Portfolio Growth and Higher Tax Bracket

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Topic Author
finingo
Posts: 2
Joined: Sun Jul 09, 2017 9:00 am

Portfolio Growth and Higher Tax Bracket

Post by finingo » Sat Nov 16, 2019 10:09 am

Emergency funds: 6 months

Debt: None

Tax Filing Status: Married Filing Jointly

Tax Rate: 35% Federal, 0% State

State of Residence: WA

Age: 32m / 37f

Savings Rate: >50%

Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 38% (MSCI weighted)

Current portfolio - mid six figures

Current retirement assets

Taxable
12% Vanguard Total Stock Market Index (VTSAX) (0.04%)
15% Vanguard Total International Stock Market Index (VTIAX) (0.11%)
1.5% Tesla (TSLA)

HSA
4% Vanguard Total Stock Market Index (VTSAX) (0.04%)

His 401k
4% Fidelity Total market Index (FSKAX) (0.015%)
16% Fidelity US Bond Index (FXNAX) (0.025%)
Self-employed 401k (Keogh) (I rollover previous employer accounts here)

His Simple IRA
3% Fidelity Total market Index (FSKAX) (0.015%)
1.5% Fidelity US Bond Index (FXNAX) (0.025%)
I just left this employer and will be rolling into SE 401k once 2 year time frame has passed from account opening (13 more months)

His Roth IRA
9% Vanguard Total Stock Market Index (VTSAX) (0.04%)

Her 401k Company A (old)
6.5% Fidelity Freedom Index Fund 2040 (FBIFX) (0.12%)
Need to roll this over to her spousal SE 401k - slacking

Her 401k Company B (active)
Tax Deferred:
13.5% Vanguard Target Retirement 2040 (VIRSX) (0.09%)
After Tax (plan doesn’t allow in-plan ROTH conversions, will convert once she changes jobs):
7.5% Vanguard Target Retirement 2040 (VIRSX) (0.09%)
2500 match

Her Roth IRA
6.5% Vanguard Total Stock Market Index (VTSAX) (0.04%)

I am starting a new job in the next couple weeks. My new employer has Vanguard 401k (institutional shares of core funds) with 50% match to IRS limit and after tax in-plan ROTH conversions. We will continue to max 401k (both tax-deferred and after-tax), HSA, Roth IRAs (via backdoor once I roll Simple IRA into SE401k).

Questions:
I am changing jobs and we are moving from the mid-west to Washington. I am seeking advice related to this change. It was previously suggested I convert tax-advantaged US stock holdings to S&P 500 index for TLH purposes. I will probably do that soon.
  • We will be in the 35% tax bracket, whereas we were previously in 22%. Are there any considerations you think I should start accounting for?
  • RSUs will be roughly 40% of my compensation, with shares vesting monthly. This is a very successful/profitable company, which already has a high weighting in VTSAX. While I believe the company will continue to do very well, I don’t see a reason to hold these shares as it puts too many eggs in one basket. I plan to sell these immediately and buy VTSAX or VTIAX in taxable account.
  • We are starting to get the point where our portfolio growth will accelerate and tax consequences of mistakes will be more severe. It is already starting to get a little complicated with SE401k, backdoor, etc. I am considering getting some fee-based consultation to make sure we aren’t missing anything from tax planning or asset protection strategies. We carry proper insurance and umbrella. I am a pretty avid DIYer in general, and will read dozens of books to come up to speed on a subject. However, I know you cannot always substitute this for the expertise of an experienced professional. If you have any suggestions on this, please let me know. Should I be looking at a CPA and/or other types of professionals if I decide to seek advice?
  • Overall advice based on portfolio and situation. Anything I am missing, etc.

User avatar
TomatoTomahto
Posts: 9538
Joined: Mon Apr 11, 2011 1:48 pm

Re: Portfolio Growth and Higher Tax Bracket

Post by TomatoTomahto » Sat Nov 16, 2019 3:18 pm

finingo wrote:
Sat Nov 16, 2019 10:09 am
Tax Rate: 35% Federal, 0% State
Age: 32m / 37f
Savings Rate: >50%
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 38% (MSCI weighted)
I don't do asset allocation thinking, but it seems fine to me.
I am starting a new job in the next couple weeks. My new employer has Vanguard 401k (institutional shares of core funds) with 50% match to IRS limit and after tax in-plan ROTH conversions. We will continue to max 401k (both tax-deferred and after-tax), HSA, Roth IRAs (via backdoor once I roll Simple IRA into SE401k).

Questions:
I am changing jobs and we are moving from the mid-west to Washington. I am seeking advice related to this change. It was previously suggested I convert tax-advantaged US stock holdings to S&P 500 index for TLH purposes. I will probably do that soon.
  • We will be in the 35% tax bracket, whereas we were previously in 22%. Are there any considerations you think I should start accounting for?
Based on your age and savings rate, you should put as much in Roth as you can reasonably do. You most likely will have a large target on your back for the tax torpedo to aim at.
  • RSUs will be roughly 40% of my compensation, with shares vesting monthly. This is a very successful/profitable company, which already has a high weighting in VTSAX. While I believe the company will continue to do very well, I don’t see a reason to hold these shares as it puts too many eggs in one basket. I plan to sell these immediately and buy VTSAX or VTIAX in taxable account.
It sounds as though you have avoided the greed trap. Stick to this plan. If the company does well, you will do well. Don't fall for the coulda, shoulda, woulda trap.
  • We are starting to get the point where our portfolio growth will accelerate and tax consequences of mistakes will be more severe. It is already starting to get a little complicated with SE401k, backdoor, etc. I am considering getting some fee-based consultation to make sure we aren’t missing anything from tax planning or asset protection strategies. We carry proper insurance and umbrella. I am a pretty avid DIYer in general, and will read dozens of books to come up to speed on a subject. However, I know you cannot always substitute this for the expertise of an experienced professional. If you have any suggestions on this, please let me know. Should I be looking at a CPA and/or other types of professionals if I decide to seek advice?
I am dumb as a sack of hammers, but I manage a larger amount than you currently do. I do have a CPA for taxes, and an attorney for trusts and wills. Read BH recommended books, and read this forum. You'll quickly discover who is helpful (for example, retiredjg, celia, et al for Roths).

Btw, while the effects of a mistake will be larger in absolute dollar terms, the effect on your overall financial health won't be felt as much. Don't let perfect be the enemy of good.
  • Overall advice based on portfolio and situation. Anything I am missing, etc.
Congrats on your new job.
Okay, I get it; I won't be political or controversial. The Earth is flat.

HomeStretch
Posts: 2893
Joined: Thu Dec 27, 2018 3:06 pm

Re: Portfolio Growth and Higher Tax Bracket

Post by HomeStretch » Sat Nov 16, 2019 5:29 pm

Congratulations on your new job. Your portfolio looks good.

Spouse does not need to wait until your Simple IRA is rolled over in 13 months to do a backdoor Roth.

If you are looking for additional tax-deferred space, consider I-Bonds.

Update your estate planning (including wills, financial DOOA and healthcare OOA/directives) in light of your move to a new state.

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