Newbie seeking help

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Topic Author
ikennakc
Posts: 12
Joined: Mon Nov 04, 2019 9:37 am

Newbie seeking help

Post by ikennakc » Sun Nov 17, 2019 8:41 am

Hello Bogleheads, please excuse my naive question. I need some direction. I am a newbie to self-managed investment. I just finished reading The Bogleheads, Guide to Investing; and decided to manage my investments myself. I had been using a financial advisor that managed my portfolio without much input from me; other than the initial questionnaire to figure out my risk tolerance. I am 36 and plan to retire at 60 so I consider myself a middle aged investor. I have zero consumer debt and 6 months of Emergency funds.

According to “The Bogleheads’ Guide to Investing; A Middle Aged Investor’s Asset Allocation using Vanguard Funds should look like this
Total Stock Market Index Fund – 45%
Total International Index Fund – 10%
REITs – 5%
Total Bond Market Index Fund – 20%
Inflation Protected Securities – 20%
Question is how do I know what particular funds represent each category? And how do I allocate a certain percentage to specific funds? I have a 401k and Roth IRA account at TD Ameritrade; if that matters
Last edited by ikennakc on Sun Nov 17, 2019 9:18 pm, edited 1 time in total.

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ruralavalon
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Location: Illinois

Re: Newbie seeking help

Post by ruralavalon » Sun Nov 17, 2019 12:55 pm

Welcome to the forum :) .

It's good to see that you are debt free, have an emergency fund, and switching to managing your own investments.

ikennakc wrote:
Sun Nov 17, 2019 8:41 am
Hello Bogleheads, please excuse my naive question. I need some direction. I am a newbie to self-managed investment. I just finished reading The Bogleheads, Guide to Investing; and decided to manage my investments myself. I had been using a financial advisor that managed my portfolio without much input from me; other than the initial questionnaire to figure out my risk tolerance. I am 36 and plan to retire at 60 so I consider myself a middle aged investor. I have zero consumer debt and 6 months of Emergency funds.

According to “The Bogleheads’ Guide to Investing; A Middle Aged Investor’s Asset Allocation using Vanguard Funds should look like this
Total Stock Market Index Fund – 45%
Total International Index Fund – 10%
REITs – 5%
Total Bond Market Index Fund – 20%
Inflation Protected Securities – 20%
Question is how do I know what particular funds represent each category? And how do I allocate a certain percentage to specific funds? I am using TD Ameritrade; if that matters
What type of account(s) do you have with TDAmeritrade? Do you have other accounts elsewhere? For information needed and format please see: "Asking Portfolio Questions" .

At age 36 I do not suggest using a TIPS fund. I suggest that only when in or nearing retirement, if then.

You can research funds on Morningstar. Fund examples in the other categories include:

(1) Vanguard Total Stock Market Index Fund (VTSAX) or the Vanguard ETF (VTI), or iShares Core S&P Total US Stock Mkt ETF (ITOT).

(2) Vanguard Total International Stock Index Fund (VTIAX) or the Vanguard ETF (VXUS), or iShares Core MSCI Total Intl Stk ETF (IXUS).

(3) Vanguard Total Bond Market Index Fund (VBTLX) or the Vanguard ETF (BND) or iShares Core US Aggregate Bond ETF (AGG).

(4) Vanguard Real Estate Index Fund Admiral Shares (VGSLX) or the Vanguard ETF (VNQ), or iShares Core U.S. REIT ETF (USRT).

In accounts at TDAmeritrade use ETFs that trade commission free at TDAmeritrade. TD Ameritrade features more than 2,300 commission-free ETFs. I do not have any accounts at TDAmeritrade, and could not find a list of commission free ETFs available there.
Last edited by ruralavalon on Sun Nov 17, 2019 1:14 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

livesoft
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Re: Newbie seeking help

Post by livesoft » Sun Nov 17, 2019 1:08 pm

ikennakc wrote:
Sun Nov 17, 2019 8:41 am
Question is how do I know what particular funds represent each category? And how do I allocate a certain percentage to specific funds? I am using TD Ameritrade; if that matters
At TDAmeritrade, I think you would not use mutual funds, but would use ETFs since they trade without commissions.

So you could go by the name of the ETF to get the particular funds that represent each category. Examples (for you to look up for yourself):
VTI
VXUS
VNQ
BND
TIP

I do not own any VXUS, VNQ, nor TIP, but I do own VTI and BND along with other things.

There are alternative ETFs which represent the same categories: ITOT, SPTM, and others are similar to VTI. And so on.

As for percentages, it is a math problem. What dollar amount is 45% of your portfolio? How many shares of VTI can that dollar amount purchase?

I suggest doing research at bogleheads.org/Wiki before doing research at TDAmeritrade.com.
Wiki This signature message sponsored by sscritic: Learn to fish.

retiredjg
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Re: Newbie seeking help

Post by retiredjg » Sun Nov 17, 2019 1:12 pm

The suggested portfolio has streamlined a little since that book was written...into the 3 fund portfolio (total stock, total international, total bond). It's still a fine model, but the allocation to TIPS is not common these days. And extra REIT is considered OK but not really necessary since the REIT stocks are included in the total stock market.

The way to build this thing is to first look at your work plan if you have one. This is usually the most restrictive account you will own, so pick the lowest cost funds that will fit this puzzle and build the rest of your portfolio in other accounts such as Roth IRA. This frequently means making a substitution of 500 index for the suggested total stock market because TSM is frequently unavailable in work plans.

Is your 401k at TDA?

mhalley
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Re: Newbie seeking help

Post by mhalley » Sun Nov 17, 2019 1:12 pm

You can use a spreadsheet, or an account aggregator such as personal capital to help setup and rebalance your asset allocation. If you are not familiar with using etfs, you might review the ins and outs, ie limit orders.
Is this a taxable account? You might not want reits there. I think most would say you don’t need tips at your age.

Topic Author
ikennakc
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Re: Newbie seeking help

Post by ikennakc » Mon Nov 18, 2019 7:23 am

Yes, i do have a 401k and Roth IRA accounts at TDA.

retiredjg
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Re: Newbie seeking help

Post by retiredjg » Mon Nov 18, 2019 7:36 am

You need to give us more information then. For example, what is available in the 401k?

Please follow the format shown in the link at the bottom of this message. It's what we use to help people with their portfolio questions. By doing that we get all the information at one time and in one place rather than asking for it bit by bit.

HomeStretch
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Re: Newbie seeking help

Post by HomeStretch » Mon Nov 18, 2019 7:38 am

Welcome!

For best help with your asset allocation and constructing a 3-fund portfolio that is low cost, diversified and tax efficient, post your financial information in the format requested in “Asking Portfolio Questions” linked above.

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ruralavalon
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Location: Illinois

Re: Newbie seeking help

Post by ruralavalon » Mon Nov 18, 2019 3:09 pm

ikennakc wrote:
Mon Nov 18, 2019 7:23 am
Yes, i do have a 401k and Roth IRA accounts at TDA.
retiredjg wrote:
Mon Nov 18, 2019 7:36 am
You need to give us more information then. For example, what is available in the 401k?

Please follow the format shown in the link at the bottom of this message. It's what we use to help people with their portfolio questions. By doing that we get all the information at one time and in one place rather than asking for it bit by bit.
HomeStretch wrote:
Mon Nov 18, 2019 7:38 am
Welcome!

For best help with your asset allocation and constructing a 3-fund portfolio that is low cost, diversified and tax efficient, post your financial information in the format requested in “Asking Portfolio Questions” linked above.
I agree with retiredjg and HomeStretch, that additional information as specified in "Asking Portfolio Questions" is necessary. You can simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

You start fund selection by looking at what is offered in your employer's 401k plan. In a 401k plan the fund choices are always limited and often undiversified or expensive. You pick the best one or two funds (most diversified + lowest expense ratio) offered in that plan. Then complete your portfolio using the nearly unlimited fund choices available in your IRA.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
ikennakc
Posts: 12
Joined: Mon Nov 04, 2019 9:37 am

Re: Newbie seeking help

Post by ikennakc » Sat Nov 23, 2019 2:19 am

Hope this helps..

His Annual Income - $300,000
Her Annual Income - $300,000

Emergency funds: $100k – About 4 months of Emergency Funds. I think this is enough because my wife and I are stable jobs. She’s in the medical field and I’m in the dental field.
Chances of both of us losing our jobs at the same time is low. I own my practice; my wife owns her practice too.

Debt: I know my original post said no consumer debt. That was a mistake. I meant NO revolving credit card debt. We do have a primary mortgage; and we do have student loans that are scheduled to be paid off in 34 months. When these student loans are paid off, our monthly expense will drop by $8k ( Yes we are paying them off aggressively even though the interest rate is 2.4%) for me and 1.85% for wife) These are variable rates and adjust every quarter. No student loans also mean the $100k emergency fund will represent more than 6 months of expenses.
We do have one car note; $27,000 at 0% interest.

Tax Filing Status: Married Filing Jointly,

Tax Rate: 35% Federal, Live in Texas No State Income Taxes

State of Residence: Texas

Age: I am 36, Wife is 34

Desired Asset allocation: 65% Stocks and 35% Bonds

Please provide a hint as to the size of your current total portfolio – Close to $200k combined We also own about 7 rental real estate.



Current retirement assets – All in TD Ameritrade

Taxable
2.38% VTI (Vanguard Total Stock Market Index Fund)
2.94% FDIC INSURED DEPOSIT ACCOUNT CORE


His 401k (OLD 401K) (DOUBLE CHECKED)
3.4% DTMMX (DFA Tax-Managed U.S. Marketwide Value Portfolio)
2.19% VWSTX (Vanguard Short-Term Tax-Exempt Fund)
2.41% DTMIX (DFA Tax Managed International Value Portfolio)
1.11% VTV (Vanguard Value Index Fund ETF Shares)


His Roth IRA
8.02% DFSVX (DFA U.S. Small Cap Value Portfolio Institutional Class)
3.47% VBR (Vanguard Small-Cap Value Index Fund ETF )


Her 401k
3.57% BND (Vanguard Total Bond Market Index Fund ETF Shares)
4.34% EFV (iShares MSCI EAFE Value ETF)
10.11% SPY (SPDR® S&P 500 ETF Trust)
1.44% VB (Vanguard Small-Cap Index Fund ETF Shares)
1.02% VSS (Vanguard FTSE All-World ex-US Small-Cap Index Fund ETF)
.65% VWO (Vanguard FTSE Emerging Markets Index Fund ETF Shares)
2.21% DFEVX (DFA Emerging Markets Value Portfolio Institutional Class)
4.57% DFGBX (DFA Five-Year Global Fixed Income Portfolio Institutional Class)
5.04% DFGFX (DFA Two Year Global Fixed Income Portfolio Institutional Class_
.66% DFISX . (DFA International Small Company Portfolio Institutional Class)
3.25% DFLVX . (DFA U.S. Large Cap Value Portfolio Institutional Class)
1.69% DFSCX (DFA U.S. Micro Cap Portfolio Institutional Class)
3.26% DIPSX (DFA Inflation-Protected Securities Portfolio Institutional Class)
10.4% DISVX (DFA International Small Cap Value Portfolio Institutional Class)
2.49% VFIAX (Vanguard 500 Index Fund Admiral Shares )
3.63% VWAHX . (Vanguard High-Yield Tax-Exempt Fund)
1.77% VWITX (Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares)


Her Roth IRA
2.97% IVV (iShares Core S&P 500 ETF)
4.96% DFIVX (DFA International Value Portfolio Institutional Class)
1.18% DFEMX (DFA Emerging Markets Portfolio Institutional Class)
1% VTV (Vanguard Value Index Fund ETF Shares)

Contributions

New annual Contributions for 2019
Her Annual Contribution - $53,000 to 401k . (not a work 401k, she's the sole employer/employee)
His Annual Contribution - $13,000 to Simple IRA
Her Annual Contribution - $5,500 to Roth IRA . (back door)
His Annual Contribution - $5,500 to Roth IRA . (back door)



Questions:
1. These Asset classes were chosen by a financial advisor; please advise on the quality of our portfolio and recommend necessary changes and allocation

2. I don’t know how to locate or calculate the expense rations
Last edited by ikennakc on Mon Nov 25, 2019 11:06 am, edited 9 times in total.

retiredjg
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Re: Newbie seeking help

Post by retiredjg » Sat Nov 23, 2019 7:01 am

ikennakc wrote:
Sat Nov 23, 2019 2:19 am
Hope this helps.
Thanks for the update, but we still have a little bit of work to do before we'll understand what you have. :happy

His Annual Income - $300,000
Her Annual Income - $300.000
It appears that you are in the 35% federal tax bracket.

Desired Asset allocation: Whatever is best for my situation
This question is asking you about the stock to bond ratio that you want. We cannot decide that for you, but a range to consider might be something between 65% stocks/35% bonds and 80% stocks/20% bonds. Do you know what your current stock to bond ratio is?


I'm going to re-arrange your holdings in a way that we can work with this list. That way, we can see and understand the size of each of the accounts. If you want us to understand what you currently hold you will need to add the fund name to each and add the expense ratio. (More on this below). However, it appears you want to sell all this (except maybe the taxable account) so maybe it does not matter.


Taxable
2.38% VTI
2.94% FDIC INSURED DEPOSIT ACCOUNT CORE


His 401k
3.4% DTMMX
2.19% VWSTX
2.41% DTMIX
?% VTV <---what is this percentage?


His Roth IRA
8.02% DFSVX
3.47% VBR


Her 401k
3.57% BND
4.34% EFV
10.11% SPY
1.44% VB
1.02% VSS
.65% VWO
2.21% DFEVX
4.57% DFGBX
5.04% DFGFX
.66% DFISX
3.25% DFLVX
1.69% DFSCX
3.26% DIPSX
10.4% DISVX
2.49% VFIAX
3.63% VWAHX
1.77% VWITX


Her Roth IRA
2.97% IVV
4.96% DFIVX
1.18% DFEMX
?% VTV <---what is this percentage?


(VTV - 5.6% Her Roth IRA and His 401k)



New annual Contributions
Her Annual Contribution - $53,000 to 401k
His Annual Contribution - $13,000 to Simple IRA
Her Annual Contribution - $5,500 to Roth IRA
His Annual Contribution - $5,500 to Roth IRA
This raises some questions and might indicate some problems that need to be fixed.

1) You make too much money to contribute directly to Roth IRA. Have you been using the "back door"?

2) Is His plan at work a 401k or a SIMPLE IRA? You have called it both of those things, but a 401k plan and a SIMPLE IRA are different. If it is a SIMPLE IRA, you should not be using the "back door" to contribute to Roth IRA. You may need to fix this.

3) Is Her plan at work an ordinary 401k or a one-participant 401k?







1. These Asset classes were chosen by a financial advisor; please advise on the quality of our portfolio and recommend necessary changes and allocation
There are far too many funds in this portfolio, but this is not uncommon for advisor portfolios.
2. I don’t know how to locate or calculate the expense rations
If you type the ticker symbol into google, you will find the name and the expense ratios for the funds. However, for funds inside a 401k plan, it might be different and you have to find that information out from the plan.

retiredjg
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Re: Newbie seeking help

Post by retiredjg » Sat Nov 23, 2019 7:05 am

A couple of the tickers seem to belong to tax-exempt bond funds. It would be unusual to have that inside a 401k or Roth IRA. You need to check those tickers and names and be sure you have them correct.

Topic Author
ikennakc
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Joined: Mon Nov 04, 2019 9:37 am

Re: Newbie seeking help

Post by ikennakc » Sat Nov 23, 2019 7:30 am

"His 401k" was an account I had before I owned my own business. My wife (single member employer/employee) contributed to both her 401k and mine at the time. I have not contributed to that account since 2017 when I established my own business.
I just had a meeting with my CPA and he recommended a simple IRA contribution for 2019.

ORIGINAL POST HAS BEEN UPDATED.
Last edited by ikennakc on Sat Nov 23, 2019 8:00 am, edited 1 time in total.

retiredjg
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Re: Newbie seeking help

Post by retiredjg » Sat Nov 23, 2019 8:00 am

Ok. You need to label that as His Old 401k so people don't think you are currently using it.

It appears you might be using the "back door" to contribute to Roth IRA. You should not use the back door if you have a SIMPLE IRA. Perhaps your CPA didn't know about your back door or forgot or didn't realize that would cause a problem.

If you have not contributed to the SIMPLE IRA for 2019, don't. Instead, you can probably open a one-participant 401k with an effective date of 1/1/2019 and use that.

Did you have any type of work plan for 2018?

Topic Author
ikennakc
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Joined: Mon Nov 04, 2019 9:37 am

Re: Newbie seeking help

Post by ikennakc » Sat Nov 23, 2019 8:01 am

No work plan in 2018
I haven't contributed to Simple IRA yet for 2019.

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: Newbie seeking help

Post by retiredjg » Sat Nov 23, 2019 8:12 am

Thanks for the update to the update. :happy

I'm bewildered by the tax-managed and tax-exempt funds in His Old 401k. That' just odd. You also said that your wife contributed to it instead of you. I'm wondering if it is not a 401k at all, but a taxable account (personal account) instead.

Just bear with me and check the exact name and title on that account and tell us exactly what it says (but don't tell us your real name).

retiredjg
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Re: Newbie seeking help

Post by retiredjg » Sat Nov 23, 2019 8:16 am

Don't waste your time looking up all the expense ratios. You cannot buy those DFA funds without an advisor, so it is best to just sell them all now. You should look up some of them just for your own education on how to do that and on how the DFA expense ratios compare to the others. You'll notice they are higher.

HomeStretch
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Re: Newbie seeking help

Post by HomeStretch » Sat Nov 23, 2019 8:48 am

To open a one-participant 401k, you cannot have any (eligible) employees in your self-owned medical practice. Do you qualify to use such a 401k? If yes, it could be a better choice than a Simple IRA and will allow you to continue a backdoor Roth without the pro rata rule coming into play.

You mentioned your old 401k is under your wife’s plan which means you were/are a material participant in and/or a co-owner of her business. If there is some affiliation between the two businesses, you should explain that more here in case it has any affect on you opening a 401k.

You can simplify your portfolio into fewer holdings with lower costs (lower ERs and no advisor fees). Choose a low cost brokerage like Vanguard, Fidelity, Schwab, etc. and have them initiate the transfers (excluding 401k plan accounts). Not all of your holdings will transfer in-kind. Most aren’t worth keeping. Check with the new brokerage to see what can/can’t transfer. Depending on selling fees, it may be easier to sell everything you don’t want at the old brokerage and transfer cash to the new brokerage where it can be reinvested. Only your Taxable account has tax consequences for selling but I do not see the need to sell anything - VTI is good to hold, just invest the cash unless it’s savings for short/medium goals.

Hold equity in your Taxable account (tax efficient) and Roth IRAs (highest expected growth, tax free).
Hold the remaining equity allocation, all REITs (may be unnecessary with 7 rental properties) and all Bonds (tax inefficient) in a tax deferred account (401k, pretax IRA).

The new contributions per your post are lower than the maximum allowed for 2019. Can you maximize these in 2019?
1. Likely your wife can contribute up to $56k to her 401k plan with $300k earnings rather than $53k.
2. You and wife can contribute $6k to your Roth IRAs rather than $5,500. Note: if you contribute to a SIMPLE IRA for 2019, you can still do a backdoor Roth but it is less attractive as a SIMPLE IRA account balance at 12/31/19 will make a portion of your 2019 Roth conversion (step 2 of backdoor Roth) subject to taxes as per the pro rata rule.

It’s good that you will have your student loans repaid next year. Payoff the 0% car loan too. After debt is repaid, add the $8k/month to your savings which will increase your contributions to $173k per year (= $53k + $13k + $5.5k + $5.5k + 12x$8k). On $600k HH income, that’s a savings rate of 29% which is better. But that means you are spending $427k per year on living expenses (including mortgage and car) and taxes. Depending on what your expenses will be in retirement, with a $200k current portfolio you may need to save more per year to have a minimum of 25x-33x your net retirement expenses saved by your planned retirement date in 24 years at age 60. The possible need for higher savings depends on the equity you can realize on the future sale of your main home, 7 rental properties and two businesses.

Topic Author
ikennakc
Posts: 12
Joined: Mon Nov 04, 2019 9:37 am

Re: Newbie seeking help

Post by ikennakc » Sun Nov 24, 2019 10:11 pm

I must say this is a bit overwhelming :D

Topic Author
ikennakc
Posts: 12
Joined: Mon Nov 04, 2019 9:37 am

Re: Newbie seeking help

Post by ikennakc » Sun Nov 24, 2019 10:46 pm

Thanks for all the advice. Any recommendation for a fee for service Chartered Financial Advisor (CFA) or Certified Financial Planner (CFP) to help guide me through the process of selling and reallocation of assets?

retiredjg
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Re: Newbie seeking help

Post by retiredjg » Mon Nov 25, 2019 7:31 am

Yes, it can be overwhelming, but you are doing a great job gathering and presenting information. You should not stop now. Even if you do get a fee for service advisor, you will need to go through many of these same steps. It's important for you to increase your understanding of your holdings.

The selling part is going to be easy because you don't need to sell anything that is time sensitive or that will trigger taxes. The reallocation will be easy as well. We can help you with all that, but just have to figure out a few things first - like exactly what is that account that you think is "his old 401k".

Here is a link from a poster here who provides a service to help people find the type of advisor you are looking for.

https://adviceonlyfinancial.com

Here is another choice. https://rickferri.com

You should also consider using Vanguard's Personal Advisory Service which is an AUM service, but you could use it as training wheels and discontinue their service as soon as you feel ready to handle this yourself.

No matter which of these you choose, I still encourage you to continue on here.

HomeStretch
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Re: Newbie seeking help

Post by HomeStretch » Mon Nov 25, 2019 8:21 am

+1.

It would be better (and cheaper) for you to learn to manage your portfolio rather than relying on an advisor to do it for you. We can help, but you need to do the work as well as become more knowledgable about investing. If you have no desire to do so, then using a fee for service advisor makes sense. But do continue to become more knowledgable as that is necessary even to evaluate and manage an investment advisor. No one will care about your money as much as you and your spouse.

To continue here:

1. Decide on an Asset Allocation (AA) - at age 36, an AA ranging from 60/40 to 80/20 would be reasonable in my opinion. An allocation of 20% of total equity to International as per your original post is also reasonable.

2. You want to go with a portfolio with 5 funds per your original post. After comments by posters, do you still want to include REITs and TIPs? If not, that would be a classic 3-fund portfolio using the first 3 funds you mentioned in your original post - US total stock market, international total stock market and US total bond market.

3. To help you select actual ETFs/funds to use, you need to add at which brokerage each account is held or will be held. Are all accounts at TD Ameritrade? If so, as pointed out by livesoft, you may want to use ETFs rather than mutual funds for fee-free trading.

4. Only your Taxable account has tax consequences for changing holdings. This is not an issue for your portfolio clean-up as your Taxable account is small and holds VTI, which is a great choice as it is tax-efficient.

5. Are you and spouse able to select any funds/ETFs at the brokerage that holds your/spouse’s 401k plan assets or is there a list of selected funds you need to choose from?

The above information should allow us to help you place three to five ETFs in a tax-efficient manner across all accounts to come up with your desired portfolio. You will then need to sell what you don’t want and buy what you do want in each account. A spreadsheet can be helpful to manage this.

After that, we can help you figure out which ETFs to buy with new contributions.

Topic Author
ikennakc
Posts: 12
Joined: Mon Nov 04, 2019 9:37 am

Re: Newbie seeking help

Post by ikennakc » Mon Nov 25, 2019 11:03 am

Thanks for your detailed response. I won't give up!
I will go for the classic 3 funds...
US total stock market,
International Total stock market
US total bond market.
80% Stock and 20% Bond. All our funds are currently held in TD Ameritrade.

Topic Author
ikennakc
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Joined: Mon Nov 04, 2019 9:37 am

Re: Newbie seeking help

Post by ikennakc » Mon Nov 25, 2019 11:05 am

Just to reconfirm

"His 401k" contains - DTMMX, DTMIX, VTV and VWSTX

retiredjg
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Re: Newbie seeking help

Post by retiredjg » Mon Nov 25, 2019 11:33 am

ikennakc wrote:
Mon Nov 25, 2019 11:05 am
"His 401k" contains - DTMMX, DTMIX, VTV and VWSTX
What I want you to confirm is that the account is actually a 401k. The funds in there would indicate it is not a 401k. Go look at your paperwork/website and see exactly what it says, if you don't mind. :happy

Topic Author
ikennakc
Posts: 12
Joined: Mon Nov 04, 2019 9:37 am

Re: Newbie seeking help

Post by ikennakc » Mon Nov 25, 2019 1:29 pm

Below is title of the account .. The ''X" are my name etc..... Hope this helps

FBO XXXXXX XXXXXX XXXXXMD PLLC INDV 401K TD AMERITRADE CLEARING, CUSTODIAN
Account type Individual 401k

retiredjg
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Re: Newbie seeking help

Post by retiredjg » Mon Nov 25, 2019 2:15 pm

Ok. I'm finally convinced. :D

I'm sorry to be such a pest :twisted: about that, but putting tax managed and tax-exempt funds into a 401k is just...strange, especially for a DFA advisor to suggest/buy for you. I thought it more likely that you were somehow mistaken about the account type.

Moving onward, here is an example of the type of portfolio you could have at 65% stock and 35% bonds. This is just one example of hundreds of possibilities. Don't take it too seriously, just as an example of how simple a portfolio can be.

Taxable 5.32%
5.32% Total Stock Market

His old 401k 9.11%
9.11% bonds of some kind

His Roth 11.49%
6.48% Extended Market (combined with 500 index, this approximates total stock market index)
5% REIT or more Extended Market

Her 401k 60%
34.11% 500 index
25.89% BND (Vanguard Total Bond Market Index Fund ETF Shares)

Her Roth IRA 10.11%
10.11% FTSE All world except US Index

This portfolio doesn't add up to 100%, but it is close enough that you can get an idea of how it works.

As the portfolio grows, I'd move all the international into taxable (where it can get the foreign tax credit) and put something else in Her Roth IRA.

I intentionally did not put the same exact funds in taxable and the other accounts to avoid wash sales.

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: Newbie seeking help

Post by retiredjg » Mon Nov 25, 2019 2:21 pm

About your SIMPLE IRA. Again I suggest NOT doing that because it will interfere with using the back door to contribute to Roth IRA. Apparently you want to continue doing that.

It occurred to me you might still be eligible to contribute to that Old 401k unless Her business structure/ownership has changed. Or you can open a one-participant 401k for your new business. It is not too late to do that and I understand you can make it effective for last January 1st.

Have you found The While Coat Investor blog? It's a good one, especially for high earners.

Topic Author
ikennakc
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Joined: Mon Nov 04, 2019 9:37 am

Re: Newbie seeking help

Post by ikennakc » Mon Nov 25, 2019 4:27 pm

I am no longer eligible to participate in her 401k because, I now own my own small practice with 6 employees. I would have to offer same to my employees;
I may have to go this route since Simple IRA is not an option

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Newbie seeking help

Post by Spirit Rider » Mon Nov 25, 2019 10:29 pm

ikennakc wrote:
Mon Nov 25, 2019 4:27 pm
I am no longer eligible to participate in her 401k because, I now own my own small practice with 6 employees. I would have to offer same to my employees;
I may have to go this route since Simple IRA is not an option
If I understand the circumstances correctly. You and your wife have a serious problem.

You and your spouse misunderstood the rules. Simply stopping your contributions was not what was required. When you started your business and had eligible employees under her 401k plan eligibility rules, she should have terminated her plan or taken other action.

Under family attribution rules. Each spouse has the other spouse's ownership interest. If each spouse owned 100% of their business, then both spouses own 100% of both businesses.

This means that two such businesses are a controlled group. These two businesses are considered one employer for retirement plan purposes. As soon as you had any employees (including yourself) who met the employee eligibility requirements of your spouse's 401k plan. Your employees were eligible participants in that 401k.

Since 2017, your eligible employees should have been allowed to participate in the 401k plan of your wife's business and have the same ability to contribute and receive any employer contributions as her employees. The failure to do so is a serious 401k plan error. Her 401k plan and your business will have to take corrective actions to make your employees "whole" as if they had been contributing all along, receiving any employer contributions and an equitable qualified non-elective employer contribution as if they had.

If she has a TPA they should have told her this if they knew about your business. Regardless, you will now have to undertake a fairly complex corrective action under the IRS Employee Plans Compliance Resolution System (EPCRS). This is not a DIY action, but for reference.

See the 401(k) Plan Fix-It Guide - Eligible employees weren't given the opportunity to make an elective deferral election (excluding eligible employees).
The longer this goes on, the deeper the hole gets. You do not want this discovered by a 401k plan audit.

Topic Author
ikennakc
Posts: 12
Joined: Mon Nov 04, 2019 9:37 am

Re: Newbie seeking help

Post by ikennakc » Sun Dec 01, 2019 10:56 am

I fwded your response to my cpa

Thank you

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Newbie seeking help

Post by Spirit Rider » Sun Dec 01, 2019 7:48 pm

Most CPAs are not well-versed in 401k plan compliance. They are usually only involved in basic adoption, maintenance and contribution issues.

Few CPAs are familiar with controlled group, affiliated service group and family attribution rules. Fewer still know how to correct serious 401k plan errors.

This issue is best addressed with the your wife's 401k plan administrator or other professional employer retirement plan specialist.

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