Portfolio Checkup + MegaBackdoor Roth?

[amucaze]

Hi Bogleheads! I rarely post but regularly read the forums - thank you for all the great topics.

Any advice or suggestions you have on my situation would be much appreciated, I'm 3 years in and thus far, following the ideas laid down in this forum and wiki have been fantastic. We continue to be blessed with good health, good jobs and good times. Previous years:

1. viewtopic.php?f=1&t=196994
2. viewtopic.php?f=1&t=217849
3. viewtopic.php?f=1&t=251402

Basics
Gross income: 109K + 460K = 569K
Debt: None
Tax status: Married, filing jointly
State: CA
Age: 33
Annual outgoings: < $70,000
Annual investable money: ~ $200,000
Desired asset allocation: 77% stocks, 23% bonds (After feeling nervous in Dec '19, I went back to my original plan which stated age in bonds - 10).

Goal Allocations

Code: Select all

| US Stock | Intl Stock | Emerging | Bonds | Reit |
|----------|------------|----------|-------|------|
| 41%      | 24%        | 7%       | 23%   | 5%   |

Current Assets
$170K Ally Bank (2.2% interest rate) - 6mo emergency fund + 140K home deposit (we continue to kid ourselves that we'll be buying a house)
Investments:

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+---------------------------------+--------+---------+---------+---------+----------+----------+----------+------------+
| Name                            | Ticker | My IRA  | Her IRA | My 401K | Her 401K | Taxable  | Totals   | Percentage |
+---------------------------------+--------+---------+---------+---------+----------+----------+----------+------------+
|                                 | Totals | $24,810 | $25,964 | $74,747 | $73,053  | $386,640 | $585,213 | 100.0%     |
+---------------------------------+--------+---------+---------+---------+----------+----------+----------+------------+
| Vanguard Total Bond Adm         | VBTLX  |         |         | $70,673 |          |          | $70,673  | 12.1%      |
+---------------------------------+--------+---------+---------+---------+----------+----------+----------+------------+
| Fidelity US Bond Idx            | FXNAX  |         |         | $4,074  |          |          | $4,074   | 0.7%       |
+---------------------------------+--------+---------+---------+---------+----------+----------+----------+------------+
| Vanguard Int.-Term Tax-Exempt   | VWITX  |         |         |         |          | $55,303  | $55,303  | 9.5%       |
+---------------------------------+--------+---------+---------+---------+----------+----------+----------+------------+
| Vanguard REIT Index Adm         | VGSLX  |         | $25,964 |         |          |          | $25,964  | 4.4%       |
+---------------------------------+--------+---------+---------+---------+----------+----------+----------+------------+
| Vanguard Total Stock Market Adm | VTSAX  | $24,810 |         |         |          | $151,316 | $176,126 | 30.1%      |
+---------------------------------+--------+---------+---------+---------+----------+----------+----------+------------+
| Vanguard Extended Mkt Index     | VEXMX  |         |         |         | $14,231  |          | $14,231  | 2.4%       |
+---------------------------------+--------+---------+---------+---------+----------+----------+----------+------------+
| Columbia Large Cap Index        | NINDX  |         |         |         | $58,822  |          | $58,822  | 10.1%      |
+---------------------------------+--------+---------+---------+---------+----------+----------+----------+------------+
| Vanguard Emerging Markets       | VEIEX  |         |         |         |          | $5,256   | $5,256   | 0.9%       |
+---------------------------------+--------+---------+---------+---------+----------+----------+----------+------------+
| Vanguard Total Intl Adm         | VTIAX  |         |         |         |          | $174,765 | $174,765 | 29.9%      |
+---------------------------------+--------+---------+---------+---------+----------+----------+----------+------------+

My 401K options: https://pastebin.com/QbnuLGcU
Her 401K options: https://pastebin.com/97Tubgt7

Overall allocations (using the fund breakdowns: https://pastebin.com/UgEGYy0f):

Code: Select all

|       | US Stock | Intl Stock | Emerging | Bonds | Reit | Total  |
|-------|----------|------------|----------|-------|------|--------|
| Total | 41%      | 24%        | 7%       | 22%   |   6% | 100%   |
| Goal  | 41%      | 24%        | 7%       | 23%   |   5% | 100%   |

Questions/Areas of Concern

• My new company allows both post tax and in-service distributions from the 401K. My current Roth IRA is with Vanguard whereas the 401K is with Fidelity, is the easiest move here to set up a second Roth IRA just for the 401K after tax distributions?
• ...and is it worth doing the mega-backdoor Roth? Does it matter that I've already done a backdoor Roth for 2019?
• I'm expecting a child soon. From what I've read, redirecting money into a 529 is a good move, but is there anything specific to my situation that I should avoid/do?
• I'm under-insured (100/300 car insurance is about it) and should work on getting umbrella insurance. This is tough for me, because I'm a frugal person who is unfamiliar with the litigation culture of America - but from what I've read, I just need to bite the bullet and do it. Any disagreement?

[Patrick584]

Yes, you should do a mega back door roth up to the limit. Despite similar names I’m pretty sure they are independent. This is a great tax shelter for big savers that will give huge tax savings for many years.

If your 401k plan is good, there are modest benifits to keeping in 401k. I’ve heard that separate plans and labeling it rollover can offer protections, but I’m not certain on this.

529 plans are a great shelter for big savers and definitely better than taxable for dollars likely to be spent on education. If you have money in taxable without unrealized gain, you should guess a reasonable amount that you will spend in 2 decades. I have 100k and we have a 2 year old and want more kids. Make sure you pick a good plan and you take advantage of state incentives. Our state started a match after I put in a large amount. I probably would have put in less in hindsight, but not a big deal.

Umbrella policies are cheap and cover a pretty short list of liabilities. It will save you from a few possible devestating events, but it’s not a catch all. It should really be titled a book bag over your head.

[retiredjg]

]My new company allows both post tax and in-service distributions from the 401K. My current Roth IRA is with Vanguard whereas the 401K is with Fidelity, is the easiest move here to set up a second Roth IRA just for the 401K after tax distributions?

Many people have reported that it just takes a phone call to roll the after-tax account at Fido into a Roth IRA at Fido. If this is true for you, that is a good route. If you really prefer Vanguard, once a year do a Fido Roth IRA to Vanguard Roth IRA transfer.

[*]...and is it worth doing the mega-backdoor Roth? Does it matter that I've already done a backdoor Roth for 2019?

Yes, it is worth it and no, it does not matter as long as you roll the earnings in your after-tax account into Roth rather than tIRA.

[HEDGEFUNDIE]

I recommend moving your Ally Bank funds into Vanguard's Treasury Money Market (VUSXX). At your tax bracket it's equivalent to 2.77% in a regular savings account (see tax-equivalent yield calculator).

You should definitely do the mega backdoor Roth. When you call Fidelity ask whether they will do "automatic daily Roth in-plan conversions" which converts your after-tax 401k contributions into Roth money immediately every paycheck.

[yogesh]

Move Ally to prime or treasury money market
Definitely use post-tax 401k contribution and call brokerage to perform in-service ROTH conversion. It creates a sub-account in your 401k automatically and it can invest/contribute to same target retirement fund or index fund of your choice.
Buy umbrella insurance for liability coverage as its cheap and protect your assets from large claims

[AllMostThere]

MegaBackDoor is a great savings tool. Just make sure you investigate if your 401K provider charges a fee to process the request. Fees will limit your frequency of "in-service" distributions. DW & me each get tagged for $20 fee, so we only make the request when we hit a $$ dollar threshold. Again, great tool.