Author Topic: Finally getting EJ's hands out of our pockets, now what?  (Read 1703 times)

FireAnt

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Finally getting EJ's hands out of our pockets, now what?
« on: November 15, 2018, 08:00:52 PM »
Hello all, looking for some advice on one of our investment accounts. If you've seen me post on here elsewhere, you might remember that we (DH + me) recently moved from EJ to Vanguard after a helpful Mustachian found a tax issue with my Roth. Of the bad advice we received from EJ, one was to move $10k that had been part of our emergency fund to an EJ mutual fund. It had been there 3+ years and has only made a bit over $100, after dipping below our initial investment for a long time. Naturally, we feel a bit bamboozled since it's obvious the EJ adviser just had us move the funds so that he had more to manage. We would have kept that as our emergency fund, moving it to an online bank account and just invested much more going forward, knowing what we know now. But this is why we left EJ, right?

To the point, we're trying to determine what to do with this $10k. We have an HSA we're contributing to, individual 401ks, a traditional and Roth IRA for myself, and soon a backdoor Roth for DH when we correct the issue with my Roth. We have an ample emergency fund with enough to live off of for 6 months if we were both to lose our jobs. The $10k was in a (poorly performing) joint mutual fund - The Hartford Balanced Income Fund Class C. We're thinking of moving it to the Vanguard Life Strategy Growth Fund. Curious if anyone has any other suggestions as to how they'd handle it. This is post-tax income, so mostly wondering if there's another way we should look at it. Edited to add clarification: Is putting it into a new fund the best option or should we do something more with it? Cash it out? etc. We have not maxed out our tax-advantage accounts.


UPDATE 12/11/18 I'm reviving this thread for another idea-- might be stupid, but would love everyone's input.

Since we're in process of using the ineligible Roth money to put towards a backdoor Roth under my husband's name... what if we also cashed out the joint mutual fund and added it as more funds towards his backdoor Roth? Good or stupid idea? Pro's and cons? I can't get a real clear understanding if there are limits to how much you can put towards a backdoor Roth IRA per year (possibly $5,500?). If we needed to do it in chunks, we would take the remaining amount and transfer it to a more conservative Vanguard Life Strategy fund until we were able to transfer it to his IRA.

Thanks for helping a rookie!
« Last Edit: December 11, 2018, 07:18:57 PM by italianant »

MDM

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Re: Finally getting EJ's hands out of our pockets, now what?
« Reply #1 on: November 15, 2018, 08:53:06 PM »
We're thinking of moving it to the Vanguard Life Strategy Growth Fund. Curious if anyone has any other suggestions as to how they'd handle it. This is post-tax income, so mostly wondering if there's another way we should look at it.
That is a fine fund, and could fit very well in your overall asset allocation.

If you want to use a very sharp pencil, consider Tax-efficient fund placement - Bogleheads.  But if that seems overly complex, sleep well with the LS Growth fund.

FireAnt

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Re: Finally getting EJ's hands out of our pockets, now what?
« Reply #2 on: November 16, 2018, 06:59:28 AM »
We're thinking of moving it to the Vanguard Life Strategy Growth Fund. Curious if anyone has any other suggestions as to how they'd handle it. This is post-tax income, so mostly wondering if there's another way we should look at it.
That is a fine fund, and could fit very well in your overall asset allocation.

If you want to use a very sharp pencil, consider Tax-efficient fund placement - Bogleheads.  But if that seems overly complex, sleep well with the LS Growth fund.

So you definitely advocate for transferring this money to another fund vs. cashing it out?

MDM

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Re: Finally getting EJ's hands out of our pockets, now what?
« Reply #3 on: November 16, 2018, 11:05:17 AM »
So you definitely advocate for transferring this money to another fund vs. cashing it out?
Whether to keep your money invested or cash it out to spend on something is really your call, and depends on your long term vs. short term income needs.

FireAnt

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Re: Finally getting EJ's hands out of our pockets, now what?
« Reply #4 on: December 11, 2018, 08:44:50 AM »
I'm reviving this thread for another idea-- might be stupid, but would love everyone's input.

Since we're in process of using the ineligible Roth money to put towards a backdoor Roth under my husband's name... what if we also cashed out the joint mutual fund and added it as more funds towards his backdoor Roth? Good or stupid idea? Pro's and cons? I can't get a real clear understanding if there are limits to how much you can put towards a backdoor Roth IRA per year (possibly $5,500?). If we needed to do it in chunks, we would take the remaining amount and transfer it to a more conservative Vanguard Life Strategy fund until we were able to transfer it to his IRA.

Thanks for helping a rookie!
« Last Edit: December 11, 2018, 08:46:39 AM by italianant »

MDM

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Re: Finally getting EJ's hands out of our pockets, now what?
« Reply #5 on: December 11, 2018, 09:12:04 AM »
I can't get a real clear understanding if there are limits to how much you can put towards a backdoor Roth IRA per year (possibly $5,500?).
Yes, $5500 is the limit an individual under age 50 may contribute.  That limit is on the total amount contributed to traditional and Roth IRAs, whether using the backdoor process or not.

Vlambo

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Re: Finally getting EJ's hands out of our pockets, now what?
« Reply #6 on: December 11, 2018, 11:05:15 AM »
Regarding your emergency funds, take a look at vanguard money market funds for a higher yielding alternative to bank accounts.

Pros: Higher yield than a bank account, can access money within a few days by redeeming shares and transferring to bank account (or alternatively apply for check writing ability out of your vanguard account and then you can redeem shares then write checks directly from vanguard). These funds target keeping the price at par and all returns are in the form of interest income.

Risks: There was one incident in recent history when a money market fund during the crisis "broke the buck" and temporarily traded for less than a $1 per share but this is very rare. Also by not being a bank account you forfeit FDIC insurance.

Vanguard also has some state specific municipal mmkt funds so if you are a high income earner, then you can earn tax exempt yield on these holdings. Remember, interest and dividends on these funds are taxed at ordinary income, not capital gains. Also check your expense ratios. Depending on your current tax bracket, it may be advantageous to just earn the higher yield in a taxable money market fund.

FireAnt

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Re: Finally getting EJ's hands out of our pockets, now what?
« Reply #7 on: December 11, 2018, 07:23:47 PM »
Regarding your emergency funds, take a look at vanguard money market funds for a higher yielding alternative to bank accounts.

Pros: Higher yield than a bank account, can access money within a few days by redeeming shares and transferring to bank account (or alternatively apply for check writing ability out of your vanguard account and then you can redeem shares then write checks directly from vanguard). These funds target keeping the price at par and all returns are in the form of interest income.

Risks: There was one incident in recent history when a money market fund during the crisis "broke the buck" and temporarily traded for less than a $1 per share but this is very rare. Also by not being a bank account you forfeit FDIC insurance.

Vanguard also has some state specific municipal mmkt funds so if you are a high income earner, then you can earn tax exempt yield on these holdings. Remember, interest and dividends on these funds are taxed at ordinary income, not capital gains. Also check your expense ratios. Depending on your current tax bracket, it may be advantageous to just earn the higher yield in a taxable money market fund.

To clarify, that WAS our EF but is no longer. We have our ER in an online bank. This is just money now sitting in a joint mutual account for the past few years. We are being taxed on the dividends currently. I was looking into whether it would be beneficial to cash it out and put it towards something else that is more advantageous for us like the backdoor Roth IRA. Now that we know better, it seems silly that we were even advised to do this when we haven't maxed out our retirement/tax-advantaged accounts.