your 401k before contributing to taxable. I would also consider just using the Vanguard target retirement fund in your 401k. It has your best expense ratio.
Thank you for the feedback. I used to contribute more to my 401K, but last year a fiduciary suggested I drop my 401K contribution due to the limited investment choices in the 401K account, and instead add to a taxable with greater/better choices.
I am working towards saving 50% of my income towards investments/retirement. Getting closer...

So would you agree that the below should be the best order of investment:
1: Fund 401K to employers match
2: Max out Roth IRA
3: Max out remainder 401K
4: IRA (?)
5: Taxable (?)
Replace your step 4 with an HSA.
I don't think I qualify for HSA as I am covered via a pretty good health insurance via work (Cigna Silver Open Access Plus) deductible $750 Individual; $1,500 Family and out of pocket max limits of: $5,500 Individual / $11,000 Family
Or am I missing something...?
thedane.

Don't assume. Just contact your HR and ask.

KlangFool

thedane
Posts: 9
Joined: Mon Jun 11, 2018 7:25 pm

Re: Help with 401K vs Taxable

Post by thedane » Tue Jun 12, 2018 2:04 pm

KlangFool wrote:
Tue Jun 12, 2018 1:00 pm
thedane wrote:
Tue Jun 12, 2018 12:39 pm
Flyer24 wrote:
Tue Jun 12, 2018 12:28 pm
thedane wrote:
Tue Jun 12, 2018 12:14 pm
Flyer24 wrote:
Tue Jun 12, 2018 11:19 am
You should max out your 401k before contributing to taxable. I would also consider just using the Vanguard target retirement fund in your 401k. It has your best expense ratio.
Thank you for the feedback. I used to contribute more to my 401K, but last year a fiduciary suggested I drop my 401K contribution due to the limited investment choices in the 401K account, and instead add to a taxable with greater/better choices.
I am working towards saving 50% of my income towards investments/retirement. Getting closer...

So would you agree that the below should be the best order of investment:
1: Fund 401K to employers match
2: Max out Roth IRA
3: Max out remainder 401K
4: IRA (?)
5: Taxable (?)
Replace your step 4 with an HSA.
I don't think I qualify for HSA as I am covered via a pretty good health insurance via work (Cigna Silver Open Access Plus) deductible $750 Individual; $1,500 Family and out of pocket max limits of: $5,500 Individual / $11,000 Family
Or am I missing something...?
thedane.

Don't assume. Just contact your HR and ask.

KlangFool
I did... No HSA for me.

Any feedback about Fiancees prior 401Ks, roll them over to an IRA?

PFInterest
Posts: 1677
Joined: Sun Jan 08, 2017 12:25 pm

Re: Help with 401K vs Taxable

Post by PFInterest » Tue Jun 12, 2018 2:10 pm

thedane wrote:
Tue Jun 12, 2018 2:04 pm
KlangFool wrote:
Tue Jun 12, 2018 1:00 pm
thedane wrote:
Tue Jun 12, 2018 12:39 pm
Flyer24 wrote:
Tue Jun 12, 2018 12:28 pm
thedane wrote:
Tue Jun 12, 2018 12:14 pm


Thank you for the feedback. I used to contribute more to my 401K, but last year a fiduciary suggested I drop my 401K contribution due to the limited investment choices in the 401K account, and instead add to a taxable with greater/better choices.
I am working towards saving 50% of my income towards investments/retirement. Getting closer...

So would you agree that the below should be the best order of investment:
1: Fund 401K to employers match
2: Max out Roth IRA
3: Max out remainder 401K
4: IRA (?)
5: Taxable (?)
Replace your step 4 with an HSA.
I don't think I qualify for HSA as I am covered via a pretty good health insurance via work (Cigna Silver Open Access Plus) deductible $750 Individual; $1,500 Family and out of pocket max limits of: $5,500 Individual / $11,000 Family
Or am I missing something...?
thedane.

Don't assume. Just contact your HR and ask.

KlangFool
I did... No HSA for me.

Any feedback about Fiancees prior 401Ks, roll them over to an IRA?
Why would you roll them over? Move them to her current employer if good options. Also you might need the backdoor rIRA in the future.

User avatar
FiveK
Posts: 5148
Joined: Sun Mar 16, 2014 2:43 pm

Re: Help with 401K vs Taxable

Post by FiveK » Tue Jun 12, 2018 10:28 pm

thedane wrote:
Tue Jun 12, 2018 12:14 pm
So would you agree that the below should be the best order of investment:
1: Fund 401K to employers match
2: Max out Roth IRA
3: Max out remainder 401K
4: IRA (?)
5: Taxable (?)
See Investment Order for common suggestions about this.

thedane
Posts: 9
Joined: Mon Jun 11, 2018 7:25 pm

Re: Help with 401K vs Taxable

Post by thedane » Wed Jun 13, 2018 5:17 pm

So I am unable to increase my 401K beyond my current 7% contribution as I am classified as a highly compensated employee (including bonus I am above $120K /yr)
As I can't do an HSA as I have good health insurance, and I already max out my Roth IRA, I guess the next viable step would be to keep adding to my taxable, right?

MotoTrojan
Posts: 1922
Joined: Wed Feb 01, 2017 8:39 pm

Re: Help with 401K vs Taxable

Post by MotoTrojan » Wed Jun 13, 2018 5:24 pm

thedane wrote:
Wed Jun 13, 2018 5:17 pm
So I am unable to increase my 401K beyond my current 7% contribution as I am classified as a highly compensated employee (including bonus I am above $120K /yr)
As I can't do an HSA as I have good health insurance, and I already max out my Roth IRA, I guess the next viable step would be to keep adding to my taxable, right?
You own >5% of the business you work in? Otherwise you are not a HCE.

Also at 5-10% of your equity, why even bother with International? I would set a floor at 15%, if not 20%.

thedane
Posts: 9
Joined: Mon Jun 11, 2018 7:25 pm

Re: Help with 401K vs Taxable

Post by thedane » Wed Jun 13, 2018 5:30 pm

MotoTrojan wrote:
Wed Jun 13, 2018 5:24 pm
thedane wrote:
Wed Jun 13, 2018 5:17 pm
So I am unable to increase my 401K beyond my current 7% contribution as I am classified as a highly compensated employee (including bonus I am above $120K /yr)
As I can't do an HSA as I have good health insurance, and I already max out my Roth IRA, I guess the next viable step would be to keep adding to my taxable, right?
You own >5% of the business you work in? Otherwise you are not a HCE.

Also at 5-10% of your equity, why even bother with International? I would set a floor at 15%, if not 20%.
I am an HCE accordion to the IRS, and my HR system when I tried to increase my 401K percentage...

"
Highly Compensated Employee - An individual who:
Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or
For the preceding year, received compensation from the business of more than $115,000 (if the preceding year is 2014; $120,000 if the preceding year is 2015, 2016, 2017 or 2018), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation."


https://www.irs.gov/retirement-plans/pl ... efinitions

MotoTrojan
Posts: 1922
Joined: Wed Feb 01, 2017 8:39 pm

Re: Help with 401K vs Taxable

Post by MotoTrojan » Wed Jun 13, 2018 6:10 pm

thedane wrote:
Wed Jun 13, 2018 5:30 pm
MotoTrojan wrote:
Wed Jun 13, 2018 5:24 pm
thedane wrote:
Wed Jun 13, 2018 5:17 pm
So I am unable to increase my 401K beyond my current 7% contribution as I am classified as a highly compensated employee (including bonus I am above $120K /yr)
As I can't do an HSA as I have good health insurance, and I already max out my Roth IRA, I guess the next viable step would be to keep adding to my taxable, right?
You own >5% of the business you work in? Otherwise you are not a HCE.

Also at 5-10% of your equity, why even bother with International? I would set a floor at 15%, if not 20%.
I am an HCE accordion to the IRS, and my HR system when I tried to increase my 401K percentage...

"
Highly Compensated Employee - An individual who:
Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or
For the preceding year, received compensation from the business of more than $115,000 (if the preceding year is 2014; $120,000 if the preceding year is 2015, 2016, 2017 or 2018), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation."


https://www.irs.gov/retirement-plans/pl ... efinitions
Sorry I missed the OR. Interesting stuff I didn’t realize this was a thing. Feels like it would impact a lot of people.

thedane
Posts: 9
Joined: Mon Jun 11, 2018 7:25 pm

Re: Help with 401K vs Taxable

Post by thedane » Thu Jun 14, 2018 3:12 pm

MotoTrojan wrote:
Wed Jun 13, 2018 6:10 pm
thedane wrote:
Wed Jun 13, 2018 5:30 pm
MotoTrojan wrote:
Wed Jun 13, 2018 5:24 pm
thedane wrote:
Wed Jun 13, 2018 5:17 pm
So I am unable to increase my 401K beyond my current 7% contribution as I am classified as a highly compensated employee (including bonus I am above $120K /yr)
As I can't do an HSA as I have good health insurance, and I already max out my Roth IRA, I guess the next viable step would be to keep adding to my taxable, right?
You own >5% of the business you work in? Otherwise you are not a HCE.

Also at 5-10% of your equity, why even bother with International? I would set a floor at 15%, if not 20%.
I am an HCE accordion to the IRS, and my HR system when I tried to increase my 401K percentage...

"
Highly Compensated Employee - An individual who:
Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or
For the preceding year, received compensation from the business of more than $115,000 (if the preceding year is 2014; $120,000 if the preceding year is 2015, 2016, 2017 or 2018), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation."


https://www.irs.gov/retirement-plans/pl ... efinitions
Sorry I missed the OR. Interesting stuff I didn’t realize this was a thing. Feels like it would impact a lot of people.
Yes. Not sure what others end up doing... I feel as the 401K HCE limit kicks in rather low. Especially in higher income/cost of living areas.

User avatar
FiveK
Posts: 5148
Joined: Sun Mar 16, 2014 2:43 pm

Re: Help with 401K vs Taxable

Post by FiveK » Thu Jun 14, 2018 3:18 pm

thedane wrote:
Thu Jun 14, 2018 3:12 pm
Yes. Not sure what others end up doing... I feel as the 401K HCE limit kicks in rather low. Especially in higher income/cost of living areas.
Many employers have a safe harbor 401(k) that allows everyone to contribute at least the $18.5K.

aristotelian
Posts: 4373
Joined: Wed Jan 11, 2017 8:05 pm

Re: Help with 401K vs Taxable

Post by aristotelian » Thu Jun 14, 2018 3:25 pm

Yes, max the 401k's. Start a Her Roth IRA.

Roll the old 401k into new 401k (not IRA). This will allow you to do Backdoor Roth, which will be in your future soon.

Vanguard vs TD Ameritrade is a matter of personal preference. Both are good. He can stay at TD and do a three-fund portfolio with low expenses if he wishes.

Keep in mind that "tax rate" generally means your marginal tax bracket. That is what you need to know to determine the benefit of 401k. You are in the 22% bracket, so you are getting a significant premium by maxing the 401k.

thedane
Posts: 9
Joined: Mon Jun 11, 2018 7:25 pm

Re: Help with 401K vs Taxable

Post by thedane » Thu Jun 14, 2018 3:58 pm

aristotelian wrote:
Thu Jun 14, 2018 3:25 pm
Yes, max the 401k's. Start a Her Roth IRA.

Roll the old 401k into new 401k (not IRA). This will allow you to do Backdoor Roth, which will be in your future soon.

Vanguard vs TD Ameritrade is a matter of personal preference. Both are good. He can stay at TD and do a three-fund portfolio with low expenses if he wishes.

Keep in mind that "tax rate" generally means your marginal tax bracket. That is what you need to know to determine the benefit of 401k. You are in the 22% bracket, so you are getting a significant premium by maxing the 401k.
Thank you. Love this feedback.

For my 401K: We do not have a safe harbor 401K plan, so I am out of luck there since I am an HCE.
She (and I) has a Roth IRA already, and will add (as long as we both can/are allowed to...)
So should she simply roll over her old 401K into her "current active" 401K? Even if there are somewhat "limited" low ER options in there? Why wouldn't an IRA make sense?

aristotelian
Posts: 4373
Joined: Wed Jan 11, 2017 8:05 pm

Re: Help with 401K vs Taxable

Post by aristotelian » Thu Jun 14, 2018 4:58 pm

thedane wrote:
Thu Jun 14, 2018 3:58 pm
aristotelian wrote:
Thu Jun 14, 2018 3:25 pm
Yes, max the 401k's. Start a Her Roth IRA.

Roll the old 401k into new 401k (not IRA). This will allow you to do Backdoor Roth, which will be in your future soon.

Vanguard vs TD Ameritrade is a matter of personal preference. Both are good. He can stay at TD and do a three-fund portfolio with low expenses if he wishes.

Keep in mind that "tax rate" generally means your marginal tax bracket. That is what you need to know to determine the benefit of 401k. You are in the 22% bracket, so you are getting a significant premium by maxing the 401k.
Thank you. Love this feedback.

For my 401K: We do not have a safe harbor 401K plan, so I am out of luck there since I am an HCE.
She (and I) has a Roth IRA already, and will add (as long as we both can/are allowed to...)
So should she simply roll over her old 401K into her "current active" 401K? Even if there are somewhat "limited" low ER options in there? Why wouldn't an IRA make sense?
Sorry, I did not see info for her IRA or 401k.

The reason you would roll to 401k rather than IRA is that having pre-tax funds in a Traditional IRA will effectively preclude you from doing backdoor Roth in the future due to the "pro-rata rule". You can search for that term for more details. This is important because you are getting close to the income limit for Roth IRA.

You can post her 401k options to decide whether it is worth it to give up backdoor Roth. As long as there are one or two good funds in the 401k, you could concentrate the 401k in that fund and then weight different funds in other accounts.

TwstdSista
Posts: 917
Joined: Thu Nov 16, 2017 4:03 am

Re: Help with 401K vs Taxable

Post by TwstdSista » Fri Jun 15, 2018 4:06 am

General observations:

Your percentages amongst all funds should add up to 100% -- try to see your portfolio as a single unit. This should include your wife's assets as well (once you get married).

Also, your Roth has only $20,000 in it? It only needs one fund, no need for five different funds. Keep it simple.

Consider maxing your 401k contributions before investing in a taxable account.

I agree with others re: be careful about creating a traditional/Rollover IRA if your income might increase in the future to allow for Backdoor Roths.

thedane
Posts: 9
Joined: Mon Jun 11, 2018 7:25 pm

Re: Help with 401K vs Taxable

Post by thedane » Fri Jun 15, 2018 9:39 am

TwstdSista wrote:
Fri Jun 15, 2018 4:06 am
General observations:

Your percentages amongst all funds should add up to 100% -- try to see your portfolio as a single unit. This should include your wife's assets as well (once you get married).

Also, your Roth has only $20,000 in it? It only needs one fund, no need for five different funds. Keep it simple.

Consider maxing your 401k contributions before investing in a taxable account.

I agree with others re: be careful about creating a traditional/Rollover IRA if your income might increase in the future to allow for Backdoor Roths.
Thanks for the feedback.
Yes, the Roth only has $20K. I should have started it earlier :-( Once it is moved to Vanguard in the next 10 days or so, I am going to drop it all into VTSAX as a single fund.

For 401K. I cannot contribute more as I am an HCE (see posts above). So my only other option is taxable.

TwstdSista
Posts: 917
Joined: Thu Nov 16, 2017 4:03 am

Re: Help with 401K vs Taxable

Post by TwstdSista » Fri Jun 15, 2018 10:46 am

thedane wrote:
Fri Jun 15, 2018 9:39 am
r 401K. I cannot contribute more as I am an HCE (see posts above). So my only other option is taxable.
Ahh, sorry for beating that horse -- HCE's are not something I am likely to ever be familiar with. You seem to be on the right path!

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