Let me take a stab at this.
1) Firstly, I intensely dislike bonds in Roth accounts. The deal with the Roth is that, in exchange for upfront taxes, all the growth is free. You want to maximize that growth. Why do you want to suppress that growth by adding low yield products such as bonds in them?
Since there is no cost to exchanging funds within the tax advantaged accounts, I suggest that
1a) You sell everything within the Roth IRA and invest that into FSKAX and FTIHX
1b) You sell everything within the Roth 401(k) and invest that into VIIIX and VTMNX.
Between 1a) and 1b) make sure you meet your desired allocation to international equities.
IF you are with me so far, we have just turned almost everything you have into equities, and nothing in bond funds. Read on how to rectify that ...
1c) Consider converting your Traditional IRA and spouse's SIMPLE IRA to Roth. Being that you are in IL, which has a quirky law that does NOT tax retirement income -- and Roth conversions are considered retirement income -- it is as if you are in a no-income-tax state as far as Roth conversions go. Only Federal taxes due ... This is only 3% or so, so less than $30k on a $1M portfolio. I'd expect the taxes to be around $7k (22% of $30k).
If you cannot take the tax hit of converting the Traditional IRA + SIMPLE IRA to Roth, then you can postpone this conversion to future years, but then move at least both funds to fixed income. I recommend VUSXX (currently yielding 5%+ compared to VBTLX that has only 4.53% yield), and SNVXX at Schwab for your spouse. This will make a dent in the desired fixed income portion of 40%.
2) Turn your future contributions to only Traditional 401(k), you have 1 million already in Roth assets but almost nothing in Traditional. Now is the time for starting up Traditional bucket until your retirement.
2a) Do you have any Stable Value Fund or Money Market Fund in your 401(k)? I really hate to recommend VBTIX for all your future contributions to 401(k), I really dislike that fund -- you get neither safety nor growth with that fund, why bother investing? But if there is no SVF or MMF available, VBTIX is the next best option ...
3) What is the remaining balance on your mortgage? I would consider paying down the mortgage as investing in a bond fund, but with far superior rate of raturn (6.375% as opposed to 4.53% that you get with VBTIX). Why do you want to borrow at 6.375% but lend back at 4.53%, which is what in effect you are doing by carrying the mortgage but investing in VBTIX in your 401(k)? BUT at the same time, I don't want you to lose out on the match for 401(k), so continue contributing as much as you can, get the maximum match but no more, and set all future contributions to VBTIX only. See 2a) again, I cannot stress enough to NOT invest in VBTIX if at all possible.
4) Turn on the Specific ID cost basis on all your shares in taxable account at Vanguard. When you do that, you will be able to identify lots that are in red (unrealized losses) across everything that you own. Sell all those losers, and have the proceeds be sent to your settlement fund. Then move those settlement funds to paydown your mortgage; see (3).
5) Regarding your Spouse's SIMPLE IRA / Solo 401(k): Contribute on a Traditional basis only, and for now invest in money market funds. There is almost a 80 basis point spread between the yield of MM funds and Total bond fund, so you are unlikely to go wrong if you stick to money market funds for now.
6) Turn off the dividend reinvestment on ALL your taxable investments. See 3) again ...
I'd like to recommend more steps, but the picture will be far simpler and more clear if you have taken the steps 1 through 6 ...
1) Firstly, I intensely dislike bonds in Roth accounts. The deal with the Roth is that, in exchange for upfront taxes, all the growth is free. You want to maximize that growth. Why do you want to suppress that growth by adding low yield products such as bonds in them?
Since there is no cost to exchanging funds within the tax advantaged accounts, I suggest that
1a) You sell everything within the Roth IRA and invest that into FSKAX and FTIHX
1b) You sell everything within the Roth 401(k) and invest that into VIIIX and VTMNX.
Between 1a) and 1b) make sure you meet your desired allocation to international equities.
IF you are with me so far, we have just turned almost everything you have into equities, and nothing in bond funds. Read on how to rectify that ...
1c) Consider converting your Traditional IRA and spouse's SIMPLE IRA to Roth. Being that you are in IL, which has a quirky law that does NOT tax retirement income -- and Roth conversions are considered retirement income -- it is as if you are in a no-income-tax state as far as Roth conversions go. Only Federal taxes due ... This is only 3% or so, so less than $30k on a $1M portfolio. I'd expect the taxes to be around $7k (22% of $30k).
If you cannot take the tax hit of converting the Traditional IRA + SIMPLE IRA to Roth, then you can postpone this conversion to future years, but then move at least both funds to fixed income. I recommend VUSXX (currently yielding 5%+ compared to VBTLX that has only 4.53% yield), and SNVXX at Schwab for your spouse. This will make a dent in the desired fixed income portion of 40%.
2) Turn your future contributions to only Traditional 401(k), you have 1 million already in Roth assets but almost nothing in Traditional. Now is the time for starting up Traditional bucket until your retirement.
2a) Do you have any Stable Value Fund or Money Market Fund in your 401(k)? I really hate to recommend VBTIX for all your future contributions to 401(k), I really dislike that fund -- you get neither safety nor growth with that fund, why bother investing? But if there is no SVF or MMF available, VBTIX is the next best option ...
3) What is the remaining balance on your mortgage? I would consider paying down the mortgage as investing in a bond fund, but with far superior rate of raturn (6.375% as opposed to 4.53% that you get with VBTIX). Why do you want to borrow at 6.375% but lend back at 4.53%, which is what in effect you are doing by carrying the mortgage but investing in VBTIX in your 401(k)? BUT at the same time, I don't want you to lose out on the match for 401(k), so continue contributing as much as you can, get the maximum match but no more, and set all future contributions to VBTIX only. See 2a) again, I cannot stress enough to NOT invest in VBTIX if at all possible.
4) Turn on the Specific ID cost basis on all your shares in taxable account at Vanguard. When you do that, you will be able to identify lots that are in red (unrealized losses) across everything that you own. Sell all those losers, and have the proceeds be sent to your settlement fund. Then move those settlement funds to paydown your mortgage; see (3).
5) Regarding your Spouse's SIMPLE IRA / Solo 401(k): Contribute on a Traditional basis only, and for now invest in money market funds. There is almost a 80 basis point spread between the yield of MM funds and Total bond fund, so you are unlikely to go wrong if you stick to money market funds for now.
6) Turn off the dividend reinvestment on ALL your taxable investments. See 3) again ...
I'd like to recommend more steps, but the picture will be far simpler and more clear if you have taken the steps 1 through 6 ...
Statistics: Posted by lakpr — Tue Mar 05, 2024 5:54 pm — Replies 1 — Views 92