Insight and Advice on My Portfolio, Insurance Needs and Estate Planning

[pualius38]

Hello,

I am new here. My spouse and I are 36 years old, based in Texas (no state income tax) with a total combined pre-tax net worth of around $2.6mm and an annual income of $230k. Around $2mm is in securities (brokerage, 401k, Roth IRA, and 529). We plan to retire or semi-retire by age 50, which is in around 15 years, and allocate $100k per year in 401k, Roth IRA, HSA, and remaining to after-tax brokerage until then.

Here's a breakdown of our current portfolio:

After-tax brokerage:
Total: $1,182k
- VTI: $550k
- VOO: $590k (including $320k in parental funds)
- VXF: $40k

401k:
Total: $460k
- S&P 500 index funds

Roth IRA:
Total: $185k
- FXAIX: $160k
- VXF: $25k

HSAs:
Total: $45k
- VTI and S&P 500 index fund

529 Plan:
Total: $125k
- VTI

Other Assets / Liabilities:
- Cash in MM Fund: $40k (Emergency Reserve)
- Rental Property: $460k (Equity: $270k)
- Primary Residence: $465k (Equity: $300k)
- Other Big Assets (paid-off cars, etc.): $50k
- Credit Card Debt (0% APR promo period): $20k

Questions:

1) Move to Bonds and Cash Position Strategy:
If I need to increase our allocation to bonds, how much should I consider allocating, and what would be the most effective way to implement this change? One approach I am considering is increasing our cash-like position to around 10% of our liquid net worth, similar to Warren Buffett's strategy of maintaining 90% in equities (like the S&P 500) and 10% in cash or cash-like investments. This would involve accumulating approximately $200k in cash over the next couple of years. I would achieve this by gradually saving up, while continuing to maximize contributions to our tax-advantaged accounts (401k, Roth IRA, and HSA). Would this be a balanced approach to diversifying risk, or should I consider a different strategy?

2) Managing Parental Funds with a Balanced Risk Approach:
As mentioned, I manage approximately $320k in VOO, which is actually my parents' money. They are both in their 70s and might need access to these funds in the near future. If they don't need them, these funds could potentially become my inheritance. I'm seeking advice on how to balance the need for growth with the need for preservation, given their age and potential financial needs. Should I consider moving these funds into a more conservative allocation, such as a mix of bonds and cash?

3) Streamlining Positions for Tax-Loss Harvesting (TLH) Efficiency:
I realize that I was not very strategic with the placement of certain investments between our Roth IRA and after-tax brokerage accounts. This has made tax-loss harvesting (TLH) more challenging. What steps can I take to simplify TLH in our current portfolio setup and if it makes sense to do it? What other TLH strategies could help optimize our tax efficiency without significantly impacting our overall asset allocation or exposing us to wash sale rules?

4) Reinvestment Strategy After Selling Rental Property:
I am considering selling our rental property because I am tired of the responsibilities associated with being a landlord. If I sell, I am contemplating reinvesting the proceeds in a bond ETF like BND within our after-tax account (but not certain) or just keep as cash in MM fund getting to ~10% allocation. I understand this may not be the most tax-efficient option given the ordinary income tax treatment of bond interest. What other reinvestment strategies would you recommend that could provide a more tax-efficient income stream or capital appreciation?

5) Do we need individual life and LTD insurance (with our NW)? Both of us currently have group LTD coverage and life insurance equal to 1x salary (both portable) through our employers. However, my spouse has a chronic condition and is unable to obtain individual life and LTD coverage. I have no pre-existing conditions and can qualify for individual policies. We are planning to have a child soon. We maintain group health, P&C insurance and umbrella insurance equaling NW.

6) For estate planning, our relatives are overseas and are non-U.S. citizens; it's just my spouse and me here in the U.S. Based on advice from multiple BH threads, essential documents yet to obtain include a Will, Living Will, and Healthcare Power of Attorney - please advise if I miss anything. It is also important to ensure beneficiaries are designated on all accounts - are there any specifics I may miss? However, this becomes complex since our relatives are overseas, unless we name each other as beneficiaries for everything. We however have a niece and nephew who are international students in the U.S. and wonder if they can be named as beneficiaries. We consider ourselves beginners in estate planning and would appreciate more advice on how to navigate these complexities.

[invest4]

Welcome!

Some initial comments:

Portfolio

* Could you elaborate a bit about the rationale and setup for your portfolio?

- 401k: I assume for your 401k, the S&P500 is the closest available to something like VTI (Total US)?


- Mega Backdoor Roth: Is this available to you via your employer?


- HSA: Are you using your company HSA or something outside of it. I have found company sponsored HSAs to be lacking in terms of offerings and costs. If you are utilizing your company HSA, I would strongly encourage you to consider opening an account at brokerage like Fidelity (very popular for this purpose) and simply make periodic transfers from your work HSA to the Fidelity / other account. What triggered my question is that you were also using S&P 500 here as well...versus VTI for example.


- 529: People have different ideas about what is an acceptable education...do you have a firm idea about what kind of education you are planning to provide? For example, some people think it is important for their child to live on campus. Nothing wrong with that, but the cost is considerably more expensive than living at home for example.


-Other:

Cash: How many months of living expenses will this cover?

Rental Property: I think a good idea to assess your interest in owning a rental property. I see quite a few people think they are making money, but actually not. Furthermore, I completely understand that being a landlord is not a passive endeavor and fully support your desire to be rid of the responsibility.


Primary Residence: My own metric for buying a house is no more than 3x income. Kudos to you.


Other Assets: thanks for sharing, but generally not counted as part of your portfolio.


Credit Card Debt: My assumption is that you have no real debt (aside from mortgage) and this is simply something that will retired when the promotion expires.


Expenses

* What are your current annual expenses? A reasonable estimate is ok.


* How much do you think you will need as far as income when you are no longer working? Again, best reasonable estimate is ok.


* Having this information will help better understand whether not your proposed plan to retire / semi-retire at age 50 appears to be on track / how large your portfolio may need to be to support the lifestyle you want.


Your Questions

1. You are in your mid-30s with plenty of working years ahead of you. Unless you have changed your risk tolerance,why do you think you need to increase your allocation to bonds / fixed income?

* I have found bonds to be more complex than stocks. I strongly encourage you to start / continue educating yourself so you better understand what bonds / fixed income investments make sense for you. Many people have been surprised that what they purchased did not behave the way they thought they would...such as when inflation showed up. What Warren Buffet does is not really relevant to you. Nonetheless, quite a few people do want to have 2-3 years of cash (some more) by the time they are no longer working to help mitigate sequence of return risk.


2. I think more information about your parents is needed to provide any advice. What do their actual finances look like? Is the 320K all of their assets? I suspect a separate post may be needed for this particular topic.


3. TLH: Thus far, I have never had a taxable account, and I expect others more experienced will provide some help here.


4. If you really want a larger allocation to bonds / fixed income, there is nothing wrong with that. As mentioned above, please make sure you understand what you are investing in and the pros / cons associated with it.


5. At your age and given your current and future dependents, I would not go without life insurance right now. 1x from employer is not enough. If you died tomorrow, your dependents will need money for decades. Given your income, it is relatively cheap and will provide additional piece of mind.


6. For all the right reasons, I would talk to a professional to ensure that all of your needs are accounted for and are provided the relevant choices and advice. This is another relatively cheap expense that you should not do without.


You are doing well...best wishes.

[pualius38]

Thank you for taking the time, @invest4, to provide detailed insights. Please see my responses below:

Welcome!

Some initial comments:

Portfolio

* Could you elaborate a bit about the rationale and setup for your portfolio? The strategy is to maximize savings and accumulation, with the expectation that an all-stock portfolio will yield the highest returns over the long term.

- 401k: I assume for your 401k, the S&P500 is the closest available to something like VTI (Total US)? Correct, only S&P500 is available from passive index universe.


- Mega Backdoor Roth: Is this available to you via your employer? It used to be at my previous employer. Not at the current one. It helped to front-load the Roth IRA balance.


- HSA: Are you using your company HSA or something outside of it. I have found company sponsored HSAs to be lacking in terms of offerings and costs. If you are utilizing your company HSA, I would strongly encourage you to consider opening an account at brokerage like Fidelity (very popular for this purpose) and simply make periodic transfers from your work HSA to the Fidelity / other account. What triggered my question is that you were also using S&P 500 here as well...versus VTI for example. HSA is at Optum (through employer) and at Fidelity HSA (old employer rollovers); Correction: I use VTI at Optum HSA and Fidelity zero-fee S&P500 index at Fidelity.


- 529: People have different ideas about what is an acceptable education...do you have a firm idea about what kind of education you are planning to provide? For example, some people think it is important for their child to live on campus. Nothing wrong with that, but the cost is considerably more expensive than living at home for example. If blessed with a child, we would like to send them to a private secondary school and potentially a private college with on-campus living.


-Other:

Cash: How many months of living expenses will this cover? 6 months

Rental Property: I think a good idea to assess your interest in owning a rental property. I see quite a few people think they are making money, but actually not. Furthermore, I completely understand that being a landlord is not a passive endeavor and fully support your desire to be rid of the responsibility. Noted! Would rental property be considered similar to a bond fund in terms of how it provides stability to a portfolio (i.e. inflation hedge and steady monthly income (assuming tenants paying on time)?


Primary Residence: My own metric for buying a house is no more than 3x income. Kudos to you. Thank you. With 7 years remaining on a 15-year mortgage, I realize that purchasing the house, which was 5x times my pre-tax income at the time, may not have been the best financial decision but the rate was low.


Other Assets: thanks for sharing, but generally not counted as part of your portfolio. Noted!


Credit Card Debt: My assumption is that you have no real debt (aside from mortgage) and this is simply something that will retired when the promotion expires. Correct!


Expenses

* What are your current annual expenses? A reasonable estimate is ok. $80k


* How much do you think you will need as far as income when you are no longer working? Again, best reasonable estimate is ok. Pre-tax $150k as the plan is to travel and have more discretionary spending.


* Having this information will help better understand whether not your proposed plan to retire / semi-retire at age 50 appears to be on track / how large your portfolio may need to be to support the lifestyle you want. Thank you! I look forward to the insights of BHs!


Your Questions

1. You are in your mid-30s with plenty of working years ahead of you. Unless you have changed your risk tolerance,why do you think you need to increase your allocation to bonds / fixed income? As we get older and NW keeps going up (fingers crossed), I'm trying to assess whether, say, we could truly handle a 50% drop in an all-stock portfolio, especially if it takes 4-5 years or longer to recover, as seen during the 2000s or the Great Depression.


* I have found bonds to be more complex than stocks. I strongly encourage you to start / continue educating yourself so you better understand what bonds / fixed income investments make sense for you. Many people have been surprised that what they purchased did not behave the way they thought they would...such as when inflation showed up. What Warren Buffet does is not really relevant to you. Nonetheless, quite a few people do want to have 2-3 years of cash (some more) by the time they are no longer working to help mitigate sequence of return risk. This approach emerged as a way to capitalize on market downturns by buying more "when others are fearful", provided I have a 10% cash reserve ready.


2. I think more information about your parents is needed to provide any advice. What do their actual finances look like? Is the 320K all of their assets? I suspect a separate post may be needed for this particular topic. They have sufficient financial assets to live comfortably. The $320k is money my parents gave me to help my nephew or niece, who came to the U.S. as international students, if needed (i.e. help with house downpayment or tuition). There is no specific time horizon for using these funds (can be in 2, 5, or 10 years).


3. TLH: Thus far, I have never had a taxable account, and I expect others more experienced will provide some help here. Noted!


4. If you really want a larger allocation to bonds / fixed income, there is nothing wrong with that. As mentioned above, please make sure you understand what you are investing in and the pros / cons associated with it. Thank you. My main question is: if I allocate a portion of my portfolio to bonds, how much would it reduce the overall return compared to a 100/0, 90/10, or 80/20 stock-to-bond allocation? Does it make sense to use 401k for bonds?


5. At your age and given your current and future dependents, I would not go without life insurance right now. 1x from employer is not enough. If you died tomorrow, your dependents will need money for decades. Given your income, it is relatively cheap and will provide additional piece of mind. Agreed. I am getting individual coverage now. My spouse will need to rely on a group life insurance through his employer. What is the stance on having individual LTD coverage in addition to our group LTD plans, considering we both already qualify for SSDI?


6. For all the right reasons, I would talk to a professional to ensure that all of your needs are accounted for and are provided the relevant choices and advice. This is another relatively cheap expense that you should not do without. Thank you. Do you have any recommendations or referrals for a consultation in Texas or remotely?



You are doing well...best wishes.

[bonesly]

Here's a breakdown of our current portfolio:

After-tax brokerage:
Total: $1,182k
- VTI: $550k
- VOO: $590k (including $320k in parental funds)
- VXF: $40k

401k:
Total: $460k
- S&P 500 index funds

Roth IRA:
Total: $185k
- FXAIX: $160k
- VXF: $25k

HSAs:
Total: $45k
- VTI and S&P 500 index fund

529 Plan:
Total: $125k
- VTI

A problem I see with this layout is the potential for Wash Sales, since your three Taxable holdings (VTI, VOO, and VXF) are also held in tax-advantaged accounts: VTI is in the HSA and 529; VOO is in the 401k, Roth IRA (FXAIX is an S&P-500 index), and the HSA; VXF is in the Roth IRA. The only Wash Sale pair that seems easy to fix is VXF since you could simply move the $25K in the Roth IRA into something else with no tax consequences, but since you're holding about equal amounts of VTI and VOO in Taxable, cleaning up those Wash Sale counterparts in tax-advantaged is more difficult.

Wash Sales aren't a crime, it just means if you ever sell at a loss in Taxable (say for TLH), then you may not be able to claim that loss on your tax return if you inadvertently purchased the same or "substantially identical" fund in a tax-advantaged account (say through an automatic contribution or reinvestment) within ±30 days of the loss sale date. If all funds are held at the same brokerage, they might flag box 1g on your 1099B so that your tax-prep software (or your CPA) knows not to claim the loss, but regardless of whether box 1g is checked or not, it's on you to file your return correctly and not claim the loss if there was a wash sale. The Wiki topic linked earlier explains wash sales, but it's a nuanced topic and the best article I've found on it is at Fairmark: Wash Sales.

Cash: How many months of living expenses will this cover? 6 months

This is likely adequate if you and your spouse do not work for the same company (i.e., only one of you is laid off and it will only take 6 months to find a replacement job at similar salary). If it will take longer than 6 months to find a replacement job or both of you work for the same company and could face simultaneous lay-offs, then you might want to increase this buffer to 12 months or 18 months or whatever is appropriate for a replacement job search in your industry with your age & experience (higher salaries usually take longer to replace).

1) Move to Bonds and Cash Position Strategy:
If I need to increase our allocation to bonds, how much should I consider allocating, and what would be the most effective way to implement this change? One approach I am considering is increasing our cash-like position to around 10% of our liquid net worth, similar to Warren Buffett's strategy of maintaining 90% in equities (like the S&P 500) and 10% in cash or cash-like investments. This would involve accumulating approximately $200k in cash over the next couple of years. I would achieve this by gradually saving up, while continuing to maximize contributions to our tax-advantaged accounts (401k, Roth IRA, and HSA). Would this be a balanced approach to diversifying risk, or should I consider a different strategy?

Is your desired/target Asset Allocation (AA) changing from 100/0 to 90/0/10 because that's appropriate for your joint risk-tolerance or because "that's what Warren Buffett does?" If it's the latter, you should just buy BRK.B and let Buffett do his magic, because it's very unlikely that you can match what he does. In fact about 80% of professional active fund managers have a stated objective to beat the market index (to justify their higher expense ratios and sales commissions), but 80% of Active Managers Fail to Beat the Market. What makes you think you can just "follow Buffett" using your own money? If it was that easy, wouldn't everyone do that (and thus 80% of pros would just buy BRK.B rather than try and fail)?

I don't recommend holding cash as an "everyday investor" so you can execute a strategy "similar to Warren Buffet's". I would recommend that any increase in bonds (not cash) is in response to a reassessment of the personal risk-tolerance that is joint between you and your spouse. Two ideas on how to make that reassessment...

a) Each of you read the Wiki article for Assessing Risk Tolerance, take the Vanguard Investor Questionnaire, then tailor the asset allocation (AA) that was recommended by the quiz based on your knowledge of your personal risk tolerance having read the Wiki article. Average your individual results to get a joint AA that works for both of you as a team.

b) Alternatively (or in addition to), ask "How much of a drop in portfolio value as a % of total value can I handle?" cut that % in half to get standard deviation, then lookup that std. dev. on the X-Axis of the chart below, and finally scan up to see what AA that corresponds to. As an example, if you can only stomach a -24% drop in portfolio value, that's a ±12% std. dev, which corresponds to an AA of 60/40. The return you get is an average and you'll get what you get with your unique sequence of returns (there's a lot of variance in outcomes due to the associated volatility of stocks so it probably will NOT be the average, but something more or less).

2) Managing Parental Funds with a Balanced Risk Approach:
As mentioned, I manage approximately $320k in VOO, which is actually my parents' money. They are both in their 70s and might need access to these funds in the near future. If they don't need them, these funds could potentially become my inheritance. I'm seeking advice on how to balance the need for growth with the need for preservation, given their age and potential financial needs. Should I consider moving these funds into a more conservative allocation, such as a mix of bonds and cash?

Since this was "gifted" to you, it's on your books so it adds to the Wash Sale problem you have with S&P-500 index in both Taxable and Tax-Advantaged. Do you parents have investment accounts of their own? Ideally, if they have a Tax-Deferred account (Trad IRA and/or 401k), then they could increase their bond holdings in that type of account, such that when included with the $320K in VOO (stocks) their stock/bond AA is appropriate for their time-frame (20 years assuming they live to 90) and risk-tolerance (they should also take the Vanguard Quiz or pick a "I can tolerate a portfolio drop of about -X%" from the risk/reward chart). As @invest4 said, this might be a separate post to figure out what else they're holding and then add this $320K you're holding back into their overall portfolio assessment.

3) Streamlining Positions for Tax-Loss Harvesting (TLH) Efficiency:
I realize that I was not very strategic with the placement of certain investments between our Roth IRA and after-tax brokerage accounts. This has made tax-loss harvesting (TLH) more challenging. What steps can I take to simplify TLH in our current portfolio setup and if it makes sense to do it? What other TLH strategies could help optimize our tax efficiency without significantly impacting our overall asset allocation or exposing us to wash sale rules?

To solve the problem of wash sales and make TLH easier, you want to eliminate all the VTI, VOO/FXIAX, and VXF holdings in the tax-advantaged accounts (you're leaving Taxable alone to avoid a tax-bill for swapping things there). Find some large-cap fund that is NOT following the same index as S&P-500 or the index VTI follows. That might be a challenge in your 401k. The alternative is eliminating those three funds from your Taxable account, so that there's no duplication with tax-advantaged, but that would carry a big tax-bill, which is why I'm suggesting you find swaps in the tax-advantaged accounts instead of Taxable. If you list the fund choices in your 401k, we can likely help. If you can purchase ETFs in the Roth, HSA, and 529, then perhaps Vanguard Large Cap ETF (VV) might be suitable in those three accounts.

4) Reinvestment Strategy After Selling Rental Property:
I am considering selling our rental property because I am tired of the responsibilities associated with being a landlord. If I sell, I am contemplating reinvesting the proceeds in a bond ETF like BND within our after-tax account (but not certain) or just keep as cash in MM fund getting to ~10% allocation. I understand this may not be the most tax-efficient option given the ordinary income tax treatment of bond interest. What other reinvestment strategies would you recommend that could provide a more tax-efficient income stream or capital appreciation?

Whether you put the proceeds into bonds or cash should be driven by your desired/target AA, which is the roadmap for your investment portfolios (retirement and non-retirement). Don't put it into 10% cash unless you are one of the very, very few that are investing geniuses like Buffet and Koltrones. If you are like most investors, you should pick an AA that suits your risk-tolerance and invest your money among stocks and bonds such that your AA is preserved (not off target by more than ±5%).

5) Do we need individual life and LTD insurance (with our NW)? Both of us currently have group LTD coverage and life insurance equal to 1x salary (both portable) through our employers. However, my spouse has a chronic condition and is unable to obtain individual life and LTD coverage. I have no pre-existing conditions and can qualify for individual policies. We are planning to have a child soon. We maintain group health, P&C insurance and umbrella insurance equaling NW.

Getting life insurance when you're younger and healthy is much, much easier than when your older -OR- have had any serious medical issues in your record. Typically Term Life Insurance is better than whole/universal type policies. The amount of coverage should be appropriate to cover expenses for some definite period (like 10 years, 30 years, 50 years, etc.), so 1X salary seems inadequate, as @invest4 said.

6) For estate planning, our relatives are overseas and are non-U.S. citizens; it's just my spouse and me here in the U.S. Based on advice from multiple BH threads, essential documents yet to obtain include a Will, Living Will, and Healthcare Power of Attorney - please advise if I miss anything. It is also important to ensure beneficiaries are designated on all accounts - are there any specifics I may miss? However, this becomes complex since our relatives are overseas, unless we name each other as beneficiaries for everything. We however have a niece and nephew who are international students in the U.S. and wonder if they can be named as beneficiaries. We consider ourselves beginners in estate planning and would appreciate more advice on how to navigate these complexities.

You'll likely want to seek an attorney that specializes in estate planning. In addition to a will, living will, and healthcare power of attorney, you'll want a financial power of attorney. For a particularly large estate, an estate trust might also be considered since execution of a will involves probate through a court and a trust bypasses probate. Retirement accounts that allow for specific designation of primary and contingent beneficiaries will also bypass probate (which even for modest estates can take well in excess of a year to settle). As you noted, non-US citizens may have difficulties obtaining their inherited assets from a US brokerage, since Vanguard (for one) by default wants beneficiaries to create an online account, but that requires an SSN and an address in the US. I'm still working through that myself (my kids are Canadian and live there, not here). I'm not aware of how Fidelity and Schwab would handle foreign citizen beneficiaries, but most US brokerages have similar rules to Vanguard (SSN and US address required). Still, there must be a way to deal with it because you can designate anyone as a beneficiary... US citizenship and residency is not a requirement.

Before you see an attorney, you might do well to read through the links in the Wiki topic on Estate Planning, so you have some idea of what you need/want before you go in cold and are paying $300/hour just to come up to speed on what estate planning really entails.

[invest4]

Thank you for taking the time, @invest4, to provide detailed insights. Please see my responses below:

Welcome!

Some initial comments:

Rental Property: I think a good idea to assess your interest in owning a rental property. I see quite a few people think they are making money, but actually not. Furthermore, I completely understand that being a landlord is not a passive endeavor and fully support your desire to be rid of the responsibility. Noted! Would rental property be considered similar to a bond fund in terms of how it provides stability to a portfolio (i.e. inflation hedge and steady monthly income (assuming tenants paying on time)?

I don't think of a home rental as a bond at all. It is not without risk and is a part time job. YMMV.


Primary Residence: My own metric for buying a house is no more than 3x income. Kudos to you. Thank you. With 7 years remaining on a 15-year mortgage, I realize that purchasing the house, which was 5x times my pre-tax income at the time, may not have been the best financial decision but the rate was low.

Thankfully, you managed it...and with a 15 year mortgage no less.

I place a lot of value on the mortgage and the benefits it offers:

- Hedge against inflation

- Liquidity

- Leverage for further investments


I have a 30 year @2.6%....will pay that as agreed for as long as we are here.


Expenses

* What are your current annual expenses? A reasonable estimate is ok. $80k


* How much do you think you will need as far as income when you are no longer working? Again, best reasonable estimate is ok. Pre-tax $150k as the plan is to travel and have more discretionary spending.


* Having this information will help better understand whether not your proposed plan to retire / semi-retire at age 50 appears to be on track / how large your portfolio may need to be to support the lifestyle you want. Thank you! I look forward to the insights of BHs!


To support 150K in income when you are no longer working, your portfolio will need to be $3.75M with a "safe" withdrawal rate of 4%. The assumption is that this will support a 30 year retirement. Yours may be longer...so will have consider that as well. Of course, you may have other income (Social Security, Pension, etc.) which will cover some of those expenses.

If not already familiar, the links below should prove helpful.


Safe Withdrawal Rates

https://www.investopedia.com/terms/f/fo ... t-rule.asp

https://www.bogleheads.org/wiki/Safe_withdrawal_rates


How to Harness the Flowing Nature of Withdrawal Rate Math

https://portfoliocharts.com/2024/03/15/ ... rate-math/






Your Questions


4. If you really want a larger allocation to bonds / fixed income, there is nothing wrong with that. As mentioned above, please make sure you understand what you are investing in and the pros / cons associated with it. Thank you. My main question is: if I allocate a portion of my portfolio to bonds, how much would it reduce the overall return compared to a 100/0, 90/10, or 80/20 stock-to-bond allocation? Does it make sense to use 401k for bonds?

Depends on what you purchase and of course, no one knows what future returns will be. I have all my bonds in 401k.


5. At your age and given your current and future dependents, I would not go without life insurance right now. 1x from employer is not enough. If you died tomorrow, your dependents will need money for decades. Given your income, it is relatively cheap and will provide additional piece of mind. Agreed. I am getting individual coverage now. My spouse will need to rely on a group life insurance through his employer. What is the stance on having individual LTD coverage in addition to our group LTD plans, considering we both already qualify for SSDI?

I have only ever used my employer provided LTD coverage...was "good enough" for me.


6. For all the right reasons, I would talk to a professional to ensure that all of your needs are accounted for and are provided the relevant choices and advice. This is another relatively cheap expense that you should not do without. Thank you. Do you have any recommendations or referrals for a consultation in Texas or remotely?

No, but I am sure someone you know can recommend one or call a few and tell them what you need and see if it's a fit.

[pualius38]

Thank you again for all your advice and insight.

To solve the problem of wash sales and make TLH easier, you want to eliminate all the VTI, VOO/FXIAX, and VXF holdings in the tax-advantaged accounts (you're leaving Taxable alone to avoid a tax-bill for swapping things there). Find some large-cap fund that is NOT following the same index as S&P-500 or the index VTI follows. That might be a challenge in your 401k. The alternative is eliminating those three funds from your Taxable account, so that there's no duplication with tax-advantaged, but that would carry a big tax-bill, which is why I'm suggesting you find swaps in the tax-advantaged accounts instead of Taxable. If you list the fund choices in your 401k, we can likely help. If you can purchase ETFs in the Roth, HSA, and 529, then perhaps Vanguard Large Cap ETF (VV) might be suitable in those three accounts.

To get your insight for TLH simplification and swaps in tax-advantaged accounts. Here are the details of my holdings per account. I also read that only Roth IRA and possibly HSA are relevant for wash sales, while 529 plans and 401(k) accounts do not affect wash sales. Also, I am looking for TLH ETF pairs to use in after-tax brokerage. Would also appreciate if you could clarify:

...since you're holding about equal amounts of VTI and VOO in Taxable, cleaning up those Wash Sale counterparts in tax-advantaged is more difficult.

After-tax brokerage:
Total: $1,182k
- VTI: $550k
- VOO: $590k (including $320k in parental funds)
- VXF: $40k

401k:
Total: $460k (~$420k is pre-tax; ~$40k is Roth)
- VIIIX

Roth IRA:
Total: $185k
- FXAIX: $160k
- VXF: $25k

HSAs:
Total: $45k
Optum HSA (via employer) $8k: VITSX
Fidelity HSA (individual rolled over) $37k: FNILX

my529 (variety of static index funds (TSM, value, growth, total bond, etc.), target date funds, customized age-based, customized static):
Total: $125k
- UTSTX (Total US Stock Market)

401k investment options (Spouse) are:

Principal Guaranteed Option
Fidelity Advisor High Income Advantage Z Fund
PIMCO Income Institutional Fund
PIMCO Total Return Instl Fund
Vanguard Total Bond Market Index Institutional Fund
Western Asset Core Plus Bond CIT Class R1 Fund
Principal Pension Builder(SM) Z
Principal LifeTime Strategic Income Fund Tier II
Principal LifeTime 2015 CIT Tier II
Principal LifeTime 2020 CIT Tier II
Principal LifeTime 2025 CIT Tier II
Principal LifeTime 2030 CIT Tier II
Principal LifeTime 2035 CIT Tier II
Principal LifeTime 2040 CIT Tier II
Principal LifeTime 2045 CIT Tier II
Principal LifeTime 2050 CIT Tier II
Principal LifeTime 2055 CIT Tier II
Principal LifeTime 2060 CIT Tier II
Principal LifeTime 2065 CIT Tier II
Principal LifeTime 2070 CIT Tier II
Vanguard Target Retirement Income Trust II
Vanguard Target Retirement 2020 Trust II
Vanguard Target Retirement 2025 Trust II
Vanguard Target Retirement 2030 Trust II
Vanguard Target Retirement 2035 Trust II
Vanguard Target Retirement 2040 Trust II
Vanguard Target Retirement 2045 Trust II
Vanguard Target Retirement 2050 Trust II
Vanguard Target Retirement 2055 Trust II
Vanguard Target Retirement 2060 Trust II
Vanguard Target Retirement 2065 Trust II
Vanguard Target Retirement 2070 Trust II
Vanguard Wellington Admiral Fund
Dodge & Cox Stock I Fund
Janus Henderson Forty N Fund
JP Morgan Large Cap Growth R6 Fund
T. Rowe Price Growth Stock Institutional Fund
Vanguard FTSE Social Index Admiral Fund
Vanguard Institutional Index Institutional Plus Fund
Vanguard PRIMECAP Admiral Fund
Vanguard Windsor II Adm Fund
Allspring Special Mid Cap Value R6 Fund
Buffalo Small Cap Growth Institutional Fund
Delaware Ivy Mid Cap Growth R6 Fund
Vanguard Explorer Admiral Fund
Vanguard Mid Cap Index Institutional Fund
Vanguard Real Estate Index Institutional Fund
Vanguard Small Cap Index Institutional Fund
Victory Integrity Small-Cap Value R6 Fund
American Funds New World R6 Fund
DFA International Sustainability Core 1 Fund
Dodge & Cox International Stock I Fund
Diversified International Separate Account
Vanguard Global Equity Investor Fund
Vanguard Total International Stock Index Institutional Fund
U.S. Property Sep Acct
Vanguard Energy Index Admiral Fund
Vanguard Utilities Index Admiral Fund

401k investment options (Mine) (John Hancock funds unless named otherwise) are:

American Funds 2065 TD
American Funds 2060 TD
American Funds 2055 TD
American Funds 2050 TD
American Funds 2045 TD
American Funds 2040 TD
American Funds 2035 TD
American Funds 2030 TD
American Funds 2025 TD
American Funds 2020 TD
American Funds 2015 TD
American Funds 2010 TD
AF The Growth Fund of America
Carillon Eagle Mid Cap Growth
DFA U.S. Small Cap Fund
Fidelity Mid Cap Index Fund
Invesco Small Cap Growth
Mid Cap Index Fund
Northern Small Cap Value Fund
Small Cap Index Fund
WisdomTree MidCap Dividend ETF
500 Index Fund
Capital World Growth & Income
American Funds New Perspective
DFA Intl Small Cap Value
Intl Equity Index Fund
Parnassus Core Equity Fund
Vanguard Value Index Fund
JPMorgan Core Bond Fund
Total Bond Market Fund
John Hancock Stable Val

[bonesly]

I also read that only Roth IRA and possibly HSA are relevant for wash sales, while 529 plans and 401(k) accounts do not affect wash sales.

IRS Revenue Ruling 2008-5 is the one that established all IRAs (not just Roth) are included in potential wash sales. The language in that ruling says:

Applying this reasoning to the facts of this ruling, even though an individual retirement account is a tax-exempt trust, [person] A has nevertheless acquired, for purposes of 4 § 1091(a), 100 shares of X Company stock on December 21, 2007, by virtue of the Purchase. ... The loss on the sale of stock is disallowed under § 1091.

The ruling only explicitly includes Trad and Roth IRAs, so many will interpret that to mean that other "tax-exempt trusts" are explicitly not an issue. The funny thing with that interpretation/assumption is that the IRS always considered this to be against the congressional laws for evasion of taxation, they just didn't give notice to clarify that until 2008. What's to prevent an individual auditor from interpreting this ruling as any tax-exempt trust (401k, 403b, HSA, 529, etc.), given that the IRAs are considered a "related entity" as is your spouse's trading activity in a Taxable or IRA account (i.e, if you sell at a loss and your spouse buys the same stock you just sold, the loss is disallowed)?

IRS rules are Byzantine to comprehend and the Fairmark Site says "This rule will continue to be difficult for the IRS to enforce. Purchases and sales occurring within an IRA are not reported on Form 1099-B and will not show up in your individual brokerage account statement. Yet the ugly consequence — permanent disallowance of the deduction — may serve as a deterrent even for people who might otherwise be inclined to play the audit lottery." Bogleheads tend to err on the side of caution, so many of us just steer clear of anything that even whiffs of problems. I would not hold "substantially identical funds" in Taxable and any tax-advantaged account. If you want to play the IRS Audit Lottery, have at it (you'll probably win unless you're a red-flag risk to begin with).

Also, I am looking for TLH ETF pairs to use in after-tax brokerage.

A reasonable TLH ETF pair for the Taxable account would be:
VTI -> Vanguard Large Cap ETF (VV, 0.04%)
VOO -> Vanguard Large Cap Growth ETF (VUG, 0.04%)
VXUS -> Vanguard FTSE Developed Markets ETF (VEA, 0.06%) (if you ever decide on non-zero int'l exposure)

Would also appreciate if you could clarify:

...since you're holding about equal amounts of VTI and VOO in Taxable, cleaning up those Wash Sale counterparts in tax-advantaged is more difficult.

If one of those two funds was considerably larger than the other, then I'd likely suggest unwinding the smaller position. However, many 401k plans do not have access to a Total Stock Market fund, only an S&P-500 fund, so that tilts towards eliminating VOO from the Taxable account, which is still painful tax-wise because it's $590K, so probably a big LTCG tax bill to unwind all at once (and it's definitely a wash sale concern with the Roth IRA holding FXAIX which tracks the same index). Perhaps unwind VOO in Taxable over a year or three, or just leave it if you're playing IRS Audit Lottery and think the 401k is exempt from the Wash Sale Rule.

Here's a look at what your current holdings and a a proposed layout that completely avoids any whiff of wash sales. VTI and VOO in Taxable remain since it would be costly to unwind VOO. VXF in Taxable has been exchanged into VTI just to simplify; this is optional but fewer holdings is simpler to comprehend and rebalance and VXF is likely not as tax-efficient as VTI/VOO. I've suggested you move your 401k out of S&P-500 and into either Van PRIMECAP[1] (an active fund that has beaten the market index and likely to continue outperforming as long as Theo Koltrones is manger) or Van TDF 2070 (a lower-cost passive fund, but it has both int'l stock and bonds which you seem to not want, thus the PRIMECAP being my first suggestion); this is optional if you're playing IRS Audit Lottery. I've suggested all the Roth IRA move into Fido ZERO Large Cap Index as it's similar to S&P-500 but not substantially identical (Fido proprietary index) and 0% ER can't be beat as long as there's no huge index tracking error. I've suggested the HSA be moved into Small Cap Value to make up for the places where I eliminated VXF (small & value were statistically significant factors in the Fama-French 3 Factor Model research).



[1] - I do not normally recommend active funds, but there are two active managers that are still at the helm of their fund's management that have consistently beaten the market index for 20+ years and still counting... Warren Buffet of Berkshire Hathaway and Theo Koltrones of Vanguard PRIMECAP. Peter Lynch of Fidelity Magellan and Bill Gross of PIMCO Total Return were also in that short list of genius investors that beat the market for decades, but Lynch and Gross have retired from fund management and those two funds no longer outperform.

Since you're holding S&P-500 in Taxable, you ideally would NOT hold that in any of the tax-advantaged accounts, yet that is the best fund available to hold in your 401k. So I'd pick PRIMECAP given that constraint of potential wash sales. You might be willing to say the risk of audit is low, the audit would not likely involve a demand of 401k statements, you simply are never ever selling VOO from Taxable so there's no chance for a wash sale anyway (it would go to your heirs?), etc. So you could just stick with Vanguard Institutional [500] Index in the 401k and assume it'll never be a wash sale problem.