The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: darkhorse on August 29, 2014, 02:55:27 PM
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Relative newbie, but lurking and learning here!
Background: We've recently paid off some debt and want to dial in our savings plan, which has been on a bit of a hold. I'm currently contributing up to company match through my company's 401K provider, Principal. My wife has a pension through her work and they also offer a 401A, 403B and 457B, but with no employee match. We have some Vanguard accounts and an old Fidelity account, all detailed below.
Since we have a plan in place for balancing, this should be easy, but I've been struggling with. I was thinking of just sticking with the minimum employee match for my 401K, then contributing to the lower cost and better funds in my wife's 4XX plans, and to the Vanguard IRAs. We can't even get close to maxing out a single 401K, much less two, so I think we at least can go minimal on my Principal account, and load up on my wife's Fidelity plan(s). I think I'd like to stick with Vanguard since it seems to be the gold standard here, but Fidelity seems to have some low cost equivalent funds too.
The Ask: Am I making this harder than it should be? What rebalancing plan would you suggest? Any reason to roll the old Fidelity 401A into the new Fidelity 401A, or my wife's Vanguard IRA? Any reason to fund the 403B or 457B over the 401A?
Below, you'll find our target balancing plan, current distributions and funds that are available in each plan (was going to pare those down but decided to leave everything in). We're way off from our target, and I want to pull the trigger on getting everything re-balanced, then set up contributions to stay that course.
Target Balancing
50% US Total Stock Market
20% International Stock Market
25% Total Bond Market
5% International Bond Market
Current Distributions with ERs
Vanguard IRA (me)
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) $21,229.41 0.05
Vanguard IRA (wife)
Vanguard Mid-Cap Index Fund Investor Shares (VIMSX) $9,485.08 0.24
Fidelity 401A (old 401)
Fidelity SpartanŽ 500 Index Fund - Fidelity Advantage Class $29,618.05 0.07
Principal 401K
LargeCap S&P 500 Index Separate Account $23,953.28 0.31
Fidelity 401A (wife's current employer, unused) $0
Fidelity 403B (wife's current employer, unused) $0
Fidelity 457B (wife's current employer, unused) $0
$84,285.82
Available Principal (my current 401K) Funds with ERs
Principal Global Investors .56%
PIMCO GNMA A Fund .90%
PIMCO Total Return A Fund .85%
T. Rowe Price Retirement Income R Fund .07%
T. Rowe Price Retirement 2005 R Fund 1.09%
T. Rowe Price Retirement 2010 R Fund 1.10%
T. Rowe Price Retirement 2015 R Fund 1.15%
T. Rowe Price Retirement 2020 R Fund 1.19%
T. Rowe Price Retirement 2025 R Fund 1.22%
T. Rowe Price Retirement 2030 R Fund 1.25%
T. Rowe Price Retirement 2035 R Fund 1.27%
T. Rowe Price Retirement 2040 R Fund 1.28%
T. Rowe Price Retirement 2045 R Fund 1.28%
T. Rowe Price Retirement 2050 R Fund 1.28%
T. Rowe Price Retirement 2055 R Fund 1.28%
Am Century/Montag & Caldwell 1.04%
Principal Global Investors LargeCap S&P 500 Index Separate Account .31%
Putnam Equity Income A Fund 1.02%
Franklin Small Cap Value A Fund 1.21%
Goldman Sachs/LA Capital Mgmt MidCap Value I Separate Account 1.17%
Principal Global Investors MidCap S&P 400 Index Separate Account .31%
Principal Global Investors SmallCap S&P 600 Index Separate Account .31%
Prudential Jennison Small Company A Fund 1.15%
Robert Baird/William Blair MidCap Growth III Separate Account 1.13%
American Funds EuroPacific Growth R4 Fund .84%
Columbia Acorn International A Fund 1.29%
Available Fidelity 401A (wife's old 401) Funds
FID CONTRAFUND K (FCNKX) FID EQUITY INCOME K (FEIKX)
FID GROWTH CO K (FGCKX)
SPTN 500 INDEX ADV (FUSVX)
FID LOW PRICED STK K (FLPKX)
SPTN EXT MKT IDX ADV (FSEVX)
FID DIVERSIFD INTL K (FDIKX)
INVS DEVLP MKTS R5 (GTDIX)
SPTN INTL INDEX ADV (FSIVX)
VANG TARGET RET 2010 (VTENX)
VANG TARGET RET 2015 (VTXVX)
VANG TARGET RET 2020 (VTWNX)
VANG TARGET RET 2025 (VTTVX)
VANG TARGET RET 2030 (VTHRX)
VANG TARGET RET 2035 (VTTHX)
VANG TARGET RET 2040 (VFORX)
VANG TARGET RET 2045 (VTIVX)
VANG TARGET RET 2050 (VFIFX)
VANG TARGET RET 2055 (VFFVX)
VANG TARGET RET 2060 (VTTSX)
VANG TARGET RET INC (VTINX)
FID INFLAT PROT BOND (FINPX
FID INVST GR BD (FBNDX)
SPTN US BOND IDX ADV (FSITX)
FID RETIRE MMKT (FRTXX)
Available Fidelity 401A, 403B & 457B Funds with ERs
FID FREEDOM K 2005 (FFKVX) .50
FID FREEDOM K 2010 (FFKCX) .53
FID FREEDOM K 2015 (FKVFX) .55
FID FREEDOM K 2020 (FFKDX) .57
FID FREEDOM K 2025 (FKTWX) .61
FID FREEDOM K 2030 (FFKEX) .65
FID FREEDOM K 2035 (FKTHX) .66
FID FREEDOM K 2040 (FFKFX) .66
FID FREEDOM K 2045 (FFKGX) .66
FID FREEDOM K 2050 (FFKHX) .65
FID FREEDOM K 2055 (FDENX) .66
FID FREEDOM K INCOME (FFKAX) .44
SPTN 500 INDEX INST (FXSIX) .05
VANG MIDCAP IDX ADM (VIMAX) .09
VANG SM CAP IDX ADM (VSMAX) .09
VANG TOT INTL STK AD (VTIAX) .14
VANG TOT WLD STK INV (VTWSX) .30
VANG TOT BD MKT ADM (VBTLX) .08
DOMINI SOCIAL EQ INV (DSEFX) 1.24
FID CONTRAFUND K (FCNKX) .56
FID GROWTH CO K (FGCKX) .71
VANG WINDSOR II ADM (VWNAX) .28
FID SMALL CAP VALUE (FCPVX) 1.07
WASATCH SM CAP GRTH (WAAEX) 1.24
AF EUROPAC GROWTH R6 (RERGX) .49
DODGE & COX INTL STK (DODFX) .64
NTN GLB STNBLTY IDX (NSRIX) .40
OAKMRK INTL SM CAP I (OAKEX) 1.35
COHEN & STEERS RLTY (CSRSX) .97
VANG WELLINGTON ADM (VWENX) .18
NYL GUAR INT ACCOUNT .35
JPM CORE BOND R6 (JCBUX) .48
PIM TOT RT III INST (PTSAX) .50
VANG INFL PROT ADM (VAIPX) .10
FID RETIRE MMKT (FRTXX) .42
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Darkhorse, since you're not yet maximizing all your tax-advantaged accounts, then the first question is do you want to prioritize Traditional or Roth? For many ER-types, there are advantages of prioritizing Traditional contributions in your working years when you have a higher tax rate. Then, upon early retirement, you can gradually convert those traditional funds to Roth in the 0% or 10% Federal tax bracket, meaning you won't be paying taxes going in and you'll pay almost no taxes coming out. By contrast, making Roth contributions today mean you'll be paying significant taxes going in, and zero coming out.
Looking at tax year 2014 as an example, a couple with no income could convert at least $20,000 annually at 0% (assuming $3950 exemption x 2 and $12,200 standard deduction for MFJ) tax rate, plus another $18,150+ at the 10% rate. Note these are just for Federal tax. You'll also pay state tax on the conversions if you have state income tax.
So, if you're in the 15% or 25% tax bracket today, you might be best off contributing as much as you can to your traditional 401(k) and 403(b)/401(a)/457(b) before making Roth IRA contributions.
For your wife's old 401(a), I'd consider rolling that over to a Traditional IRA. I wouldn't roll it into her current plans. I'm not sure which 4XX plan for your wife. Does she get an employer match on any of them? One advantage of governmental 457(b) plans is that there isn't an early withdrawal penalty, unlike 401(k) and 403(b) which have a 10% early withdrawal penalty. This can make a 457(b) attractive to ER people. On the other hand, from what I've seen, most 457(b) contributions don't get an employer match, but 403(b) might get a match. Therefore, you might want to contribute to the 403(b) enough to get the maximum match, and then contribute any extra to the 457(b).
In your Principal 401(k), I'd go 80/20 on the 500-index fund and the SmallCap S&P 600 to synthesize a near equivalent to the Total Stock Market Index Fund (VTSAX). Those are your cheapest and best options.
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Darkhorse, since you're not yet maximizing all your tax-advantaged accounts, then the first question is do you want to prioritize Traditional or Roth? For many ER-types, there are advantages of prioritizing Traditional contributions in your working years when you have a higher tax rate. Then, upon early retirement, you can gradually convert those traditional funds to Roth in the 0% or 10% Federal tax bracket, meaning you won't be paying taxes going in and you'll pay almost no taxes coming out. By contrast, making Roth contributions today mean you'll be paying significant taxes going in, and zero coming out.
Looking at tax year 2014 as an example, a couple with no income could convert at least $20,000 annually at 0% (assuming $3950 exemption x 2 and $12,200 standard deduction for MFJ) tax rate, plus another $18,150+ at the 10% rate. Note these are just for Federal tax. You'll also pay state tax on the conversions if you have state income tax.
So, if you're in the 15% or 25% tax bracket today, you might be best off contributing as much as you can to your traditional 401(k) and 403(b)/401(a)/457(b) before making Roth IRA contributions.
Definitely planning on contributing to the traditional 4xx accounts now. I'm still trying to understand the full benefit and timing of when to contribute to a Roth, and at this point, all things point to traditional.
Is there anything wrong with contributing to my Vanguard IRAs immediately after contributing enough in our 4xx accounts to get the match? For example, let's say I'm able to allocate $15K per year to retirement accounts. I contribute just enough into my employers 401K to receive the match, let's say $5K. Then, instead of contributing the remaining $10K to the 401K, I just contribute to $5000 to my Vanguard account and $5000 to my wife's Vanguard account. Let's say I do this because the fees are lower and I like Vanguard's funds much better than my 401K funds. Any negatives to this?
For your wife's old 401(a), I'd consider rolling that over to a Traditional IRA. I wouldn't roll it into her current plans. I'm not sure which 4XX plan for your wife. Does she get an employer match on any of them?
I was leaning on rolling her 401A into her vanguard IRA, so I'm glad to her you say this. As for employer match, there is no employer match on any of her 4xx accounts, although there is a compulsory 6% employee contribution to an IAP account (which I haven't mentioned until this point). She also has a pension plan with this employer.
One advantage of governmental 457(b) plans is that there isn't an early withdrawal penalty, unlike 401(k) and 403(b) which have a 10% early withdrawal penalty. This can make a 457(b) attractive to ER people. On the other hand, from what I've seen, most 457(b) contributions don't get an employer match, but 403(b) might get a match. Therefore, you might want to contribute to the 403(b) enough to get the maximum match, and then contribute any extra to the 457(b).
Yes, no matches for any of these accounts. I'm getting a late start compared to many people on this forum, so my ER is probably only shaving 5-7 years off of a traditional retirement age. For that reason, I'm a little less concerned about getting money out of these accounts before age 59 1/2.
In your Principal 401(k), I'd go 80/20 on the 500-index fund and the SmallCap S&P 600 to synthesize a near equivalent to the Total Stock Market Index Fund (VTSAX). Those are your cheapest and best options.
Thanks! I'll look into that! Just curious, how did you arrive at this simulation to VTSAX?
Thanks for your thoughtful reply...it helps!