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Old 03-06-2016, 06:09 AM   #81
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samclem,
My husband has earned income as a self-employed consultant for the second half of 2015. The first half of the year he had a severance package from his old employer who terminated his whole consulting division. We made the maximum contribution to his Vanguard Individual (solo) 401(k) for 2015. Can he also make a contribution to his IRA which was rolled over from Fidelity when he left his old employer?

I'm retired from teaching and have no earned income for 2015. Can I make a spousal IRA contribution for 2015 since my husband has earned income for that period? If so, I will contribute the max and ask our CPA to amend our return. He just filed our taxes electronically this week. I don't want to get my hopes up because Scott the tax guy didn't bring it up in our tax meetings. I have heard about the spousal IRA on podcasts but didn't think it applied to me since I'm retired. I worry about sequence of return risk in retirement and want to take advantage of all tax-deferred accounts.

Back to work on Cheryl's port. I'm going to type up what I think we talked about and post it for comment. Then, I need to type some simple directions for Cheryl so she can call Principal and place her orders. I need to make the directions brief and simple enough to text so she will have it on her phone.

I haven't discovered how to buy and sell on her Principal online account yet. Their site not nearly as simple and easy to use as the Vanguard website.
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Old 03-06-2016, 07:10 AM   #82
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My husband has earned income as a self-employed consultant for the second half of 2015. . . . . We made the maximum contribution to his Vanguard Individual (solo 401(k) for 2015. Can he also make a contribution to his IRA which was rolled over from Fidelity when he left his old employer?

I'm retired from teaching and have no earned income for 2015. Can I make a spousal IRA contribution for 2015 since my husband has earned income for that period? If so, I will contribute the max and ask our CPA to amend our return. He just filed our taxes electronically this week. I don't want to get my hopes up because Scott the tax guy didn't bring it up in our tax meetings. I have heard about the spousal IRA on podcasts but didn't think it applied to me since I'm retired.
Yes, I think he can contribute if he didn't turn 70 1/2 last year (or before) and he has enough income to cover both the solo 401K contribution and the tIRA contribution. The solo 401K counts as a retirement account, so depending on his income he might not be able to make a >deductible< contribution to a tIRA. And if he can't make a deductible contribution, I'd recommend against making >any< contribution to a tIRA. He may still qualify for a Roth IRA (it has no age restrictions). That won't lower his present taxes, but could help down the road.

And, you should be able to contribute to a spousal tIRA or Roth IRA if his income covers that, too. Restrictions as above.

You should ask your CPA about all of this. He knows the answers off the top of his head (I'm Googling much of it) and he will be better at it.
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Old 03-06-2016, 07:41 AM   #83
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....Back to work on Cheryl's port. I'm going to type up what I think we talked about and post it for comment. Then, I need to type some simple directions for Cheryl so she can call Principal and place her orders. I need to make the directions brief and simple enough to text so she will have it on her phone. ...
I suggest that you post it as a separate thread.

Also, what you could do is a conference call with Principal where Cheryl concurs the changes... I do that with my Mom occasionally.
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Chery's Proposed PFG Proposal & Instructions
Old 03-06-2016, 08:34 AM   #84
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Chery's Proposed PFG Proposal & Instructions

Dear Forum,
I've attached a pdf of Cheryl's proposed portfolio and a set of instructions for her. (My husband did all the math part on Excel for me.)

She will not be able to do everything in one phone call, but I'd like her to try to call Principal on Monday or early this week to make the exchanges and tell them to move new contributions into the bond fund.

She can go down the rest of the steps as time allows between patients. She already knows to ask about agent authorization for me. She should also ask how late they are open. Vanguard takes evening calls which is great.

Would you please open my pdf and see if it is correct and complete? Have I omitted anything or made a mistake? Our thread has gotten quite long, but I have tried to take careful notes.

Can my sell/exchange directions be made any simpler? It's much more likely that she will get started on this right away if it is made simple for her.

I'm lucky to have such excellent feedback from you and it was a lucky break that target2019 was already familiar with Principal. What were the odds of that?

Cheryl sends her thanks. She asked me yesterday how y'all get paid for helping her. I thought you'd enjoy that. She always wants to pay me for being her advisor. I keep telling her that she can repay me by following my advice (cut lifestyle, be an extreme saver, etc.) and by making sure our grandson saves and contributes monthly to his new Roth IRA from his pizza restaurant income. (She can watch The Sopranos to see how this is done efficiently). She is the sponsor on his Schwab Roth IRA. Remuneration for Cheryl is to "pay it forward" and repeat for our granddaughter when she gets her first W2 job.

I'll check back throughout the day for your feedback and then send the final draft to Cheryl's email, then text her to print it out and take it to work with her on Monday.

Have a great Sunday everyone and many, many thanks!
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Old 03-06-2016, 08:46 AM   #85
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Do y'all think I should post Cheryl's portfolio and instructions on a separate thread? If so, what should the title be and what would it be posted under?

Thanks for this suggestion pb4uski.

Thanks samclem, we will email Scott and ask him about the IRA contributions. I hope we have until April 15. From listening to my financial podcasts, I'm pretty sure we have until then.

I'm going to continue binge watching "House of Cards" and check back later for feedback. Happy Sunday.
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Old 03-06-2016, 08:51 AM   #86
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Have been trying to understand the advice where new contributions will all go to a bond fund that many of us would say is expensive.

The gist of advice was to take advantage of lower cost index funds, and lower the overall cost of the account.

Putting all new contributions into bond fund effectively drives the cost higher with each weekly contribution.

Using the bond fund as fixed income component makes sense, insofar as it is the only choice available. But giving it more weight over time does not. There must be a factor I am not understanding.
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Old 03-06-2016, 09:36 AM   #87
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Have been trying to understand the advice where new contributions will all go to a bond fund that many of us would say is expensive. ....
The rationale of making contributions to the bond fund was to, between now and when she retires, migrate the AA from 75/25 for a 48 year old to a more conservative AA appropriate for a 60 year old. Implicit in that suggestion was that she may periodically have to do some rebalancing.

IMO you are too preoccupied on expenses. The proposed 75/25 AA results in a weighted average ER of 0.56%.... if that changes to 60/40 over 12 years then the ER changes to ~0.61% as you are simply trading a 70/30 domestic/international stock portfolio that has an ER of 0.54% (70/30 * 0.31%/1.06%) for a bond portfolio with a 0.71% ER.

Goldenmom, the Buy/(Sell) column below may be helpful in summarizing what you have to do to rebalance.

NameER Current ProposedBuy (Sell)AA
Principal Stable Value Fund0.90% 232.44 - (232.44) 
Core Plus Bond Separate Account0.71% 113,580.89 81,255.80 (32,325.09)25%
Principal LifeTime 2030 Separate Account0.88% 16,593.13 - (16,593.13) 
LargeCap S&P 500 Index Separate Account0.31% 70,734.95 113,758.12 43,023.17 35%
LargeCap Growth I Separate Account0.79% 41,350.03 - (41,350.03) 
MidCap Value I Separate Account1.16% 6,191.74 - (6,191.74) 
MidCap Separate Account0.81% 10,306.93 - (10,306.93) 
SmallCap S&P 600 Index Separate Account0.31% 11,755.75 16,251.16 4,495.41 5%
Diversified International Separate Account1.06% 50,634.19 - (50,634.19) 
Principal Financial Group, Inc. Stock Separate Account0.44% 2,981.16 - (2,981.16) 
MidCap S&P 400 Index Separate Account0.31% - 48,753.48 48,753.48 15%
Diversified International Separate Account1.06% - 65,004.64 65,004.64 20%
Unlocated  661.99 - (661.99) 
      
      
Total  325,023.20 325,023.20 (0.00)100%
Weighted average ER 0.69%0.56%  
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Old 03-06-2016, 09:57 AM   #88
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The rationale of making contributions to the bond fund was to, between now and when she retires, migrate the AA from 75/25 for a 48 year old to a more conservative AA appropriate for a 60 year old. Implicit in that suggestion was that she may periodically have to do some rebalancing.
Right, that was my thinking as well. Maybe increase the allocation to bonds 1% every year or so. And if a few years go by and the rebalancing doesn't get done (despite all intentions--I know about this from my own actions . . .), at least the contributions are going into the pot that is most likely to need it.

pb4uski: I see your chart has her selling all of her Diversified International and then buying back a lot of it in a separate transaction (rather than just selling off enough shares to bring her to the desired allocation). I assume that's just to keep the transactions/math simple, which makes sense (and there's no cap gains consideration in this 401k account).
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Old 03-06-2016, 10:16 AM   #89
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pb4uski: I see your chart has her selling all of her Diversified International and then buying back a lot of it in a separate transaction (rather than just selling off enough shares to bring her to the desired allocation). I assume that's just to keep the transactions/math simple, which makes sense (and there's no cap gains consideration in this 401k account).
No, I just messed up. Attached is revised chart.

NameER Current ProposedBuy (Sell)AA
Principal Stable Value Fund0.90% 232.44 - (232.44) 
Core Plus Bond Separate Account0.71% 113,580.89 81,255.80 (32,325.09)25%
Principal LifeTime 2030 Separate Account0.88% 16,593.13 - (16,593.13) 
LargeCap S&P 500 Index Separate Account0.31% 70,734.95 113,758.12 43,023.17 35%
LargeCap Growth I Separate Account0.79% 41,350.03 - (41,350.03) 
MidCap Value I Separate Account1.16% 6,191.74 - (6,191.74) 
MidCap Separate Account0.81% 10,306.93 - (10,306.93) 
SmallCap S&P 600 Index Separate Account0.31% 11,755.75 16,251.16 4,495.41 5%
Diversified International Separate Account1.06% 50,634.19 65,004.64 14,370.45 20%
Principal Financial Group, Inc. Stock Separate Account0.44% 2,981.16 - (2,981.16) 
MidCap S&P 400 Index Separate Account0.31% - 48,753.48 48,753.48 15%
Unlocated  661.99 - (661.99) 
      
      
Total  325,023.20 325,023.20 (0.00)100%
Weighted average ER 0.69%0.56%  
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Old 03-06-2016, 10:42 AM   #90
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Not really preoccupied with expenses, but they do matter.

I have nothing further to add to this thread.
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Old 03-06-2016, 10:51 AM   #91
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target2019,
In my Vanguard account, I use the Prime Money Market account for new contributions until I allocate the new money. Is there anything like that at Principal? Where do you put your new contributions, and what are better options for new contributions in her portfolio? Others, please weigh in on this. Is there a better option for new money? I will wait until this evening to email the final instructions to Cheryl.
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Old 03-06-2016, 11:01 AM   #92
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samclem,
I emailed Scott our CPA and asked him if I'm eligible for a spousal IRA contribution for 2015 since my husband had earned income, and if my husband is eligible for a deductible IRA contribution. He turned 70 1/2 last month (Feb. 2016).

If I'm eligible, do I send a check to my existing Vanguard IRA, or do I have to open a separate spousal IRA?

Thanks! Really hope this works out.
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Old 03-06-2016, 11:13 AM   #93
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samclem,
If I'm eligible, do I send a check to my existing Vanguard IRA, or do I have to open a separate spousal IRA?
You'd use the same tIRA account you already have. And you need Scott to confirm that your entire contribution to your tIRA for 2015 (along with anything you husband chooses to contribute to his) would be fully tax deductible.

I don't want to go down the "tIRA vs Roth IRA" rabbit hole, but I assume you've already decided that taking the deduction now for tIRA contributions is better for you guys that making a non-deductible contribution to a Roth IRA. It basically boils down to the difference between your present tax rate and the tax rate you'll experience later on (when you are taking your RMDs from your tIRAs/solo 401Ka, when you are receiving SS, etc. If you haven't made that decision, discuss it with Scott, too. He knows your situation best and surely knows the laws/rules/strategies well.
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Old 03-06-2016, 11:27 AM   #94
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pb4uski,
I tried to copy your awesome chart to facilitate the buys/sells, but it didn't paste well. Can you attach it as a pdf? I would like to email to Cheryl. She can then email all the documents to Principal to save time on the phone. Thanks so much for making this great chart!!!

GM
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Old 03-06-2016, 11:30 AM   #95
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target2019,
You have been amazing! Thanks for helping me and our daughter and possibly many others who are learning from this thread. I am most grateful.

Best to you,

GM
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Old 03-06-2016, 11:34 AM   #96
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pb4uski,
Can you attach a pdf of your revised chart?

Thanks, again, for the awesome chart!!!
GM
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Old 03-06-2016, 11:49 AM   #97
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samclem,
I copied your post and will email Scott about this. Thanks!

One unusual thing for our 2015 taxes was that a loan against our old 401(k) at Fidelity became a distribution in 2015 due my husband's consulting division being laid off (ouch!). This really bumped up our taxes.

Luckily, he was able to contribute $36,442 to his solo 401(k) as a self-employed consultant with no employees. The solo 401(k) max contribution is a wonderful deal and much more than IRA contributions. I think it caps at about 53K for the salary deferral plus profit sharing. No doubt they will change it at some point. That saved about 10K on our taxes according to Scott. His contribution would have been more if he had been self-employed the entire year.

We still owe the feds a bunch after quarterly estimated taxes but it is not as bad as it would have been.
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Version 3 Port & Instructions for Cheryl
Old 03-06-2016, 12:14 PM   #98
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Version 3 Port & Instructions for Cheryl

Hi All,
I'm attaching an edited pdf of Cheryl's portfolio and instructions. It has a few important wording changes in Step 1.

If I can get pb4 to attach a revised chart, and if there are no further suggestions for changes, I can go ahead and email the pdf plus pb4's revised chart to Cheryl. She can then call me with any questions.

Pb4, If you can't attach the chart in pdf format, I will see if my husband can paste it into a grid from the forum post or scan it or something. An attachment will, however, be a whole bunch easier.

Thanks, again, to all. I think we are about ready to turn this over to Cheryl and Principal Group. I liked the idea of a conference call, and I will do that if needed.

Forgot to attach pdf. See below.
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Version 3 Port & Instructions for Cheryl
Old 03-06-2016, 12:19 PM   #99
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Version 3 Port & Instructions for Cheryl

See attached revised pdf. I've labeled it Version 3.
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Old 03-06-2016, 12:58 PM   #100
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Kind of late now, but I was on vacation.

Re the OP, I like to buy on the way down as well. Usually with volatile shares, like vnq or frn, that have fallen 10% to 15% below the lowest priced shares I currently hold. Yes, that puts the AA out of whack until the extra shares are sold. I only do this if I have some cash around that I'm not going to use for more than a year.

The simple trick after you buy the shares is to sell shares at a net gain as the price increases, keeping in mind that you might want to harvest tax losses as well.

For example:

You already have 1000 shares in your AA priced as follows: 250 shares at $50, 250 shares at $60, 250 shares at $70, and 250 shares at $80. Your AA is balanced correctly with these 1000 shares.

But, the price of those shares then hits $40, so you buy another 250 shares with spare cash, unbalancing your AA.

Now you need to wait, the hardest part, until the share price rises.

What I do is wait until the share price is back up to $50. At that time you can sell, say, the 250 shares that you originally bought as part of your AA for $50. That returns your AA back to normal (1000 total shares, same as originally), but now you have made $2500 extra cash. Since you sold your $50 cost basis shares for $50 there is no (immediate) tax hit. Eventually you will pay taxes on an extra $2500 in capital gains because your tax basis is now $40 instead of $50 for 250 shares.

As an extra bonus, you can sell the 250 shares priced at $80 instead of the shares priced at $50. That gives you the same $2500 cash gain, but also a capital loss of $30 per share for those 250 shares. That will lower your taxes for this year. Eventually you will have to pay them back, but maybe not for a long while. However, watch out very carefully for wash sale problems. If your sale for a loss is within 30 days (before or after!) of a buy (or reinvestment!) the tax loss will not be allowed. However, it will not be lost either, just delayed until shares are sold again.

This is an entirely mechanical process, once you decide to buy the extra shares. You don't have to make any predictions or judgement calls.

So:

#1 Look at the price(s) at which you bought your extra shares. Sell the extra shares at some price above that buy price(s). That will ensure you don't lose money at least.

#2 Look at the prices of your other shares already in your AA. Sell those more expensive shares when the share price reaches the price you bought those more expensive shares at. Replace them in your AA portfolio with the lower cost shares you purchased during the price drop. It's like a do-over, in the example you originally bought shares at $50, you bought them again at $40, the price rises and you sell your $50 shares for $50. Your "mistake" in buying the shares at $50 instead of $40 is wiped out!

#3 Consider selling higher priced shares for an additional tax loss, if that doesn't result in a wash sale.

And last, there is always risk in doing any of this. I'm usually comfortable doing this with index funds that can be expected not to go to $0. I have done it with stocks like WorldCom that did go essentially to $0, the "catching a falling knife" problem. But I have done well with it too. I think waiting for share prices to go up is safer than waiting for them to go down, but you could still be waiting for a long time. Take FRN as an example. You can adjust your risk by insisting on a wider price gap when buying your replacement shares, buying fewer of them, or not doing this altogether.
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