Portfolio Review - 3 Years Later

[CodiStang21]

About three years ago you all did a portfolio review for me and it helped a lot…THANK YOU AGAIN! I am back again since some of my circumstances have changed around family building.

1. We are trying to have children via surrogacy. TBD how much it will cost, but it could range in the ~$150k each (UGH ), so not sure what to do with the cash other than keep it in something FDIC insured. The first $150k will likely be needed in the next 6 months. The second $150k will probably be needed in approx 18 months…if we’re lucky. Right now we are holding approx $350k in HYSA [4.5% APY] for surrogacy - is there a better very low risk option?
2. I believe I need to get approx 5.5% from US stocks to bonds, would I do this through Henry’s IRA to avoid any tax burden?
3. I never do tax loss harvesting. Am I missing out? If I should start, how would I go about it?
4. Overall, any recommendations on our portfolio?

Emergency Funds: Approx 6 months (split between portfolio ibonds and HYSA)
Debt: Approx ~166k mortgage (2.25%)
Tax Filing: Married Filing Jointly
Tax Rate: 24% Federal, 6.4% State
Residence: NJ
Age: 37 & 37
Desired Assist Allocation: 85% (25% international) stock / 15% bond
Total Portfolio: $1mil

Current Retirement Assets

Taxable in Vanguard
12.13% VTIAX VG Total International Tock (.12)
43.53% VTSAX VG Total US (.04)
2.63% Various Stock (Apple, Microsoft, Berkshire, NVIDIA, Verizon
[58.29% of total]

Codi Roth 401k
31.81% VG Retirement 2055 (VFFVX) (.15)
Company match:4%

Codi Roth IRA
1.40% VBTLX VG Total Bond (.05)

Henry 401k
N/A - Independent Contractor

Henry Rollover Traditional IRA
1.19% VTIAX VG Total International Stock (.12)
2.87% VBTLX VG Total Bond (.05)
2.13% VTSAX VG Total Stock (.04)
.34% VGSLX VG REIT (.13)
[6.53% of total]

Treasury Direct
1.97% ibond with 5.27% interest

I had a hard time calculating the target date fund allocation precisely, but I believe my current overall allocation is:
65.64% US Stock
24.78% International Stock
9.58% Bond

Yearly Contributions
$23k to Codi 401k
$24k ($2k per month - 70% Total Stock & 30% Total International) to Taxable Account
Depending on salary bonus - $7k to each IRA…I’ll have to reduce regular taxable to fund IRA if I don’t get a bonus

Available funds

Funds available in Codi’s 401(k)
Most Vanguard funds (i.e. Total Stock Market, Total Bond, Total International, Large Cap, Small Cap, etc.)


THANK YOU IN ADVANCE TO ANY ADVICE!

[Carl53]

For such a significant near term expense, your HYSA seems to be a wise choice.

Wish you success on building your family. Not to be a downer as I'm not sure how a situation such as with my now 2 year old granddaughter would play out for you if it happened, but she was born at 26 weeks and spent about 15 weeks in a NICU. Doing well now but the hospital costs would have been astronomical if not for the insurance which had just been greatly enhanced a few months before she was born to cover such situations. Mom was in hospital for maybe two weeks too with complications.

[CodiStang21]

she was born at 26 weeks and spent about 15 weeks in a NICU. Doing well now but the hospital costs would have been astronomical if not for the insurance which had just been greatly enhanced a few months before she was born to cover such situations. Mom was in hospital for maybe two weeks too with complications.

Thank you. Sad to hear that, but glad it sounds everyone is ok now.

[Sandtrap]

<snip>
1. <snip> Right now we are holding approx $350k in HYSA [4.5% APY] for surrogacy - is there a better very low risk option?
2. I believe I need to get approx 5.5% from US stocks to bonds, would I do this through Henry’s IRA to avoid any tax burden?
3. I never do tax loss harvesting. Am I missing out? If I should start, how would I go about it?
4. Overall, any recommendations on our portfolio?
<snip>

to op:
Congratulations on building a financial future for your family. From the data, it seems you are doing well and on a good path.
1
(account or position must have)
a) Security of Principal (ie: CD/CD Ladders, Treasury/Treasury Ladders (no funds), HYSA, MM, etc.
b) Accessibility (ie: no penalties if you need the funds right away, no delays, not locked in)
c) Liquidity (ie: no limitations to convert to cash or cash like)

2.

I need to get approx 5.5% from US stocks to bonds

Please clarify:
You need to access that now?
You need to withdraw 5.5 percent annually?
??

3
Forum wiki: "Tax Loss Harvesting".
https://www.bogleheads.org/wiki/Tax_loss_harvesting

4
Simplify.
a) eliminate/avoid/minimize overlap, and redundancy (funds doing the same thing).
b) eliminate/avoid/minimize funds/stocks less than 5 percent of total.
TAYLOR LARIMORE ON “SIMPLICTY”
https://www.bogleheads.org/forum/viewt ... p?t=156505
Also:
Tax Efficient Fund Placement
https://www.bogleheads.org/wiki/Tax-ef ... _placement

Asset allocation in multiple accounts
https://www.bogleheads.org/wiki/Asset ... accounts

5
Reminder: especially with family concerns: seek legal counsel for estate planning (wills, trusts, etc, professional advice).

stay the course
ignore the noise
j

[CodiStang21]

Thanks for the help here Jim! I appreciate the advice and words of encouragement. I'll review points 3 & 4.

1
(account or position must have)
a) Security of Principal (ie: CD/CD Ladders, Treasury/Treasury Ladders (no funds), HYSA, MM, etc.
b) Accessibility (ie: no penalties if you need the funds right away, no delays, not locked in)
c) Liquidity (ie: no limitations to convert to cash or cash like)

Is there any general recommendations or is it just based on personal preference?

2.
Please clarify:
You need to access that now?
You need to withdraw 5.5 percent annually?
??

Sorry, I meant I needed to transition 5.5% of my stocks to bonds to get my correct allocation. I was looking to see if there was any type of recommendation on how to do this.

4
Simplify.
a) eliminate/avoid/minimize overlap, and redundancy (funds doing the same thing).

With the way I placed funds for best tax efficiency, in your opinion, do I still have room to adjust (aside from eliminating stocks/funds under 5%)?

[HomeStretch]

1. … Right now we are holding approx $350k in HYSA [4.5% APY] for surrogacy - is there a better very low risk option? …

The yield and liquidity of the HYSA is reasonable and appropriate imo. Is the account titled jointly so you have FDIC insurance for the full balance?

2. … I believe I need to get approx 5.5% from US stocks to bonds, would I do this through Henry’s IRA to avoid any tax burden? …

… Henry Rollover Traditional 401k IRA
1.19% VTIAX VG Total International Stock (.12)
2.87% VBTLX VG Total Bond (.05)
2.13% VTSAX VG Total Stock (.04)
.34% VGSLX VG REIT (.13) …

Henry’s rollover account is an IRA not a 401k so I revised your account description, above.

You can sell equity and buy bonds without tax consequences in a tax deferred account so Henry’s TIRA is a good choice (and your only choice for tax deferred) to rebalance to your desired asset allocation. But there is only 4% in equity held in the TIRA so you can’t fully rebalance 5.5% in the IRA. Maybe 4% is good enough? Or maybe you should be contributing to Traditional 401k rather than Roth 401k (see my last comment, below)?

… 3. I never do tax loss harvesting. Am I missing out? If I should start, how would I go about it? …

This was discussed a bit in your 2021 thread. The market in general is higher since then so you may not have as much opportunity to tax loss harvest (TLH) right now. But check the tax lots in your Taxable account to see if there are any where cost > market value as those will be your TLH candidates. This BH wiki page may be helpful:
https://www.bogleheads.org/wiki/Tax_loss_harvesting

Edit - other feedback:
1. You plan to contribute $24k to Taxable and fund IRAs if you receive a bonus. Prioritize contributing for retirement to the Roth IRA over Taxable as the Roth account will grow tax free.

2. As an independent contractor, Henry may be able to contribute to a self-employed retirement plan such as a Solo 401k. This would make more tax advantaged space available to you for the $24k you are currently earmarking for Taxable contributions.

3. Assuming your AGI is too high to directly contribute to Roth IRAs - If Henry sponsors a Solo 401k, consider rolling over Henry’s TIRA into the Solo 401k. This will allow Henry to make backdoor Roth (BDR) contributions without being subject to the pro rata rule. Cody can make a BDR without pro-rated taxes as Cody does not have any pretax IRA balances. BH wiki page about BDR:
https://www.bogleheads.org/wiki/Backdoor_Roth

4. It would be good to start the 5-year clock on initial Roth IRAs for Henry. This can be done with a BDR or even a small conversion like $100 (which is taxable) from Henry’s TIRA. Read the section in the BDR wiki page linked above about Form 8606.

5. Your marginal tax rate is 24% + state taxes. You are both contributing to Roth 401k. Have you evaluated whether Roth 401k or Traditional 401k (or a mix) is more appropriate? This BH wiki page may be helpful:
https://www.bogleheads.org/wiki/Traditional_versus_Roth

[CodiStang21]

The yield and liquidity of the HYSA is reasonable and appropriate imo. Is the account titled jointly so you have FDIC insurance for the full balance?

Yep!

You can sell equity and buy bonds without tax consequences in a tax deferred account so Henry’s TIRA is a good choice

Good thought - thank you

3. Assuming your AGI is too high to directly contribute to Roth IRAs - If Henry sponsors a Solo 401k, consider rolling over Henry’s TIRA into the Solo 401k.

AGi is too high like you mentioned. I've been scared to do anything with solo 401k since I don't understand it. I will review the article you shared. Thank you.

4. It would be good to start the 5-year clock on initial Roth IRAs for Henry. This can be done with a BDR or even a small conversion like $100 (which is taxable) from Henry’s TIRA. Read the section in the BDR wiki page linked above about Form 8606.

5. Your marginal tax rate is 24% + state taxes. You are both contributing to Roth 401k. Have you evaluated whether Roth 401k or Traditional 401k (or a mix) is more appropriate? This BH wiki page may be helpful:
https://www.bogleheads.org/wiki/Traditional_versus_Roth

I was keeping Henry with a IRA and me with a Roth 401k and IRA to try try both sides. IDK what the future holds, so I figured I’d try both tax strategies. Dumb plan?