There's nothing egregious...• Looking at the above portfolio/plan – are there any big gaps I need to fill? Is there something else I should really be doing to save for retirement/invest? Based on the Prioritizing Investments page I feel like I have done a good job with our current income.
- Keep It Simple! You should try to meet your joint AA across all accounts with the minimum number of funds; a 3-Fund approach helps with this, or a core TDF holding plus a bond fund in Trad, along with a US & Int'l stock in Taxable and Roth accounts, will keep the number of holdings down, so that rebalancing is straight-forward.
- Be Mindful of Tax-Efficient Placement - Ideally all your bonds/cash are held in Trad accounts and then your Taxable and Roth accounts are 100% stocks. This becomes more and more important as your marginal tax bracket gets higher and higher. If you're likely to enter the 32% Fed bracket, you really should consider keeping Taxable and Roth at 100% stocks (no bonds and minimal cash in those account types; hold bonds/cash in Trad accounts).
- Be Mindful of Wash Sales - If you use and S&P-500 index in any tax-advantaged accounts (401k, IRA, HSA, 529), then you probably want to steer clear of holding an S&P-500 index in Taxable as that can lead to wash sales. Same concern with identical ticker symbols (e.g., VTSAX or VTI in Taxable plus VTSAX or VTI in tax-advantaged is also a wash sale concern).
Use the asset allocation assessment and rebalance sheet I provided earlier if that helps you, or your own sheet if that's more comfortable for you to use, but plan out what you have and where you want to get to regarding your holdings meeting your desired AA.
Contributing to a Roth 401k or a Roth IRA is the same tax-cost and tax-free earnings benefit, if your the "wife's 401k" is a Roth. If you're talking about her maxing out a Trad 401k, that could help prevent you from bumping into the 32% Fed tax bracket now. Given that you're already contributing to a Roth 401k (and likely $7K to a your Roth IRA via backdoor?), you're going to have plenty of Roth dollars by the time you retire. I'm guessing $7K/yr of contributions to Trad for the tax-break now vs $7K/yr of contributions to a Roth could be a wash, but I feel the tax break now to avoid 32% Fed bracket is probably the right choice. Running calculators for the Trad vs Roth choice seems overly complicated and has a lot of uncertainty due to guesswork about how your tax bracket will change in retirement, so rather than falling into analysis-paralysis, just decide if avoiding the 32% tax bracket is a priority and if it is, have her contribute to a Trad 401k up to her pain threshold (something less than 20% of her salary).• Ideally, I should probably be maxing out my wife’s 401K, but in order to meet the $23.5K individual limit, we’d have to put away about 20% of her paycheck. That is pretty steep, and I am not sure I want to do that right now. I’d like to max out a backdoor Roth IRA for the both of us and then increase her 401K contributions as able. Is this reasonable? The Prioritizing Investments page is a little confusing to me on this topic.
Speaking of analysis-paralysis, if you've decided to go with the TDF as a core, just stick with that! If the TDF 2060 turns out to be too volatile for both of you to stomach, then drop down to 2055 or 2050, but stick with a TDF (and the same TDF everywhere to keep it simple, despite the tax consequence of holding a TDF in Taxable and the less-than-maximum growth in a Roth IRA/401k).• I think at this point I am going to just proceed with doing Target Date Funds (2060) for both of our 401Ks – this will keep it simple, stupid. That said, if I decide to go with a 3 fund portfolio approach I was thinking this would be a good way to go:
His 401K: 70% VI500IT - Vanguard Inst 500 Index Trust or VITSMIT1 - Vanguard Instl Total Stock Mkt Index Trust, 20% VITISMIT1 - Vanguard Inst Total Intl Stock Mkt Index Trust, 10% VTIFX - Vanguard Total Intl Bd Idx Institutional
Her 401K: 70% FXAIX - Fidelity 500 Index Fund, 20% FSPSX - Fidelity International Index Fund, 10% FXNAX - Fidelity U.S. Bond Index Fund
I take it she has the same employer as you, if you both get pre-tax employer contributions despite you directing your contributions as post-tax? The part I highlighted in blue is a correct sentiment, in my opinion. I think rather than trying to quantify the future outcome, you should probably focus on the looming tax burden of entering the 32% Fed bracket and if switching her contributions (or a portion of yours if your salary is much larger than her) from Roth to Trad will help you avoid pushing into that bracket too much. You'll still have both Trad and Roth dollars at retirement, but if your tax-bracket drops even one notch in retirement, then having paid 32% to contribute to Roth while working is likely the wrong choice. If 32% tax burden is a non-issue to you, then just stick with what you're doing (100% Roth 401k and Roth IRA, since employer puts "something" into Trad, so you have dollars in both tax-advantaged account types).• Traditional vs. Roth 401K – my wife and I both do Roth contributions to our 401K, but my understanding is our employer contributions are pre-tax. I’ve looked at the Roth vs Traditional page, but I couldn’t make heads or tails of whether or not I should be doing Roth or Traditional contributions. I figure it doesn’t hurt to have money in both buckets when I retire, so I have stuck with Roth contributions for the both of us. Trying to make guesstimates about marginal tax rates, etc has completely befuddled me. I have spent a significant amount of time on this subject, and quite frankly have just walked away more confused. This is an area where getting professional help would probably be worth it for me.
If you pick "Most Aggressive" that 100% stock in the Roth, which is adherence with tax-efficient placement, but is going to tilt your overall AA above your stock target... to get back on target you'd need to add some bonds to the TDF in the Trad 401k (assuming you can choose different funds in your Trad an Roth 401k accounts and that they don't have to be mirrored because of the plan admin's policies).• How do the proposed portfolios above for the Backdoor Roth IRA and Brokerage account look? I’ll list them below so you don’t need to scroll up:
Most Aggressive:
80% Vanguard Total Stock Market Index Fund (VTSAX) (0.04%)
20% Vanguard Total International Stock Index Fund (VTIAX) (0.12%)
Aggressive:
70% Vanguard Total Stock Market Index Fund (VTSAX) (0.04%)
20% Vanguard Total International Stock Index Fund (VTIAX) (0.12%)
10% Vanguard Total Bond Market Fund (VBTLX) (0.05%)
If you pick the "Aggressive" choice, you're putting bonds in a Roth IRA, which is sub-optimal, but if you accept that slight nuisance then you might as well put Vanguard Target Retirement 2060 in the Roth IRA to be consistent with your 401ks. Using a TDF in the Roth IRA means you're on target and it's auto-rebalancing (no need to add bonds to the Trad 401k to stay on target). It's possible that the AA for American Funds 2060 does not exactly match Vanguard 2060 and if that difference matters to you, then pick a different date for the Roth IRA (e.g., Van 2065 or Van 2055... whichever most closely matches American 2060).
While I initially stated there's nothing egregious with your portfolio plan, I did want to point out that the typical recommendation for an EF is 6-18 months, so 4 months seems a little too low. If you are both employed by the same company, you should probably add to your EF to get it closer to 18 months than 6 months (if the contract falters and you're both unemployed, 4 months may not be enough to cover expenses while until you secure both new employment). If you think it can't happen to you, I urge you to reconsider. I worked for a Navy research lab for 37 years and retired from Fed service to consult for my old group. That support contractor had been working with my lab for 20+ years and 5 years into my consulting effort they lost their renewal bid out of the blue (none of the management at the lab or with my contract company expected it and they even put in a protest that GSA denied).Emergency Funds: ~4 months ($20K)
The point is your EF should be sized for how long you think it would take to find other work if you're unexpectedly laid off. Typically the higher the income, the longer it takes to find a replacement job. The sizing should be increased if there's a higher risk that a 2-income family could lose both income streams simultaneously (i.e., both partners work at the same company).
Statistics: Posted by bonesly — Tue Jan 14, 2025 4:21 pm