Investment Strategy Question -- From Novice MMMer

[SrPennyLip]

This is my first post after finding MMM a couple months ago.  I am hoping you MMMers can help point me in the direction of how to fish.

Background:

• Family is debt free save a mortgage which will be gone in another year due to aggressive over-payment.
• Currently contributing the maximum into 401k (13% HCE limit)
• RothIRA is maxed out
• Putting away roughly 2k per/child/year into 529 accounts
• 5-month emergency fund in a money market

   
Retirement accounts:

• 401k - Fidelity 2040
• Rollover IRA - Vanguard 2045
• Roth IRA - Vanguard 2050

   
Reason for Posting
I recently realized my saving/checking accounts total $5000 excess and I am looking to move that money into a better investment strategy.  Additionally, I currently have a couple hundred/month that I wish to regularly invest and once the mortgage is done in just over a year I will have a significant amount to tuck away monthly.

Questions

• Should I open a RothIRA for my wife (who does not currently work) or is there any advantage to having non-retirement account? (accessibility?)
• Where should I place any excess money?
• What, if any, diversification considerations are needed given the two targeted Vanguard funds are both VTSMX(63%) and VGTSX(27%)

As mentioned, I am just now transitioning into the "invest and retire early" mindset.  Any advice you can give or recommendations for learning is much appreciated.

[RichMoose]

I'm not 100% sure on Roth IRA for married couples, but I always thought you need to have earned income to be eligible to contribute. So this might make your wife ineligible. I'm sure someone more knowledgeable than me can answer that easily.

Depending on your age and how far you are from retirement a taxable investment account can be a great bridge to your 59.5 regular withdrawal. One thing to note, its best to hold only stocks in your taxable account and preferably all of your foreign stocks due to foreign tax credits. If you choose a taxable account, you might want to switch your funds around a bit in your 401(k) & Roth/Rollover IRAs so that all your bonds are in these accounts, all your foreign in taxable, and you still meet your personal asset allocation.

[thirtysomething]

1) Yes. Spouse doesn't need earned income to contribute to Roth IRA. We've done it for years.
I'd keep maxing tax advantaged accounts - there are ways to get the money out later. The benefit will be greater the younger you are when you start.

2)  We put our extra $ into VTI. But I'm slightly more aggressive than some. I don't like bonds as rates are low and when they go up, prices will fall.

3) Your choice. How long until you want to start early retirement? What does your plan look like (part-time vs no work vs hobbies that pay, etc)? With no house payment  - your monthly costs would seem to be much lower than current / most people. I think most people here would recommend building a budget and playing with the variables. During accumulation most people are slightly more aggressive, then rebalance once the get "close" to change investment strategy to more of a low volatility / capital preservation emphasis.

[Mother Fussbudget]

I'm surprised you don't mention a taxable investment account - I put my extra money in my taxable account where I have the most flexibility.  Also, I contribute to a Sharebuilder account regularly via their 'automatic investment plan' that invests a configurable amount every week/2-weeks/month (etc) and invests in the stocks, funds, ETF's I want.  I buy $20 of GOOGL, $20 of NFLX, and $200 of VTI every 2 weeks.  (and if you're a CostCo member, you get additional savings on a Sharebuilder account)

There was an earlier thread that spoke of the value of a taxable account...
http://forum.mrmoneymustache.com/index.php?topic=4064.msg62093#msg62093

So, yeah - a ROTH for the wife would be good, but you might a taxable account for flexibility, and your emergency fund.

[Bruno]

You don't mention how old the kids are. If they earn any income they can have IRAs, including Roth IRAs. They can contribute whatever they earned, up to the regular maximum contribution.
May not help you, but may help your kids. However, make sure to take care of your financial needs first.

[seattlecyclone]

I'm surprised you don't mention a taxable investment account - I put my extra money in my taxable account where I have the most flexibility.  Also, I contribute to a Sharebuilder account regularly via their 'automatic investment plan' that invests a configurable amount every week/2-weeks/month (etc) and invests in the stocks, funds, ETF's I want.  I buy $20 of GOOGL, $20 of NFLX, and $200 of VTI every 2 weeks.  (and if you're a CostCo member, you get additional savings on a Sharebuilder account)

ShareBuilder...ugh. Even with the Costco discount, you're still paying $2 per automatic trade. So if you're investing $20 at a time, ShareBuilder is skimming 10% off the top. That means the stock has to go up 11% for you to break even. That's no way to invest! As for VTI, why not open up an account with Vanguard directly so you can buy shares for free?

[TomTX]

Depending on your tax situation, consider converting some of that rollover tIRA to a Roth. Pay the tax with your extra cash. Just don't end up in the next tax bracket. Depending on how much you convert, you may need to do quarterly filing/payments of taxes.

My parents are facing RMDs next year for their tIRA accounts, which will definitely push them well into the 25% bracket. If they had been converting as much as they could since my dad retired at 56 (with pension) - they would have paid at that time in the 15% bracket, and the RMDs would be in the 15% bracket.

Effectively, they will be paying thousands of dollars extra in federal income tax every year they could have avoided.

Additionally for early retirees - converted Roth money is fully available after 5 years penalty-free.

[SrPennyLip]

You don't mention how old the kids are. If they earn any income they can have IRAs, including Roth IRAs. They can contribute whatever they earned, up to the regular maximum contribution.
May not help you, but may help your kids. However, make sure to take care of your financial needs first.

We are in our mid-30s with two kids in elementary grade school.  I agree that taking care of our financial needs takes priority.  Thanks.

[SrPennyLip]

2)  We put our extra $ into VTI. But I'm slightly more aggressive than some. I don't like bonds as rates are low and when they go up, prices will fall.

In my scenario, should I be concerned putting extra $ into VTI given the targeted funds are already VTI heavy?

[Mother Fussbudget]

As for VTI, why not open up an account with Vanguard directly so you can buy shares for free?

I had NO IDEA that Vanguard account holders can buy Vanguard ETF's with no commission fees.  Holy Shit! 
THANK YOU for that tip!!!

[bjack2]

I agree the first step would be to max out your roth's or back door 11K yearly if you are over the income limit.  The next step would be to open an HSA if possible and max that out.  After that if it were me I would use Betterment for any taxable account.  I know this is very controversial on this forum but I noticed you are exclusively using life cycle funds so you may be more hands off than most MMMers.  I personally feel my greatest enemy is myself so I lean toward doing as little tinkering as possible.  You could of course put your taxable into a life strategy fund at vanguard for less cost than betterment.  Just a thought

[Dee18]

I found the target funds like you have impose higher fees than many other Vanguard and Fidelity funds so I moved my money out of them.  You might check on that.