Retired Portfolio Advice for Allocation, RMDs, 529s & Etc.

[snash22]

Hello - I am retired for about 6 years - age 62, wife age 59.

I am looking for advice for my portfolio. My questions are at the bottom using the template in the wiki. I have posted a few questions there about specific aspects, but I think it is more helpful if the whole picture is shown. My goal is to continue having a financially secure lifestyle if there is a 5 year dip in the market, and if things go great, my kids and grandkids will have some pocket money.

Emergency funds: $0

Debt: $0

Tax Filing Status: Married Filing Jointly

Tax Rate: 12% Federal, 5.75% State

State of Residence: VA

Desired Asset allocation: 75% stocks / 25% bonds
Desired International allocation: 0% of stocks

Portfolio Size - $1M

Code: Select all

401k:
	Total Stock Market Index (DJ Tot Stk Mkt Idx) (0.02%)		63.1%
	Fidelity Government Money Market (SPAXX) (0.00?)		6.8%
Trad IRA:	
	Southern & Western Annty Fund (5.35% 3 yrs, no-call)		14.9%
	Fidelity Select Semiconductors (FSELX) (0.69%)			1.2%
	Fidelity Select Technology (FSPTX) (0.7%)			1.2%
	Fidelity Large Cap Growth Idx (FSPGX) (0.035%)			0.8%
Roth IRA:
	Vanguard Tot Stk Mkt ETF (VTI) (0.03%)				2.2%
	Fidelity Select Semiconductors (FSELX) (0.69%)			0.1%
HSA:
	Fidelity Large Cap Growth Idx (FSPGX) (0.035%)			1.1%
	Fidelity 500 Idx (FXAIX) (0.015%)				1.1%
Taxable 
	Fidelity Zero Total Market (FZROX) (0.00%)			6.0%			
	I-Bonds								1.5%

Available funds - Everything Fidelity has to offer.

Annual Income:
My SS $29,000
Rental Income (Net) $5,400
Pension (No COLA $12,300
401k Withdrawals $24,000
Total $70,700


Questions:
1. How do I allocate my bonds vs stocks in Roth IRA vs Trad IRA? I think I have heard that I should have bonds the taxable accounts and stocks in non-taxable, that was my (hopefully) bigger gains are tax free. Is this correct?

2. To reduce my RMDs when I turn 73, I want to begin withdrawals from my taxable accounts now, keeping within the 12% tax bracket. Is this the correct approach?

3. I want to fund 529s for 3 grandkids (1,1 & 3yrs old). Would the withdrawals from #2 from above make sense to do this?

4. What other comments do people have about my portfolio? The non-401k investments are admittedly haphazard, there may be better ways to get tech exposure without those higher fees.

5. What questions should I be asking that I haven't?

Edit

6. Is there any value in putting any money into HSA/Roth IRA at this point?

TIA!

[Duckie]

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Taxable	
401k:
	Total Stock Market Index (DJ Tot Stk Mkt Idx) (0.02%)		63.1%
	Southern & Western Annty Fund (5.35% 3 yrs, no-call)		14.9%
	Fidelity Government Money Market (SPAXX) (0.00?)		6.8%
Trad IRA:	
	Fidelity Select Semiconductors (FSELX) (0.69%)			1.2%
	Fidelity Select Technology (FSPTX) (0.7%)			1.2%
	Fidelity Large Cap Growth Idx (FSPGX) (0.035%)			0.8%
Not IRA/401k: 
	Fidelity Zero Total Market (FZROX) (0.00%)			6.0%			
	I-Bonds								1.5%

Non-Taxable	
Roth IRA:
	Vanguard Tot Stk Mkt ETF (VTI) (0.03%)				2.2%
	Fidelity Select Semiconductors (FSELX) (0.69%)			0.1%
HSA:
	Fidelity Large Cap Growth Idx (FSPGX) (0.035%)			1.1%
	Fidelity 500 Idx (FXAIX) (0.015%)				1.1%

First we need to correct some definitions. You have your 401k and Traditional IRA listed as taxable. Yes, you will eventually have to pay taxes when you withdraw but they are tax-sheltered accounts. What you refer to as "Not IRA/401k" is what we call "taxable". Meaning you pay taxes on the dividends and interest that the account kicks out every year while you only pay taxes on the tax-sheltered accounts when you withdraw. Everything above is tax-sheltered except the "Not IRA/401k".

Given that, holding FZROX in a taxable account is not a good idea. That is a proprietary fund and can only be held at Fidelity. If you ever need to leave Fidelity you have to either sell the fund, possibly for a large tax-hit, or not leave. Find out the unrealized gains and consider selling. At least turn OFF all automatic dividend reinvestment so you don't buy more. FSKAX Fidelity Total Market would be a better option.

1. How do I allocate my bonds vs stocks in Roth IRA vs Trad IRA? I think I have heard that I should have bonds the taxable accounts and stocks in non-taxable, that was my (hopefully) bigger gains are tax free. Is this correct?

You try to put all your bonds in your pre-tax accounts: 401k and Traditional IRA. (I-bonds are an exception. They must be in taxable. But you could put TIPS in your pre-tax accounts.) Put just stocks in taxable and Roth accounts, with the remainder going into pre-tax accounts.

2. To reduce my RMDs when I turn 73, I want to begin withdrawals from my taxable accounts now, keeping within the 12% tax bracket. Is this the correct approach?

It is reasonable. Are you planning to eventually roll the 401k into the TIRA to consolidate? Or must you keep the 401k because of the annuity fund?

3. I want to fund 529s for 3 grandkids (1,1 & 3yrs old). Would the withdrawals from #2 from above make sense to do this?

Once you withdraw from the 401k or TIRA you can spend the money on anything you wish.

4. What other comments do people have about my portfolio? The non-401k investments are admittedly haphazard, there may be better ways to get tech exposure without those higher fees.

Cheaper technology options by lower-to-higher expense ratios are:

• VGT--Vanguard Information Technology ETF (0.10%)
• XLK--Technology Select Sector SPDR ETF (0.10%)
• QQQ--Invesco QQQ ETF (0.20%) -- not 100% technology
• IYW--iShares U.S. Technology ETF (0.40%)

Is there any value in putting any money into HSA/Roth IRA at this point?

It's only three years until age 65 and Medicare. You could contribute to the Fidelity HSA even though retired but only you can decide if three years is worth it. (Although since it is six years for your wife she could contribute longer.) Since you have no earned income you cannot contribute to a Roth IRA (unless the rental income is considered earned income). You can, however, convert some of your TIRA to your Roth IRA which would reduce your RMDs.

[snash22]

Ducky, Thanks so much for your detailed response. Pre retirement my plan was to "just keep saving in my 401k". The retirement side is a bit more complicated, but now I have the time. My responses below:

First we need to correct some definitions. You have your 401k and Traditional IRA listed as taxable. Yes, you will eventually have to pay taxes when you withdraw but they are tax-sheltered accounts. What you refer to as "Not IRA/401k" is what we call "taxable". Meaning you pay taxes on the dividends and interest that the account kicks out every year while you only pay taxes on the tax-sheltered accounts when you withdraw. Everything above is tax-sheltered except the "Not IRA/401k".

Thanks for the corrections. I have updated my original post.

Given that, holding FZROX in a taxable account is not a good idea. That is a proprietary fund and can only be held at Fidelity. If you ever need to leave Fidelity you have to either sell the fund, possibly for a large tax-hit, or not leave. Find out the unrealized gains and consider selling. At least turn OFF all automatic dividend reinvestment so you don't buy more. FSKAX Fidelity Total Market would be a better option.

Interesting. Is the key takeaway that it is proprietary and I would have a forced sale and with FSKAX I have greater "portability"?

1. How do I allocate my bonds vs stocks in Roth IRA vs Trad IRA? I think I have heard that I should have bonds the taxable accounts and stocks in non-taxable, that was my (hopefully) bigger gains are tax free. Is this correct?

You try to put all your bonds in your pre-tax accounts: 401k and Traditional IRA. (I-bonds are an exception. They must be in taxable. But you could put TIPS in your pre-tax accounts.) Put just stocks in taxable and Roth accounts, with the remainder going into pre-tax accounts.

Excellent, thanks.

2. To reduce my RMDs when I turn 73, I want to begin withdrawals from my taxable accounts now, keeping within the 12% tax bracket. Is this the correct approach?

It is reasonable. Are you planning to eventually roll the 401k into the TIRA to consolidate? Or must you keep the 401k because of the annuity fund?

I am considering moving all my 401k into TIRA but I'm hesitant due to the added ERISA protection of it sitting in my 401k. Also, I had incorrectly put the annuity fund in the 401k, it is now in TIRA.

4. What other comments do people have about my portfolio? The non-401k investments are admittedly haphazard, there may be better ways to get tech exposure without those higher fees.

Cheaper technology options by lower-to-higher expense ratios are:

• VGT--Vanguard Information Technology ETF (0.10%)
• XLK--Technology Select Sector SPDR ETF (0.10%)
• QQQ--Invesco QQQ ETF (0.20%) -- not 100% technology
• IYW--iShares U.S. Technology ETF (0.40%)

Thanks!

Is there any value in putting any money into HSA/Roth IRA at this point?

It's only three years until age 65 and Medicare. You could contribute to the Fidelity HSA even though retired but only you can decide if three years is worth it. (Although since it is six years for your wife she could contribute longer.) Since you have no earned income you cannot contribute to a Roth IRA (unless the rental income is considered earned income). You can, however, convert some of your TIRA to your Roth IRA which would reduce your RMDs.

Contributing the rental income into a Roth IRA isn't something I had considered. Maybe it can be done, I'd have to look at the rules. Lessening MAGI this year would be very helpful.

For the HSA contributions, I am imagining that the more I can withdraw from my 401k tax free (by putting it into HSA), the lower my RMD will be later. I'm really not sure if it is worth the effort, but I have the time. Is there another aspect you are seeing it from?

I would then withdraw from 401k up to the top of the 12% bracket to reduce RMDs.

[Duckie]

Given that, holding FZROX in a taxable account is not a good idea. That is a proprietary fund and can only be held at Fidelity. If you ever need to leave Fidelity you have to either sell the fund, possibly for a large tax-hit, or not leave.
<snip>
FSKAX Fidelity Total Market would be a better option.

Interesting. Is the key takeaway that it is proprietary and I would have a forced sale and with FSKAX I have greater "portability"?

Yes. You can move FSKAX to another brokerage if necessary. Or you could use a total market ETF such as ITOT or SCHB for greatest portability.

I am considering moving all my 401k into TIRA but I'm hesitant due to the added ERISA protection of it sitting in my 401k.

Understandable.

Since you have no earned income you cannot contribute to a Roth IRA (unless the rental income is considered earned income).

Contributing the rental income into a Roth IRA isn't something I had considered. Maybe it can be done, I'd have to look at the rules.

If you file Schedule C or have an S-Corp for the rental income you can contribute to an IRA. If your income is passive and you file Schedule E you cannot contribute.

Lessening MAGI this year would be very helpful.

Contributing to a Roth IRA would not reduce your MAGI.

For the HSA contributions, I am imagining that the more I can withdraw from my 401k tax free (by putting it into HSA), the lower my RMD will be later. I'm really not sure if it is worth the effort, but I have the time.

You would have to roll from the 401k to the TIRA and then to the HSA. You can only add the current yearly limit and you can only do this once per person. So in 2024 you could roll $8300 (the family limit) from your 401k to your TIRA to your HSA. If your spouse has a TIRA and HSA (which I doubt), in 2025 she could roll $8300 (or whatever the family limit is in 2025) from her TIRA to her HSA. I'm not sure it's worth it.