Full Review

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IowaSon
Posts: 4
Joined: Tue May 15, 2018 9:18 pm

Full Review

Post by IowaSon » Wed Jul 11, 2018 9:32 pm

Emergency funds: Yes (1 year in high yield checking @ 3.2%)
Debt: House 107,000 @4.5 30 year fixed. (Purchased May of 2018) His student loans 32,000 @ 6.2% (in Year 6 of PSLF)
Tax Filing Status: Married Filing Jointly
Tax Rate: 12% Federal, appx 8% State
State of Residence: IA
Age: Both 28
Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 20-30% of stocks

I am trying to replicate total US index, Total International index, and total us bond in the most cost effective way I can across all my accounts. In the past, I've replicated my asset allocation in each account, and realize that was not the most efficient. I look forward to hearing your suggestions.

His 403 B TIAA Current Assets $25,000 Expected 2019 Contribution $3,600
His Roth Vanguard Current Assets $28,000 Expected 2019 Contribution $5,500
Her Roth Vanguard Current Assets $5,500 Expected 2019 Contribution $5,500
Her 403B Voya? Current Assets $8,500 Expected 2019 Contribution $3,000
Total Current Assets $67,000 Total Expected Contributions in 2019 $17,600


**her403 B is currently with Mass Mutual, but can be transferred easily to VOYA**
See link below to HER 403B options
https://das.iowa.gov/sites/default/file ... d_fees.pdf


Other notes-My wife is a teacher and is paying into the IPERS pension. She also has access to to several 403B options. One of the options (VOYA) allows her to invest in Vangaurd's Total US Index @.04 expense (no admin fees). The rest of the funds with Voya are sub par, but I am leaning towards using VOYA and exclusively funding TOTAL US. I am trying to be 100% equity in our roths so I want to hold our bond allocation in my 403B. My options are below to acheive that in my 403B.

Questions:
Do you agree that I should hold my bonds in my 403B? If so what fund(s) of the three fixed income below do you recommend? If not, how would you utilize my 403B?

What do you recommend for allocation for the rest of my 403B? Should I do a combo of the international options to achieve my overall international allocation or do I just take care of that in my Roth with the Vanguard product?

Again, I am trying to replicate total US index, Total International index, and total us bond in the most cost effective way I can across all my accounts. In the past, I've replicated my asset allocation in each account, and realize that was not the most efficient. I look forward to hearing your suggestions.

His 403 B options (that he is considering) There is also a base .52% admin expense on top of the fund fees below.

iShares Russell Mid-Cap Index K (BRMKX) Equities 0.08% / 0.07% 
TIAA-CREF Emerging Markets Equity Index Fund (Institutional) (TEQLX) Equities 0.21% / 0.21% 
TIAA-CREF International Equity Index Fund (Institutional) (TCIEX) Equities 0.06% / 0.06% 
TIAA-CREF Real Estate Securities Fund (Institutional) (TIREX) Equities 0.51% / 0.51% 
TIAA-CREF S&P 500 Index Fund (Institutional) (TISPX) Equities 0.06% / 0.06% 
TIAA-CREF Small-Cap Blend Index Fund (Institutional) (TISBX) Equities 0.06% / 0.06% 
DFA LTIP Portfolio Institutional (DRXIX) Fixed Income 0.14% / 0.15% 
iShares U.S Aggregate Bond Index K (WFBIX) Fixed Income 0.06% / 0.05% 
Vanguard Short-Term Bond Index Fund Admiral (VBIRX) Fixed Income 0.07% / 0.07%

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Duckie
Posts: 5717
Joined: Thu Mar 08, 2007 2:55 pm

Re: Full Review

Post by Duckie » Wed Jul 11, 2018 10:42 pm

IowaSon wrote:Age: Both 28
Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 20-30% of stocks
This is reasonable. I'd probably have more bonds, maybe 20%.
Do you agree that I should hold my bonds in my 403B?
Yes. It's not optimal because she has cheaper bond options in her 403b, but that 0.04% TSM fund at Voya trumps the 0.57% bonds (0.05% + 0.52%) in his 403b.
If so what fund(s) of the three fixed income below do you recommend?
iShares U.S Aggregate Bond Index K (WFBIX) 0.05%
What do you recommend for allocation for the rest of my 403B? Should I do a combo of the international options to achieve my overall international allocation or do I just take care of that in my Roth with the Vanguard product?
Use 500 Index and maybe Small-Cap Index in his 403b. Put as much international as possible in the Roth IRAs.

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The following example has an AA of 90% stocks, 10% bonds, with 30% of stocks in international. That breaks down to 63% US stocks, 27% international stocks, and 10% bonds. You could have:

His 403b at TIAA -- $25K -- 37%
23% (TISPX) TIAA-CREF S&P 500 Index Fund Institutional Class (0.06% + 0.52% = 0.58%)
4% (TISBX) TIAA-CREF Small-Cap Blend Index Fund Institutional Class (0.06% + 0.52% = 0.58%)
10% (WFBIX) iShares U.S. Aggregate Bond Index Fund Class K (0.05% + 0.52% = 0.57%)

Her 403b at Voya -- $8.5K -- 13%
13% (VITSX) Vanguard Total Stock Market Index Fund Institutional Shares (0.04%)

His Roth IRA at Vanguard -- $28K -- 42%
15% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
27% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

Her Roth IRA at Vanguard -- $5.5K -- 8%
8% (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.14%)

Just some possibilities.

ExitStageLeft
Posts: 487
Joined: Sat Jan 20, 2018 4:02 pm

Re: Full Review

Post by ExitStageLeft » Wed Jul 11, 2018 11:05 pm

The Vanguard fund in the Voya plan is its one saving grace. I agree with the plan you have outlined. I would go with the iShares bond fund in His 403b, and put the rest in the S&P 500 fund. Maybe add mid-cap and small-cap if you want to fully emulate a total market fund.

Oh I see Duckie already recommends that. :thumbsup

I would also suggest maxing out her 403b contribution and reducing or suspending his 403b contribution. Hers is the better place to be putting the funds. Assuming you gradually ramp up the contributions as income increases, then when the annual limit is reached on Hers then start pumping up His contribution. Disregard this advice if there an employer match to His contribution.

IowaSon
Posts: 4
Joined: Tue May 15, 2018 9:18 pm

Re: Full Review

Post by IowaSon » Thu Jul 12, 2018 8:49 am

Another question, since we are in the 12% bracket now, does it make sense to funnel our 403B as Roth403B contributions until we hit the 22% bracket? I fully expect to be in a higher tax bracket when we retire.

02nz
Posts: 442
Joined: Wed Feb 21, 2018 3:17 pm

Re: Full Review

Post by 02nz » Thu Jul 12, 2018 9:00 am

IowaSon wrote:
Thu Jul 12, 2018 8:49 am
Another question, since we are in the 12% bracket now, does it make sense to funnel our 403B as Roth403B contributions until we hit the 22% bracket? I fully expect to be in a higher tax bracket when we retire.
Yes, you're pretty much the textbook example for when Roth makes sense (low tax bracket now, higher tax bracket in retirement w/ significant pension income). When you get into the next tax bracket (22%) though I'd do traditional.

ExitStageLeft
Posts: 487
Joined: Sat Jan 20, 2018 4:02 pm

Re: Full Review

Post by ExitStageLeft » Thu Jul 12, 2018 9:24 am

You can ballpark your future taxes by estimating pensions, social security and portfolio withdrawal. Based on current salaries what will pension and SS benefits be? Figure 85% of social security will be taxable, and use 2018 dollars and tax rates. The top of the 12% bracket is $77,400 which means an AGI of $101,400. Allowing for the untaxed portion of social security that means you would have to be bringing in over about $105,000 of reportable income before you hit the 22% tax bracket.

Pulling a number out of the air, suppose your pension and SS will be $65,000 per year. You could withdraw an additional $40,000 from tax-deferred per year and still be in the 12% bracket. In that scenario having $1m in tax-deferred would be just about perfect. You could withdraw any additional needed funds from your tax-free Roth assets.

Anyhow, I think I'm getting too far ahead and looking to when you retire. For now stick with 02nz's recommendation of going to traditional when you hit the 22% bracket.

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