Playing Catch-Up

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Topic Author
LazyDaisy
Posts: 6
Joined: Wed Feb 12, 2020 12:50 pm

Playing Catch-Up

Post by LazyDaisy » Wed Feb 12, 2020 10:55 pm

Hello!

Thanks so much to the members who are so generous with their time and knowledge helping newbies to this group! I have learned a ton already just by reading responses to all the different posts. This is an amazing forum.

Our Story:

We are way behind in saving for retirement, but now that kids are all gone and income is high, we can be pretty aggressive with socking money away. My project this month is to get all the money planned out and the strategy written down, and a map for the future. Just read about making an IPS, so I'll be working on that.

I have started to realign to the two or three-fund portfolio, but have a few questions about things I'm not sure what to do with, mostly in relation to balancing Emergency Fund/Mortgage/Investment Portfolio. I'm looking for help tightening up my ship, and making a forward plan.

What I've Read:

Bogle's Little Book of Common Sense Investing
Roth's How a Second Grader Beats Wall Street
I just picked up Boglehead's Guide to Retirement Planning, but haven't gotten into it yet.

Future Goals:
At some point, we'd like to buy a rental property, we have done a lot of rehabbing in the past, and since we live in a beach town, I would love to have an AirBnB cottage to rent out. Not sure when is the best time to work this into our financial plan.

____________________________________________________________________
Emergency Funds: 8-12 months, earning 3% taxable interest

Debt: mortgage $63,000 @ 3.75%

Tax filing status: married filing jointly

Tax rate: 22% Federal, 4.25% State

State of Residence: Michigan

Age: 55/53

Desired asset allocation: 65% stock/ 35% bond, unsure about adding an Intl. component, or moving more towards 60%/40%

Size of current portfolio: $275k-ish


Current retirement assets

Taxable TDAmeritrade

1% Cash

His 401k with John Hancock

6% DON Wisdom Tree Mid Cap Dividend Fund (.44%)
19% VIGAX Vanguard Growth Index Fund (.05% ) 100% of new funds currently go here


His Traditional Rollover IRA at TDAmeritrade

1% Cash
5% MGC Vanguard Mega Cap (.07%)
8% PHYS Sprott Physical Gold Trust (is there no exp. ratio for this?)
23% VTI Vanguard Total Stock Market Index Fund (.03%)
21% EDV Vanguard Extended Duration Treasury (.07%)
4% BND Vanguard Total Bond Market (.04%)


Her Traditional Spousal IRA at TDAmeritrade

2% Cash
4% VTI Vanguard Total Market Index Fund (.03%)


HSA ($30/yr annual fee for investing, otherwise just earns interest)

8% Cash (earning 1.00% interest)
____________________________________________________________

Contributions

New annual Contributions

$21,000 HIS 401k (15% + 3% employer matching contributions)
$7,100 HSA+ $1,000. employer contribution
$7,000 possible to HER SPOUSAL IRA-have not yet made lump sum 2019 contribution.

In addition to this, I usually add $1,000-$1,500/month to the interest-bearing EF accounts.

____________________________________________________________

Available funds

Funds available in his 401(k) with John Hancock

Vang. Mid Cap Value VOE .13%
Vang. Mid Cap Growth VOT .13%
Wisdom Tree Mid Cap Dividend DON .44%-have a position in this, but not adding more
JHan Mid Cap Index Fund JECIX .06%
DFA US Targeted Value Fund DFFVX .37%
Wisdom Tree Small Cap Dividend DES .44%
JHan Small Cap Index Fund JESIX .08%
Vang. Small Cap Growth Index Fund VSGAX .07%
JHan International Equity Index Fund JIEQX .16%
EuroPacific Growth Fund RERFX .48%
JHan Disciplined Value Fund JDVWX .27%
Vang. Value Index Fund VVIAX .05%
JHan 500 Index Fund JFIVX .04%
JHan Total Stock Market Index Fund JETSX .16%
Capital Appreciation Fund JICPX .29%
Vang. Growth Index Fund VIGAX .05% -this is where 100% of new contributions currently go
JHan Total Bond Market Fund JTBMX .08%
JHan Bond fund JHBSX .15%
DFA Inflation-Protected Securities Fund DIPSX .12%
JHan Multimanager 2030 lifetime portfolio JLFOX .38%
JHan Multimanager 2035 lifetime portfolio JLHOX .40%
American Funds New World Fund RNWGX .62%
Northern Trust Emerging Markets Equity Index Fund NOEMX .15%
American Balanced Fund RLBEX .28%




Funds available in HSA

Vang. 500 Index Admiral VFIAX (.04%)
Vang. Developed Markets Index Admiral VTMGX (.07%)
Vang. Inflation-protected Secs Adm VAIPX (.10%)
Vang. Interm-term Bond index VBILX (.07%
Vang. Life Strategy Cnsrv Gr Inv VSCGX (AA 30-50% equity) (.12%)
Vang. Life Strategy Growth Inv VASGX (AA 70-85% equity) ( .14%)
Vang. Life Strategy Mderate Gr Inv VSMGX (AA 50-75% equity) (.13%)
Vang. Mid Cap Index Admiral VIMAX (.05%)
Vang. Selected Value Inv VASVX (.33)
Vang. Small Cap index Adm VSMAX (.05%)
Vang. Treasury Money Market Investor VUSXX (.09%)
Vang. US Growth Admiral VWUAX (.28%)
Blackrock High Yield Bond Fund BRHYX (.51%)
American Funds Washington Mutual R6 RWMGX (.27%)
Goldman Sachs Intl Equity Insights Instl GCIIX (.87%)
TIAA-CREF Real Estate Sec Instl TIREX (.51%)
____________________________________________________________


About Emergency Funds:

The emergency funds are spread out over 4 different bank/credit union accounts. Two of them pay 3% interest on up to $15,000; the third will pay interest on more than that, but the % goes down the more money you have in there, so after about $15,000 the interest rate drops below 3%; and the 4th one is simply a promo offer that amounts to $600 for keeping your $15,000 there for a minimum of 90 days (April), direct depositing $500/month, and not closing the account for 6 months (July). I consider one of them to be our short-term savings, and the other 3 to be intermediate-term savings/emergency fund that we just keep contributing to.




Questions:

1. How does PHYS function? Is it a stock? Or is it a stabilizing factor, like bonds? Keep? Reduce? Remove?

2. Apparently we're paying almost $100/quarter in "general administration charges" in the 401k--is that what the expense ratio represents? I don't see these kind of charges on my statements from the TDAm IRA accounts, do they not take it out of those accounts? It makes me feel like it is more expensive to have my money in the 401k than in my other accounts. Should I be contributing less to the 401k and putting that money somewhere else? Is it costing me just as much to pay the fees as it would to pay the tax if I were to redirect it to a ROTH instead? Will it cost me more money to get out of DON and put it into a different option with a lower expense ratio? Or should I just leave it like it is?

3. Talk to me a bit about international funds. I do not understand the difference between VEA (.05%), VEU(.09%), and VXUS(.09%). Why does international scare me? Emotions say I'm avoiding them because right now everything else in my portfolio is doing so well, I don't want to divert money into something that, in my mind, is more unpredictable. But would that actually be something of a buffer to a US downturn?

4. Thoughts on EDV and MGC and if they have a place in the basic 2 fund portfolio of VTI/BND? Right now I like them because when I look in my Gains column, they have green numbers that are 34.53% and 31.77%, and that seems like a good thing…but I feel like I should have better reasons than that for having them.

5. Should we be utilizing a Roth for our emergency fund, as opposed to interest-bearing taxable bank accounts? That way, the $$ would be making more than the 3%, tax free, and if we ever did have an emergency, we could draw from the principal at any time, correct? I feel like we're sitting on a good size pile of cash in the EF, and while I’m happy to be making a little something on it, I feel like my strategy there could be even better.

6. OR, should I be funneling more of that cash towards accelerating the mortgage even more. Currently, we are on year 4 of a 30 year mortgage, have already paid down the principal by a little more than a third, make 3x the monthly payments, and are on track to have it paid off in just over 3 years. There is enough cash in the emergency fund to pay it off almost entirely, and we have a HELOC open but unused, so if we ever did regret dumping all the money into the house, we could borrow back (@4.49%) whatever we needed.

7. OR, is that NOT too much cash on hand, and it should stay like it is because there's no risk, except for my husband thinking he can afford a new snowmobile…

Thanks again for this forum, even getting this information together like this has been helpful for me to get a better understanding of things, and answer some of my own questions.


Daisy
Last edited by LazyDaisy on Sat Feb 15, 2020 5:31 pm, edited 5 times in total.

retired@50
Posts: 1317
Joined: Tue Oct 01, 2019 2:36 pm

Re: Playing Catch-Up

Post by retired@50 » Thu Feb 13, 2020 1:13 am

Answers to questions.
1. One of the first rules of investing is that if you don't understand something, don't invest in it. If you have to ask how PHYS functions, this tells me you should definitely sell it. I vote for "REMOVE" and put the proceeds in VTI.

2. General administration charges or whatever they may be called, are unfortunately part of life in a 401k plan. Some companies arrange to pay these fees for their employees, others do not. I'd still suggest you participate in the 401k plan. For what it's worth, I'd sell the position in DON and VIGAX and buy "500 Index Fund IND .04%" or "Total Bond Market Fund BIF .08%". These two funds are sufficient in the 401k account.

3. International funds are sometimes separated by Developed Markets, think Germany, United Kingdom, Japan... and Emerging Markets, think Russia, China, India, Brazil. The Emerging Markets are often more volatile than the Developed Markets. I'd suggest you use the "Vang. Developed Markets Index Admiral VTMGX (.07%)" fund in the HSA account to get your feet wet with international investing.

4. EDV and MGC are, based on your comments, an example of performance chasing. This is bad. Don't do this. The risk on EDV is much higher than the average bond fund because it only invests in long term bonds so it is much more sensitive to interest rate changes. Bonds had a good year in 2019, but don't expect this to go on forever. My advice would be to use BND, the Total Bond Market Index fund for bonds. MGC is similar to an S&P 500 fund, but for simplification purposes, I'd stick with VTI since you already hold that at TD Ameritrade.

5. Using a Roth IRA for an emergency fund is more of a trick to convince youngsters to invest in a retirement account. At your age, having a dedicated emergency fund is fine. If it's too large, either pay down your mortgage, or invest in a Roth IRA, but don't make the mistake of raiding the account when you need a new furnace. Typically, an emergency fund is about 6 months worth of expenses including normal sized house payments.

6 & 7. Skip the snowmobile, it's a depreciating asset. By the time retirement rolls around, you'll likely want to have approximately 10 times your annual income sitting in your various retirement accounts. This is a generalized rule, or round number so don't put too much emphasis on it, but the real exercise is to take a stab at predicting your future expenses and future income(s) from pension, social security, and a 4% withdrawal from the 401k plan or IRA.

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

snailderby
Posts: 807
Joined: Thu Jul 26, 2018 11:30 am

Re: Playing Catch-Up

Post by snailderby » Thu Feb 13, 2020 10:33 am

Welcome to the forum!

1. Gold can be pretty volatile. Some people like it as an inflation hedge -- and because it has historically enjoyed a relatively low correlation with stocks and bonds. Others think it's just a shiny metal that has no place in an investment portfolio.

2. That's unfortunate that your 401(k) administrator charges such a high fee. Is that a fixed fee per quarter, or is it calculated as a percentage of your assets in your 401(k)? Either way, at the very minimum, I'd contribute enough to your 401(k) to get the maximum employer match every year. After that, it depends.

3. VXUS is a total international fund. VEU is a total international fund minus small caps. VEA only invests in international developed markets, not international emerging markets. To your question, I wouldn't expect international stocks to save you in the short-term if the U.S. stock market crashes. But global diversification avoids putting all of your eggs in one basket. What if the U.S. stock market goes stagnant for decades, like Italy? Siamond's Investing in the World series was a helpful read for me in this regard. See viewtopic.php?t=270186.

P.S. In your 401(k), I would only use these funds:

500 Index Fund IND .04%
Mid Cap Index Fund MCI .06%
Total Bond Market Fund BIF .08%

You can add international stocks to taste in your IRAs.

lakpr
Posts: 3945
Joined: Fri Mar 18, 2011 9:59 am

Re: Playing Catch-Up

Post by lakpr » Thu Feb 13, 2020 11:13 am

1. @snailderby has given you excellent advise on which funds to invest in his 401k. Sell everything and deposit those proceeds into only those three funds.

I also see a total stock market index fund (TSM) in his 401k. Normally I'd have recommended it, but its expense ratio is 0.16%, 4 times that of IND at 0.04%. Over the long term, there has not been much difference between total stock market index and S&P 500 index funds. For this reason, and not wanting to incur extra fees, I suggest using the IND as a proxy for the entire stock market as reasonable and practical.

2. I'd suggest you stop playing the game of chasing yields for your taxable accounts. Rather than investing $15k here, another $10k there, yet another $10k somewhere else ... just dump all those savings accounts into your mortgage. In your tax bracket, prepaying the mortgage means you are effectively earning 3.75% AFTER-TAX return, for the duration of the mortgage (so if 7 years left, it's equivalent to a tax-free 3.75% 7-year CD). I am sure NONE of your bank accounts or credit union accounts is yielding a 3.75%.

3. Regarding your asset allocation, both 65:35 and 60:40 are reasonable. I generally suggest a thumb rule of "Age-10" to "Age-15" to "Age-20" allocation to bonds, and designate them as conservative / moderate / aggressive. So in your case, a 65:35 is on the aggressive side (but reasonable), a 60:40 is on the moderate side. Either is ok in my opinion, the deciding factor would be your SWAN (Sleep Well At Night) factor.

4. I am not a fan of utilizing Roth as an emergency fund. It should be a fund that should be populated only with stocks. The defining feature of Roth accounts is that all growth is tax free (subject to only the age 59.5 rule, and note that I am specifically talking about 'growth' or 'earnings' in the Roth account). As such it's in your best interest to maximize that growth -- or stated another way, it should house those asset classes that are expected to provide you the highest returns. Stocks. No bonds, no blended funds, no target-date funds, no target-risk funds etc.

Given that Roth should only contain stocks, it does a poor job of being there for you in an emergency. And if you invest the Roth accounts in 'safe" assets like treasuries and bonds, you have shot yourself in the foot by constraining the growth.

I am not saying the ability of Roth doubling up as an emergency fund is not valuable. It is. But it is smarter if you can have a separate EF and let Roth grow free of constraints.

Topic Author
LazyDaisy
Posts: 6
Joined: Wed Feb 12, 2020 12:50 pm

Re: Playing Catch-Up

Post by LazyDaisy » Thu Feb 13, 2020 3:37 pm

Thanks for the replies Retired@50, snailderby, and lakpr.

@snailderby, the 401k fees seem to vary, with smaller amounts monthly, and a larger amount quarterly. So I'm assuming it's a percentage of assets.

I'm unclear about what you all are saying in the 401k. Are you saying that I should have all 3 of those funds in the 401k? Or pick one out of those 3 options?

Daisy

lakpr
Posts: 3945
Joined: Fri Mar 18, 2011 9:59 am

Re: Playing Catch-Up

Post by lakpr » Thu Feb 13, 2020 4:14 pm

LazyDaisy wrote:
Thu Feb 13, 2020 3:37 pm
I'm unclear about what you all are saying in the 401k. Are you saying that I should have all 3 of those funds in the 401k? Or pick one out of those 3 options?
All three of those funds in your 401k, and as to how much to invest in each fund -- that depends on what your risk tolerance is. How many more years does your husband have, before retirement? How much drop in the portfolio value you can stomach? 20%? 30%? 40%? etc.

At Vanguard's site, there is a personal quiz tool that would suss out what your true risk tolerance is. Sorry as I am typing this on my tiny smartphone I can't give you the URL, but should be easy enough to find.

snailderby
Posts: 807
Joined: Thu Jul 26, 2018 11:30 am

Re: Playing Catch-Up

Post by snailderby » Thu Feb 13, 2020 4:31 pm

lakpr wrote:
Thu Feb 13, 2020 4:14 pm
LazyDaisy wrote:
Thu Feb 13, 2020 3:37 pm
I'm unclear about what you all are saying in the 401k. Are you saying that I should have all 3 of those funds in the 401k? Or pick one out of those 3 options?
All three of those funds in your 401k, and as to how much to invest in each fund -- that depends on what your risk tolerance is. How many more years does your husband have, before retirement? How much drop in the portfolio value you can stomach? 20%? 30%? 40%? etc.

At Vanguard's site, there is a personal quiz tool that would suss out what your true risk tolerance is. Sorry as I am typing this on my tiny smartphone I can't give you the URL, but should be easy enough to find.
1. The questionnaire that lakpr referred to is a good tool: https://personal.vanguard.com/us/FundsInvQuestionnaire. You might also take a look at this chart: https://personal.vanguard.com/us/insigh ... llocations.

2. I would hold all three funds. (An 80/20 split between the S&P 500 and S&P 400 fund should roughly approximate the total U.S. stock market.) Or if you want something simpler, drop the S&P 400 fund and just hold the S&P 500 fund and the bond fund in your 401(k). Again, you can add international stocks to taste in your other accounts.
Last edited by snailderby on Thu Feb 13, 2020 4:37 pm, edited 2 times in total.

retired@50
Posts: 1317
Joined: Tue Oct 01, 2019 2:36 pm

Re: Playing Catch-Up

Post by retired@50 » Thu Feb 13, 2020 4:32 pm

lakpr wrote:
Thu Feb 13, 2020 4:14 pm
LazyDaisy wrote:
Thu Feb 13, 2020 3:37 pm
I'm unclear about what you all are saying in the 401k. Are you saying that I should have all 3 of those funds in the 401k? Or pick one out of those 3 options?
All three of those funds in your 401k, and as to how much to invest in each fund -- that depends on what your risk tolerance is. How many more years does your husband have, before retirement? How much drop in the portfolio value you can stomach? 20%? 30%? 40%? etc.

At Vanguard's site, there is a personal quiz tool that would suss out what your true risk tolerance is. Sorry as I am typing this on my tiny smartphone I can't give you the URL, but should be easy enough to find.
Here is the link to Vanguard Investor Questionnaire.

https://personal.vanguard.com/us/FundsI ... unds/tools

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

HomeStretch
Posts: 3659
Joined: Thu Dec 27, 2018 3:06 pm

Re: Playing Catch-Up

Post by HomeStretch » Thu Feb 13, 2020 5:01 pm

Welcome!

+1 to the answers above to your questions. It’s good that you are working on your portfolio clean-up, IPS, etc.

As you posted, at ages 55/53 you are behind on your retirement savings with a portfolio of $275k and a mortgage of $63k. I don’t see a rental property, rehabbing or snowmobile purchase as good financial moves in the near future. Focus on reducing your spending and saving as much as you can.

If you haven’t already, evaluate your retirement plan to see if you are on track with your planned annual contributions of ~ $50k to have enough in your retirement portfolio at your planned retirement age to fund the gap, if any, between your retirement spending and your retirement income from SS and pensions.

A general rule of thumb is that a portfolio (invested 60/40 equity/bonds) equal to 25x your annual retirement spending (net of retirement income from SS and pensions) at age 65 will fund a 30-year retirement. “Retirement spending” means all expenses including income taxes, healthcare, and lumpy expenses like car purchases and home repairs/maintenance.

Topic Author
LazyDaisy
Posts: 6
Joined: Wed Feb 12, 2020 12:50 pm

Re: Playing Catch-Up

Post by LazyDaisy » Thu Feb 13, 2020 11:46 pm

Thanks for all the input. Here's what I've got so far to begin to rejigger the whole plan:

1. His IRA: Sell the PHYS, EDV, and MGC. Consolidate proceeds into BND and VTI.

2. HSA: VTMGX -Although, really, I'm still just not that comfortable with the idea of international. That article was SO over my head. What would be a good second choice?

3. 401k:
500 Index Fund IND .04%
Mid Cap Index Fund MCI .06%
Total Bond Market Fund BIF .08%


4. Her IRA: $7,000 new money + cash all gets added to VTI or BND per proportions of total pie.

5. I can stop filling buckets at the bank and let them sit as the EF, and redirect $1,000/month somewhere else. Where?

Option A: He is allowed to have a Roth in addition to the 401k, right? And he has about $4,000 left to max out the 401k with the catch-up contributions still. After that, he could put $7,000/yr in a Roth?

Option B: Increase principal payment on the mortgage by additional $1,000/month. Currently making principal payments of $800/mo beyond regular monthly payments. So, additional $1800 payments would pay off in Aug. 2022, instead of 2024.

Option C: Adding around $300 each month to Her IRA, instead of lump-sums once a year. The other $700 goes…???

How does this sound for a start?

Daisy

lakpr
Posts: 3945
Joined: Fri Mar 18, 2011 9:59 am

Re: Playing Catch-Up

Post by lakpr » Fri Feb 14, 2020 2:42 am

If you are not maximizing all your tax advantaged space first, you should do that before sinking any more dollars into either the mortgage payment or begin taxable investing. I would NOT opt for a Roth 401k at work.

Making Roth contributions at 401k means you are choosing to pay 22% tax now. That decision is irrevocable. You cannot choose to undo that tax once the contribution leaves his paycheck. That tax is instantaneously set in stone.

For that decision to be in your favor, you should expect to be in a 22% tax bracket or higher in your retirement. Frankly, with only a $275k portfolio currently and only 15 years max to go before your retirement, I do not foresee that happening. Unless your husband has a pension and these retirement funds + Social Security aren't the only sources of income expected then.

I expect that you will find yourselves in a 15% tax bracket during retirement. So Traditional 401k and Traditional IRA where possible makes the most sense for you; escape taxes at 22% now and pay taxes at 15% during withdrawal.

Your 1, 3 and 4 are correct. On 5, option A; move to option C only if you max out his 401k including catchup contributions, AND $7k for Spousal IRA, AND a $7k for his Roth IRA (as he is covered by a retirement plan, he cannot deduct his contributions to a Traditional IRA so might as well consider a Roth IRA).

Regarding 2, if you do not feel comfortable to put money in international stock index funds, then don't. Do not feel pressured into doing that. VFIAX is a perfectly good choice for your HSA.

Topic Author
LazyDaisy
Posts: 6
Joined: Wed Feb 12, 2020 12:50 pm

Re: Playing Catch-Up

Post by LazyDaisy » Fri Feb 14, 2020 3:51 pm

I didn't even know a Roth 401k was a thing, so no danger there. How is that different from a Roth IRA?

Is it possible to make a lump-sum contribution to the 401k yet for 2019, the way you can for an IRA?

Yes, he does have a small pension. A couple of years ago, they sent us a letter offering to let him cash out, but we were in the middle of changing jobs and moving to another state and didn't have very long to do the research to make the decision, so we just let it ride. I have no idea if that was a good choice or not.

lakpr
Posts: 3945
Joined: Fri Mar 18, 2011 9:59 am

Re: Playing Catch-Up

Post by lakpr » Fri Feb 14, 2020 4:08 pm

LazyDaisy wrote:
Fri Feb 14, 2020 3:51 pm
I didn't even know a Roth 401k was a thing, so no danger there. How is that different from a Roth IRA?

Is it possible to make a lump-sum contribution to the 401k yet for 2019, the way you can for an IRA?
Sort of. 401k contributions can only be made from your paycheck, that's the constraint. So you can set the 401k contribution to be something like 90% of your paycheck balance (the remaining 10% need to be paid towards federal payroll taxes like Social Security, Medicare, Medicaid, etc.), and have an empty paycheck at the end of the week/two weeks. Repeat this until the max $19,500 is reached.
LazyDaisy wrote:
Fri Feb 14, 2020 3:51 pm
Yes, he does have a small pension. A couple of years ago, they sent us a letter offering to let him cash out, but we were in the middle of changing jobs and moving to another state and didn't have very long to do the research to make the decision, so we just let it ride. I have no idea if that was a good choice or not.
I am not talking about small pensions. I am talking about pensions of the size you can almost live on entirely ... teacher's pensions, which usually give 60% to 70% of final few years salary; firemen and police pensions that are usually 100% of the average salary of last 5 years, etc. A pension of $250 per month is NOT what I have in mind. For our intents and purposes, you can forget that small pension.

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ruralavalon
Posts: 17349
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Playing Catch-Up

Post by ruralavalon » Fri Feb 14, 2020 6:37 pm

Welcome to the forum :) .

It's good to see that you are debt free other than the mortgage note, and will be making very substantial contributions to investing.

I suggest that you not making any fund changes until you have worked out a plan for all accounts.


Asset allocation.
Age: 55/53

Desired asset allocation: 65% stock/ 35% bond, unsure about adding an Intl. component, or moving more towards 60%/40%
In my opinion your desired asset allocation, either 63/35 or 60/40, is within the range of what is reasonable.

I suggest around 20-30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). (You can find lots of debate here on international allocation, opinions ranging all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box, upper right, this page).

Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.




Account funding priority.
New annual Contributions

$21,000 HIS 401k (15% + 3% employer matching contributions)
$7,000 HSA+ $1,000. employer contribution
$7,000 possible to HER SPOUSAL IRA-have not yet made lump sum 2019 contribution.

In addition to this, I usually add $1,000-$1,500/month to the interest-bearing EF accounts.
I can stop filling buckets at the bank and let them sit as the EF, and redirect $1,000/month somewhere else. Where?
Make maximum annual contributions to all tax-advantaged accounts (his 401k, both IRAs, and the HSA), then invest the rest in your taxable account in very tax-efficient stock index funds.

Wiki article "Prioritizing Investments" .


Tax-efficient Fund Placement.
In your taxable account at TDAmeritrade consider these ETFs for best tax-efficiency:
iShares Core S&P Total US Stock Market ETF (ITOT) ER 0.03%; and
iShares Core MSCI Total International Stock ETF (IXUS) ER 0.09%.

Wiki article "Tax-efficient Fund Placement" .

Ordinarily a bond fund should be placed in a tax-advantaged account, preferably a tax-deferred account like a traditional 401k.

Ordinarily Roth IRAs should be used to hold stock funds.

It Is not necessary to hold all components of the asset allocation in each account.



Fund selection.
In selecting funds strive for a combination of both broad diversification (to reduce risk) and low expense ratios (to increase your net return). To simply and easily achieve those two goals I suggest choosing funds to simulate the very well diversified, low expense ratio "three-fund portfolio". Please see:
1) Wiki article "Three-fund portfolio";
2) Forum discussion, "The Three-Fund Portfolio"; and
3) Taylor Larimore post, "Articles recommending the three-fund portfolio".

It is often better to coordinate investments among all accounts, in other words treat all accounts together as a single unified portfolio, rather than view each account separately.

In his employer's 401k plan please add the ticker symbols if known. Also add the name of the company managing the fund, if not already shown. (This is important to help see what each fund invests in.)

If there are no ticker symbols, then there should be a short fact sheet for each fund stating both the index used and the name of the company managing the fund.

Please 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 of all of your information is in one place.

In his 401k these funds may be useful, or not, depending.
1) 500 Index Fund IND .04%
2) International Equity Index Fund IIF .16%
3) Northern Emerging Markets Equity Index Fund EME (NOEMX???) .15%
4) American Funds??? EuroPacific Growth Fund EPG (RERGX???) .48%
5) Total Bond Market Fund BIF .08%

It is important to first sort out what to use in the 401k where the choices are limited. Pick just a few of the best funds in the 401k, then complete the rest of the asset allocation using the nearly unlimited choices available in the IRAs and the taxable account. Don't try to put all elements of the desired asset allocation in each account.

In the HSA these funds should probably be considered:
Vanguard 500 Index Admiral VFIAX (.04%);
Vanguard Developed Markets Index Admiral VTMGX (.07%); and
Vanguard Intermediate-term Bond Index Fund VBILX (.07%)

As mentioned in the taxable account at TDAmeritrade consider theses ETFs:
iShares Core S&P Total US Stock Market ETF (ITOT) ER 0.03%; and
iShares Core MSCI Total International Stock ETF (IXUS) ER 0.09%.



Accounts.
Is his rollover IRA at TDAmeritrade a traditional IRA or a Roth IRA?

If it is a traditional IRA, will his employer's 401k plan accept a rollover of his traditional IRA?

Is "Her Spousal IRA at TDAmeritrade" a traditional IRA or a Roth IRA?

Again please simply add this to your original post using the edit button.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
LazyDaisy
Posts: 6
Joined: Wed Feb 12, 2020 12:50 pm

Re: Playing Catch-Up

Post by LazyDaisy » Sat Feb 15, 2020 6:16 pm

Thanks for weighing in, @ruralavalon.

I have updated my original post to note that rollover and spousal IRAs are both traditional, that the HSA has a $30 annual fee for investing, and to include the ticker symbols you requested. I thought that's what I already had, but apparently some of them were and some of them weren't. 'Sup with that?? Does JohnHancock use some kind of internal code? Because on the list I was copying from, those were the symbols they listed. :annoyed

Doing that brought up some new questions for me:

1. On the John Hancock site, looking at the list of funds they offer, there is a column for "Unit Value", and it says that's the unit value as of 2/14/20. So it's a current number. Is that the same as a share price? Because it's not the same as it is from TDAmeritrade.

For example: On JohnHancock, EuroPacific Growth Fund (RERFX), has a unit value of 68.63 and an expense ratio of .48%

on TDAmeritrade, the share price is $55.70, with an ER of .53 and also a management fee of .41%.

Does that all work out to be the same in the end? Because now I feel like I am paying way more for it at John Hancock than I would be if I bought it at TDAm. Am I shopping at Macy's for stuff I could buy at WalMart for less?

2. You asked:
If it is a traditional IRA, will his employer's 401k plan accept a rollover of his traditional IRA?
It is a traditional IRA that was a 401k rollover from a previous employer. I don't see that information on the Hancock site anywhere, though their site is pretty user-UNfriendly, so who knows. Why would I want to do that, anyway? If anything, I would want to roll out of the 401k into the TDAm account, because they are so much easier to work with than JHancock. Is there any way to do that, short of leaving this employer?

3. You also said:
Make maximum annual contributions to all tax-advantaged accounts (his 401k, both IRAs, and the HSA), then invest the rest in your taxable account in very tax-efficient stock index funds.
Curious why you would say taxable TDAm account next instead of a Roth IRA? I thought the Roth came before that in the order of operations. Is it too late for him to start a Roth?

Thanks for your time. I've been reading the links you provided.

Daisy

User avatar
ruralavalon
Posts: 17349
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Playing Catch-Up

Post by ruralavalon » Sat Feb 15, 2020 7:59 pm

In my opinion these are probably the funds to use in his employer's 401k:
1) JHan 500 Index Fund JFIVX .04%;
2) JHan International Equity Index Fund JIEQX .16%: and
3) JHan Total Bond Market Fund JTBMX .08%.

It is important to make use of his 401k, because a 401k has much higher contribution limit than an IRA.


(1) Regarding differences in information about the funds.
Did you get those ticker symbols and expense ratios from the 401k materials or 401k website? Can you post a link to the fact sheet for each of those funds?

What counts are the expense ratios and tickers published by his employer's 401k plan, not what is found anywhere else. Sometimes the expense ratios charged in a 401k are different than the expense ratios charged the general public for the identical funds. Also a fund can have several share classes, each share class with a different ticker symbol.

I just want to be sure that we are talking about the same funds.

They may be variable insurance trusts, rather than mutual funds.
1) John Hancock Variable Insurance Trust 500 Index Trust I JFIVX.
2) John Hancock Variable Insurance Trust - International Equity Index Trust B JIEQX.
3) John Hancock Variable Insurance Trust - Total Bond Market Trust B JTBMX.


(2) Why even consider a rollover of his traditional IRA into the 401k plan?
Why would I want to do that, anyway? If anything, I would want to roll out of the 401k into the TDAm account, because they are so much easier to work with than JHancock. Is there any way to do that, short of leaving this employer?
If your income is too high to be eligible for for direct contributions to a Roth IRA, then he can still do what is called a "Backdoor Roth", but only if he has no traditional IRA.

What was your Adjusted Gross Income on your most recent tax return? Will you be eligible to contribute to Roth IRAs?

Motley Fool article (11/04/2019), "Are You Eligible to Contribute to a Roth IRA in 2020?" .

No he cannot rollover this 401k into an IRA while still employed with this employer (there is an exception possible when over age 59.5).


(3) all tax-advantaged accounts are a priority ahead of a taxable account.
3. You also said:
Make maximum annual contributions to all tax-advantaged accounts (his 401k, both IRAs, and the HSA), then invest the rest in your taxable account in very tax-efficient stock index funds.
Curious why you would say taxable TDAm account next instead of a Roth IRA? I thought the Roth came before that in the order of operations. Is it too late for him to start a Roth?
I did say to fund the "all tax-advantaged accounts (his 401k, both IRAs [emphasis added], and the HSA)" before funding a taxable brokerage account.

The wiki article which I linked states "5. Contribute the maximum to an IRA, traditional or Roth (or backdoor Roth technique[note 2]), depending on eligibility and personal circumstances," Wiki article "Prioritizing Investments".

You can both contribute to IRAs for the tax year 2019 anytime before April 15, 2020. Do you currently have $14k available to make those contributions?

About how much (in dollars) do you believe you might be able to contribute annually to investing (total, all accounts).
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
LazyDaisy
Posts: 6
Joined: Wed Feb 12, 2020 12:50 pm

Re: Playing Catch-Up

Post by LazyDaisy » Sat Feb 15, 2020 9:33 pm

1.
Did you get those ticker symbols and expense ratios from the 401k materials or 401k website? Can you post a link to the fact sheet for each of those funds?

What counts are the expense ratios and tickers published by his employer's 401k plan, not what is found anywhere else. Sometimes the expense ratios charged in a 401k are different than the expense ratios charged the general public for the identical funds. Also a fund can have several share classes, each share class with a different ticker symbol.

I just want to be sure that we are talking about the same funds.

They may be variable insurance trusts, rather than mutual funds.
1) John Hancock Variable Insurance Trust 500 Index Trust I JFIVX.
2) John Hancock Variable Insurance Trust - International Equity Index Trust B JIEQX.
3) John Hancock Variable Insurance Trust - Total Bond Market Trust B JTBMX.
I got them from the John Hancock packet, and had to log into the account to view each option to find the actual tickers. I've provided links below:

1) John Hancock Variable Insurance Trust 500 Index Trust I JFIVX. http://www.viewjhfunds.com/usa/C00/inda/index.html
2) John Hancock Variable Insurance Trust - International Equity Index Trust B JIEQX. http://www.viewjhfunds.com/usa/C00/iifa/index.html
3) John Hancock Variable Insurance Trust - Total Bond Market Trust B JTBMX. http://www.viewjhfunds.com/usa/C00/bifa/index.html


2. AGI for 2019 looks like it will be around $120k. Not done with taxes yet.

3. It is my understanding that he cannot add new money to the rollover IRA. Is that not true?

For 2019 we have added:
$21,687 to the 401k, is it too late to add money to reach the max of $25,000 for 2019? I would have the $3,300 to do that.
$7,000 to the HSA
and I have $7,000 to go into my Spousal IRA.
I was thinking that if he was able to have a Roth IRA, we could put the full $7,000 into that for 2019, too. I just wasn't sure if he was allowed to have a Roth IRA if he was participating in the 401k. Or if there was another reason why that was not a good idea.

For 2020, we are able to do the full $26,000 to the 401k, the full $8,100 to the HSA, and the full $7,000 to my spousal IRA. Beyond that, I could have another $1,000/month to put somewhere.

lakpr
Posts: 3945
Joined: Fri Mar 18, 2011 9:59 am

Re: Playing Catch-Up

Post by lakpr » Sat Feb 15, 2020 11:12 pm

LazyDaisy wrote:
Sat Feb 15, 2020 9:33 pm
3. It is my understanding that he cannot add new money to the rollover IRA. Is that not true?
Technically not true. A Rollover IRA is just another Traditional IRA, to which you can make additional contributions -- both deductible and non-deductible. But I STRONGLY advise not to do any contributions to this account, leave it grow on its own. If you are investing this Rollover IRA in a fund A, for example, if you have a Traditional IRA at the same custodian, try not to invest in the same fund A, instead choose fund B or fund C. Even more ideal if the Rollover IRA is held at an entirely different custodian.

It's easier that way to delineate the rollover IRA (if you are not able to roll it back to a 401k / 403b) separate and untouched by contributory IRA -- which could mean a world of difference in case of unfortunate circumstances like bankruptcy proceedings. Some 401k / 403b plans also refuse to take funds in from IRAs that are not prefixed by the "Rollover" adjective, which may close off the backdoor Roth avenue for the IRA holder.

With an AGI of $120k, you are at least $86k additional income away from ever needing the backdoor Roth, but God willing, surely that won't be forever for you. Even if not for the backdoor Roth purposes, consider rolling the Rollover IRA into a 401k (assuming the expenses are comparable, of course) for the ERISA protections. Note -- not into the 457 plan -- 457b plans are NOT creditor-protected. The same flexibility that 457b plans offer with regard to being able to tap into, in case of emergencies -- also make such plans vulnerable to creditor claims.

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ruralavalon
Posts: 17349
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Playing Catch-Up

Post by ruralavalon » Sun Feb 16, 2020 12:19 pm

LazyDaisy wrote:
Sat Feb 15, 2020 9:33 pm
I got them from the John Hancock packet, and had to log into the account to view each option to find the actual tickers. I've provided links below:

1) John Hancock Variable Insurance Trust 500 Index Trust I JFIVX. http://www.viewjhfunds.com/usa/C00/inda/index.html
2) John Hancock Variable Insurance Trust - International Equity Index Trust B JIEQX. http://www.viewjhfunds.com/usa/C00/iifa/index.html
3) John Hancock Variable Insurance Trust - Total Bond Market Trust B JTBMX. http://www.viewjhfunds.com/usa/C00/bifa/index.html
It looks to me like those are the funds to use in his employer's 401k plan, with the possible addition of:
4) Northern Emerging Markets Equity Index Fund (NOEMX) ER 0.15%.

John Hancock Variable Insurance Trust - International Equity Index Trust B JIEQX uses the MSCI EAFE index, which is developed markets only. MSCI pdf, "MSCI EAFE Index".

LazyDaisy wrote:
Sat Feb 15, 2020 9:33 pm
2. AGI for 2019 looks like it will be around $120k. Not done with taxes yet.

3. It is my understanding that he cannot add new money to the rollover IRA. Is that not true?
It looks like you can each contribute $7k to a Roth IRA for tax year 2019.

At what fund firm or brokerage will you be establishing your Roth IRAs? At TDAmeritrade?

You could each contribute to a traditional IRA, but your income looks too high to permit you to fully deduct the contributions. I suggest you contribute to Roth IRAs instead.


LazyDaisy wrote:
Sat Feb 15, 2020 9:33 pm
2019 we have added:
$21,687 to the 401k, is it too late to add money to reach the max of $25,000 for 2019? I would have the $3,300 to do that.
$7,000 to the HSA
and I have $7,000 to go into my Spousal IRA.
I was thinking that if he was able to have a Roth IRA, we could put the full $7,000 into that for 2019, too. I just wasn't sure if he was allowed to have a Roth IRA if he was participating in the 401k. Or if there was another reason why that was not a good idea.

For 2020, we are able to do the full $26,000 to the 401k, the full $8,100 to the HSA, and the full $7,000 to my spousal IRA. Beyond that, I could have another $1,000/month to put somewhere.
It's not too late to add that $3.3k for tax year 2019, he can contribute anytime before April 15 2020, if his employer's plan permits. "Cut Off Date for Making Contributions to 401(k)".

He can have a Roth IRA in addition to his 401k account, and can contribute to both.

For the extra $12k in 2020 ("Beyond that, I could have another $1,000/month to put somewhere") I suggest $7k to his Roth IRA, and $5k to the taxable brokerage account.

In other words each year contribute the annual maximum to all tax-advantaged accounts as a priority ahead of contributions to the taxable account.

Questions.

At what fund firm or brokerage will you be establishing your Roth IRAs? At TDAmeritrade?

How much in dollars is the maximum annual employer match in his 401k?

Are you required to hold a certain amount of cash in your HSA?

Have you decided if you wish an international stock allocation?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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