Q1. The inherited Taxable account is $700k, you want $100k in cash for home renovations. If you invest the remainder in equities, the account’s stand-alone asset allocation (AA) would be 86/14. Your joint portfolio’s AA is 70/30. Either AA is reasonable. You can leave the account outright to your children with a TOD beneficiary designation.
Q2. The inherited IRA balance of $6,600 is small and you plan to drain it fairly quickly. It really doesn’t matter too much what you invest it in. One option is to just leave it in a money market fund yielding ~5%.
Q3. Spouse’s 401k has a lot of funds, some with high ERs. It could be simplified to use fewer low-ER funds.
Q4. While your own SS benefit is $12k, you are likely entitled to 1/2 your spouse’s FRA benefit of $37k if you wait to claim until your FRA. As a widow, you would be entitled to 100%.
Q5. Just keep investing any excess savings in your Taxable account after you max out Roth space, if any (see below). VTSAX is a good tax-efficient choice. You can rebalance in your tax deferred accounts as necessary to maintain your overall asset allocation.
Other comments:
1. If your spouse’s 401k accepts rollovers in, he could roll in his Rollover IRA balance into the 401k before 12/31/24. This allows him to do a backdoor Roth each year. The Roth account grows tax free. He has until 4/15/24 to make a 2023 non-deductible TIRA contribution of $7,500 with age 50+ catch-up. Added benefits - one less account to manage, 401k funds would be available under the ‘Rule of 55’ without penalty between 55 and 59-1/2 if he separated from employer’s service.
https://www.bogleheads.org/wiki/Backdoor_Roth
https://www.schwab.com/learn/story/reti ... ut-rule-55
2. Does His 401k offer a megaback door Roth? If yes, prioritize maximizing the additional Roth space over Taxable contributions annually. Roth accounts grow tax free whereas Taxable accounts do not. Assuming eligible compensation, the 2024 IRS total 401k limit for employEE/ER contributions is $69,000 + $7,500 for age 50+ catch-up.
https://www.bogleheads.org/wiki/Mega-backdoor_Roth
3. For simplicity, sell the $12.5k in I-Bonds if you don’t plan to invest more into I-Bonds as an inflation hedge. The current balance is too small to be meaningful and it’s two more accounts at TD to manage. Buy VTSAX in the Taxable account with the proceeds.
4. Consider selling VBIAX in the Taxable account and buying VTSAX.
5. Her Rollover IRA has 3 funds, one has a higher ER. Consider holding just VTTHX for simplicity.
6. What age do you plan to retire? Your 50s is a good time to assess retirement readiness.
A commonly-suggested minimum retirement ‘number’ is 25x your retirement net spending gap at age 65 to sustain 30 years’ spend with a 4% portfolio distribution to fund the gap. If your retirement spend will remain at $110k in today’s dollars (say $125k with income taxes), your spending gap is $125k minus annual retirement income (non-COLA pension and COLA SS benefits with varying start dates). Your full retirement income will likely fully fund $125k in retirement spend as a couple until inflation increases.
Your current portfolio is $1.2 million joint and $600k in her separate property after home renovations. Your annual contributions of $41k + whatever extra you save in Roth/Taxable will increase your portfolio. If you project you need to save more to reach your retirement “number” by your desired retirement age, track your expenses to see if there is some way to reduce them and, in turn, increase your retirement contributions.
Q2. The inherited IRA balance of $6,600 is small and you plan to drain it fairly quickly. It really doesn’t matter too much what you invest it in. One option is to just leave it in a money market fund yielding ~5%.
Q3. Spouse’s 401k has a lot of funds, some with high ERs. It could be simplified to use fewer low-ER funds.
Q4. While your own SS benefit is $12k, you are likely entitled to 1/2 your spouse’s FRA benefit of $37k if you wait to claim until your FRA. As a widow, you would be entitled to 100%.
Q5. Just keep investing any excess savings in your Taxable account after you max out Roth space, if any (see below). VTSAX is a good tax-efficient choice. You can rebalance in your tax deferred accounts as necessary to maintain your overall asset allocation.
Other comments:
1. If your spouse’s 401k accepts rollovers in, he could roll in his Rollover IRA balance into the 401k before 12/31/24. This allows him to do a backdoor Roth each year. The Roth account grows tax free. He has until 4/15/24 to make a 2023 non-deductible TIRA contribution of $7,500 with age 50+ catch-up. Added benefits - one less account to manage, 401k funds would be available under the ‘Rule of 55’ without penalty between 55 and 59-1/2 if he separated from employer’s service.
https://www.bogleheads.org/wiki/Backdoor_Roth
https://www.schwab.com/learn/story/reti ... ut-rule-55
2. Does His 401k offer a megaback door Roth? If yes, prioritize maximizing the additional Roth space over Taxable contributions annually. Roth accounts grow tax free whereas Taxable accounts do not. Assuming eligible compensation, the 2024 IRS total 401k limit for employEE/ER contributions is $69,000 + $7,500 for age 50+ catch-up.
https://www.bogleheads.org/wiki/Mega-backdoor_Roth
3. For simplicity, sell the $12.5k in I-Bonds if you don’t plan to invest more into I-Bonds as an inflation hedge. The current balance is too small to be meaningful and it’s two more accounts at TD to manage. Buy VTSAX in the Taxable account with the proceeds.
4. Consider selling VBIAX in the Taxable account and buying VTSAX.
5. Her Rollover IRA has 3 funds, one has a higher ER. Consider holding just VTTHX for simplicity.
6. What age do you plan to retire? Your 50s is a good time to assess retirement readiness.
A commonly-suggested minimum retirement ‘number’ is 25x your retirement net spending gap at age 65 to sustain 30 years’ spend with a 4% portfolio distribution to fund the gap. If your retirement spend will remain at $110k in today’s dollars (say $125k with income taxes), your spending gap is $125k minus annual retirement income (non-COLA pension and COLA SS benefits with varying start dates). Your full retirement income will likely fully fund $125k in retirement spend as a couple until inflation increases.
Your current portfolio is $1.2 million joint and $600k in her separate property after home renovations. Your annual contributions of $41k + whatever extra you save in Roth/Taxable will increase your portfolio. If you project you need to save more to reach your retirement “number” by your desired retirement age, track your expenses to see if there is some way to reduce them and, in turn, increase your retirement contributions.
Statistics: Posted by HomeStretch — Tue Jan 02, 2024 5:02 am