Portfolio Review Request - 30yo Military member and Spouse

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Topic Author
USNA12
Posts: 5
Joined: Fri Jul 06, 2012 12:33 am

Portfolio Review Request - 30yo Military member and Spouse

Post by USNA12 » Thu Jul 30, 2020 5:56 pm

Good evening,

I am currently active duty but plan on getting out in ~2 years. We started trying to save and invest more seriously about 3 years ago, but I am feeling like our portfolio may be a bit of a hodge podge, and I’m looking for help on making it more tax efficient and finding a good asset allocation. I also have been reading a lot recently but still have lots to learn, so any advice you have is greatly appreciated.

Emergency funds: Six months expenses in high yield savings (1% APY)
Additionally have around $25k that is in my wife’s business accounts.

Debt:
Mortgage: ~$335,000 at 3.25% (VA Loan)
No other debt other than Credit Cards paid in full each month.

Tax Filing Status:
Married filing jointly
Wife owns/operates an LLC.

Tax Rate:
22% Federal, His 0% State (TX), Hers $720 + 5.75% State (VA)

State of Residence:
Legally TX, currently living in VA

Age:
30/28

Desired Asset allocation: 85% stocks / 15% bonds

Portfolio currently in the low 6 figures.

Current retirement assets

Taxable
7% cash
11% Vanguard Life Strategy Growth (VASGX) (.14%)
5% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (.04%)

His Roth TSP
21% C Fund (.042%)
7% S Fund (.042%)
6% I Fund (.042%)
Company match 5%

His Roth IRA at Vanguard
34% Target Retirement 2055 (VFFVX) (.15%)

Her Roth IRA at Vanguard
9% Target Retirement 2055 (VFFVX) (.15%)
_______________________________________________________________

Contributions

New annual Contributions
$12,000 his Roth TSP (includes 5% employer match)
$6000 his Roth IRA
$6000 her Roth IRA
$7200 taxable

Questions:
1. Where are we making tax efficiency errors?

2. I’d like to get to 85% Stock/15% Bonds, should I do this by contributing into a bond fund until I have hit that ratio, or sell/buy to set it immediately?

3. A short term goal is to be able to put 15-20% down on a new home in two years. What is the best vehicle for this? Should it just come out of the taxable accounts, or should I create a separate account specifically for that goal?

4. At our age, what are we not doing that we should be?

Thank You!
Last edited by USNA12 on Thu Jul 30, 2020 7:11 pm, edited 2 times in total.

000
Posts: 708
Joined: Thu Jul 23, 2020 12:04 am

Re: Advice on Portfolio and the way forward

Post by 000 » Thu Jul 30, 2020 6:06 pm

USNA12 wrote:
Thu Jul 30, 2020 5:56 pm
1. Where are we making tax efficiency errors?
You could do all (or as much as possible) stocks in Roth and bonds in taxable or any tax-deferred space you may have.
USNA12 wrote:
Thu Jul 30, 2020 5:56 pm
2. I’d like to get to 85% Stock/15% Bonds, should I do this by contributing into a bond fund until I have hit that ratio, or sell/buy to set it immediately?
Personally, in my life when I make a decision I like to just pull the band aid off immediately.
USNA12 wrote:
Thu Jul 30, 2020 5:56 pm
3. A short term goal is to be able to put 15-20% down on a new home in two years. What is the best vehicle for this? Should it just come out of the taxable accounts, or should I create a separate account specifically for that goal?
Separate accounts are just a mind game. I would pull from taxable if needed for a house. If needed, Roth IRA contributions (not growth) can be pulled penalty free and to buy, build, or rebuild a first home the whole Roth IRA can be used penalty free. See IRS pub 590-B for more details.

Topic Author
USNA12
Posts: 5
Joined: Fri Jul 06, 2012 12:33 am

Re: Portfolio Review Request - 30yo Military member and Spouse

Post by USNA12 » Thu Jul 30, 2020 7:12 pm

Thanks for the input!

renegade06
Posts: 263
Joined: Sat Jan 12, 2019 3:00 pm

Re: Portfolio Review Request - 30yo Military member and Spouse

Post by renegade06 » Thu Jul 30, 2020 7:37 pm

You’re on a really good path! Keep maxing your Roth and putting money away....

Beat NAVY! :)

Tiger85
Posts: 41
Joined: Sun Jul 07, 2013 6:35 pm

Re: Portfolio Review Request - 30yo Military member and Spouse

Post by Tiger85 » Thu Jul 30, 2020 8:13 pm

USNA12 wrote:
Thu Jul 30, 2020 5:56 pm
New annual Contributions
$12,000 his Roth TSP (includes 5% employer match)
$6000 his Roth IRA
$6000 her Roth IRA
$7200 taxable

Questions:
1. Where are we making tax efficiency errors?

2. I’d like to get to 85% Stock/15% Bonds, should I do this by contributing into a bond fund until I have hit that ratio, or sell/buy to set it immediately?

3. A short term goal is to be able to put 15-20% down on a new home in two years. What is the best vehicle for this? Should it just come out of the taxable accounts, or should I create a separate account specifically for that goal?

4. At our age, what are we not doing that we should be?

Thank You!
1. You are contributing to a taxable account before maxing your tax advantaged accounts fully. TSP max this year is $19,500

2. Would you be selling from your taxable account to do this? If so, make sure you understand the taxes that would trigger. Not sure how long you've held that money for long term or short term gains.

3. General rule of thumb if you need something in the next year or two would be savings account. I'd add to your existing high yield savings account for this goal and use that plus what you currently have in your taxable account for the down payment.

4. You're doing well. Only change I'd make is point number 1. Max all your tax advantage accounts first.

qwertyjazz
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Joined: Tue Feb 23, 2016 4:24 am

Re: Portfolio Review Request - 30yo Military member and Spouse

Post by qwertyjazz » Thu Jul 30, 2020 8:14 pm

https://www.militarytimes.com/pay-benef ... x-refunds/

Why is your spouse VA and not Texas?
G.E. Box "All models are wrong, but some are useful."

Topic Author
USNA12
Posts: 5
Joined: Fri Jul 06, 2012 12:33 am

Re: Portfolio Review Request - 30yo Military member and Spouse

Post by USNA12 » Fri Jul 31, 2020 5:50 am

1. You are contributing to a taxable account before maxing your tax advantaged accounts fully. TSP max this year is $19,500
Our thought here was that we wanted to add some liquidity that we could access, as well as saving for our next house downpayment, but it is a tradeoff.

And I didn’t know she could claim my legal state of resudence as well. How does that work if her LLC is registered and operates in VA?

Thanks for the help so far!

tashnewbie
Posts: 509
Joined: Thu Apr 23, 2020 12:44 pm

Re: Portfolio Review Request - 30yo Military member and Spouse

Post by tashnewbie » Fri Jul 31, 2020 9:15 am

At your ages, I don't know that it makes sense to contribute to 11% Vanguard Life Strategy Growth (VASGX) (.14%) in your taxable account. Why did you select this fund in taxable? If you want bonds, you can use a pure bond fund in taxable or your TSP. I wouldn't sell VASGX all at once necessarily, because there may be tax consequences, but I would stop adding new money to it.

I would just use a pure stock fund like VTSAX in your Roth IRAs. No tax consequences to shift to that immediately.

There are a lot of discussions on the forum about whether it's best for a particular person to do Traditional vs. Roth in their workplace plan. I'd recommend checking out the wiki about this topic (I think it's titled "Roth vs. Traditional" or something like that) to think through your situation. If I were you, with the goal of buying a house in a couple years, I would probably do Traditional TSP, which will save you on taxes (you'll save $4290 per year if you contribute the max of $19.5k). You can use that tax savings to build your house down payment fund.

I would probably just save the down payment in the HYSA, especially if you want to buy in no more than 2 years. You can use the money in HYSA plus your taxable to make the down payment.

feehater
Posts: 199
Joined: Fri Jul 14, 2017 10:14 am

Re: Portfolio Review Request - 30yo Military member and Spouse

Post by feehater » Fri Jul 31, 2020 9:33 am

USNA12 wrote:
Fri Jul 31, 2020 5:50 am
And I didn’t know she could claim my legal state of resudence as well. How does that work if her LLC is registered and operates in VA?

Thanks for the help so far!
I don't have the answer, besides knowing it should be possible. But, if you're getting out in two years and staying in Virginia, don't forget you'll both have to switch back at that point, so it might not be worth it depending on the amount of trouble.

Living Free
Posts: 508
Joined: Thu Jul 19, 2018 7:31 pm

Re: Portfolio Review Request - 30yo Military member and Spouse

Post by Living Free » Fri Jul 31, 2020 9:40 am

USNA12 wrote:
Thu Jul 30, 2020 5:56 pm


Questions:
1. Where are we making tax efficiency errors?
Not maxing out the TSP. As above, do that prior to taxable account investing. Also i'd avoid a balanced fund in the taxable account. Also why are you not doing any tax deferred at all? I'd recommend that you do some tax deferred investing (ie, traditional TSP/401k). Can your wife open any sort of retirement account through her work?
USNA12 wrote:
Thu Jul 30, 2020 5:56 pm
2. I’d like to get to 85% Stock/15% Bonds, should I do this by contributing into a bond fund until I have hit that ratio, or sell/buy to set it immediately?
Do it immediately in tax advantaged accounts.
USNA12 wrote:
Thu Jul 30, 2020 5:56 pm
3. A short term goal is to be able to put 15-20% down on a new home in two years. What is the best vehicle for this? Should it just come out of the taxable accounts, or should I create a separate account specifically for that goal?
For 1-2 years, probably a high yield savings account or a CD. Not very exciting but provides stability of the principal.
USNA12 wrote:
Thu Jul 30, 2020 5:56 pm
4. At our age, what are we not doing that we should be?
Thank You!
Seems like you're off to a good start keep at it!

Tiger85
Posts: 41
Joined: Sun Jul 07, 2013 6:35 pm

Re: Portfolio Review Request - 30yo Military member and Spouse

Post by Tiger85 » Fri Jul 31, 2020 11:56 am

USNA12 wrote:
Fri Jul 31, 2020 5:50 am
1. You are contributing to a taxable account before maxing your tax advantaged accounts fully. TSP max this year is $19,500
Our thought here was that we wanted to add some liquidity that we could access, as well as saving for our next house downpayment, but it is a tradeoff.

And I didn’t know she could claim my legal state of resudence as well. How does that work if her LLC is registered and operates in VA?

Thanks for the help so far!
I understand the tradeoff, we were in a similar position a few years ago. For one year we contributed less than normal to my TSP to build up our downpayment money.

All savings for the downpayment going forward should be in your high yield savings account due to the short time horizon. You can also add your taxable money to the downpayment, I just wouldn't contribute any more to the taxable. Once you purchase the house, focus the rest of your investing in tax advantaged before adding to the taxable again.

I'm not smart on LLCs, but I'm sure there are other folks who are.

Also agree with other comments about not holding bonds in your taxable through a balanced fund, especially with the options you have in the TSP for that portion of your AA. All 15% of your desired bond allocation should be in your tax advantaged accounts.

ExitStageLeft
Posts: 1904
Joined: Sat Jan 20, 2018 4:02 pm

Re: Portfolio Review Request - 30yo Military member and Spouse

Post by ExitStageLeft » Fri Jul 31, 2020 12:20 pm

Welcome to the forum!

I'm a civilian fed and am familiar with the TSP from that standpoint, no knowledge about military-specific aspects of the TSP. But I'm pretty sure that the matching contribution is tax-deferred. That's certainly the case for civilian TSP and for 401k plans. So it is likely your agency matching contribution is all being made as tax-deferred.

Your present marginal tax rate is in the no-man's land where there is no strong argument for either Roth or tax-deferred. But you still generally want to enter retirement with enough tax-deferred savings so that you can bring in taxable income in retirement up to the annual tax deduction. If either of you will have pensions then that will eat into the tax deduction, so it could still turn out that Roth savings now are your best bet.

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Nords
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Re: Portfolio Review Request - 30yo Military member and Spouse

Post by Nords » Sun Aug 02, 2020 3:11 pm

USNA12 wrote:
Thu Jul 30, 2020 5:56 pm
4. At our age, what are we not doing that we should be?
I’m USNA ‘82, my spouse is ‘83, and our son-in-law is ‘14. Last year our daughter made her transition from active duty to the Reserves, and our son-in-law is staying active for a few more years.

You’re getting plenty of good advice on taxes and asset allocation, so I’ll just focus on the last question.

If you haven’t already attended your service’s transition seminar (TAP), do it now. It’s even better if your spouse can attend with you, because you’ll each hear the same presentations in different ways and have thoughtful discussions about your next steps.

If she can’t attend then (at a minimum) she should read through the DoD TAP material:
https://www.dodtap.mil/

It’s worth considering affiliating with a Reserve or National Guard unit. It’s most of the good things you enjoy(ed) about active duty with much less of the sucky parts. I’ll caution that the Navy Reserve may insist that you mobilize/deploy during your third year of Reserve duty, so think carefully before you sign a Reserve bonus contract.

Take your time on buying a house. Research shows that nearly 50% of military veterans move to a new location (a second move) within two years of leaving active duty. It’s usually an indication of success: they’ve figured out how to handle their post-military career. They’re either moving up in their corporation or they’ve networked a better opportunity elsewhere.

Let me know if you have more questions. Our daughter & son-in-law are happy to answer questions too-- they’re rapidly approaching their own financial independence.
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