Personal Investments • Help me right the ship

CroneOfAnarchy, welcome to the forum.

Tax Rate: I honestly don't know (don't kill me); we make about $150k a year (wife $100, husband $50) and take standard deduction (no mortgage)
State of Residence: California, plan to move to Michigan when retired and buy a house for ~250k.

If you can use Excel, putting your income into the personal finance toolbox spreadsheet will let you see your marginal tax rates in chart form. Otherwise take whatever tax software you do use and add or subtract $100 of income, then calculate your marginal tax rate as (change in tax)/$100. At a quick glance, that might be 31.3%.

Portfolio: $750k
Her Traditional IRA at Vanguard
37.14% Vanguard 500 Index - A (VFIAX) (0.04)
37.22% Vanguard Total Stock Market Index Admiral Cl (VTSAX) (0.04)
...
We'd like to retire in 3 or 4 years with very small pensions (his $350/month, hers $700/month).

So ~$560K in traditional accounts now and $12K/yr pensions expected in 4 years. Using the Simple method and assuming a 5%/yr real growth (could be lower or higher) and a 4%/yr withdrawal rate, that gives you an AGI of ~$40K. The federal 22% bracket doesn't start until $123.5K, so depending on work income you could withdraw a lot more from the traditional account and still pay only ~16% (fed. + state).

Contributions

New annual Contributions
$0 his Nationwide 457b - no any employer matching contributions
$32.5k her post-tax Nationwide 457b - no employer matching contributions
$8k his Vanguard Roth IRA
$8k her Vanguard Roth IRA
$8,750 Optum HSA (mostly his)

Given the tax arbitrage noted above, consider using traditional contributions now, at least until that would drop you into the federal 12% bracket.

Available funds
Funds available in his and her Nationwide 457b (same employer)
Vanguard(R) Institutional Index Fund - Institutional Plus Shares (VIIIX) (0.02)
Vanguard(R) Small-Cap Index Fund - Institutional Shares (VSCIX) (0.04)

Funds available in his and her Optum HSA (same employer)
Vanguard Total Stock Market Inst (VITSX) (0.03)

Funds available in her old Bank of America HSA
ISHARES S&P 500 INDEX CL K (WFSPX) (0.03)
VAN TOTAL WORLD STOCK IDX ADM (VTWAX) (0.1)

Consolidating into any of these would be reasonable.

Questions:
1. I'm not sure how much of my stocks allocation should be international?

Neither is anyone else, although that won't stop recommendations.

2. Please suggest a much simpler portfolio, this is ridiculous!

No tax cost in all your tax-advantaged account, so just sell all the ones you no longer want and put all that money into one of the above suggestions. Put whatever bond component you want in the Vanguard tIRA (see Three-fund portfolio for suggestions) and the rest split however you want between US and Int'l stocks.

3. I've been trying to bulk up my post-tax investments because I expect to take a chunk ($150k?) out at some point to pay off the house, and I don't want to get hit with a big tax bill. Is that something I really need to worry about, or should I take the tax break now and pay the taxes when I pull the chunk out in the future?

If you can stay in the 12% federal + 4% Michigan brackets, that would be worth spreading the mortgage payment over a few years instead of incurring 31% now (by avoiding traditional contributions) or 26% later (by withdrawing more from traditional to pay all at once).

4. General suggestions (other than work for more years, haha)?

See Prioritizing investments and Tax-efficient fund placement for some context. And good luck!

Statistics: Posted by FiveK — Mon Jan 08, 2024 3:41 am — Replies 1 — Views 343

---