35 Year Old Progress

[BergLust]

Hi All - I have been working to improve my focus on investing and wanted to get some input on how I have things invested/allocated. Now, let me preface my post by acknowledging I have too much in cash. There are reasons for this that are not worth getting into here. Currently I am in the process of DCA from my high yield savings account into my individual account ETF's. So, be patient with me on that. . With that said, here it goes...

High Yield Savings (1% interest): $145K

Other Various Savings (0.04% interest): 32K

Individual Investment Account: $306K VTI (30%), VEU (20%), FUSVX (40%), F (10%)

Traditional IRA $134K in VTI (50%), VEU (30%), BND (20%)

Roth IRA: $34K in VTI (50%), VEU (30%), BND (20%)

401K: $170K in VINIX

TOTAL ASSETS: $821K

Other Comments:

• I have no debt
• I do not own a home. I rent.
• I own a car.
• I max out my 401K, and my employer matches my contributions at 7% (4% retirement contribution & 3% employer match).
• I cannot contribute anything to my Roth now because my compensation is above the allowed contribution limit. The current money showing in my Roth is from contributions many years ago.
• I will eventually get out of F and FUSVX in my individual account and DCA that money into the index funds. There are some of my legacy investments that still linger. They are making money now, so there is no sense getting out of them at the moment until I can put those funds to work (after I DCA my high yield savings account money).

One thing I want to specifically ask the group is around back-door Roth contributions. Currently I have a Traditional IRA from a previous company roll-over. I like this account because I have the VTI, VEU, BND investment options...and anything else I may want to invest in...vs and 401K where the investment options are limited to what the plan provides. My current 401k plan offers quite a few investment options...but all except 2 have fairly high management fees. So, these two low management fee funds are what I stick to. Anyway, my question is, do you think it's worth rolling everything from my Traditional IRA into my current employers 401K so that I can easily do a back-door Roth contribution every year? I'm really struggling with this one and am not sure if it is worth losing the investment options I have in my current Traditional IRA account.

Thanks for your input and look forward to your comments!

 

[DROPOUT]

Welcome to E-R.org!

What's your timeline to FIRE?

The answer to that question may help answer some of your others

 

[CloudNine]

High Yield Savings (1% interest): $145K

Other Various Savings (0.04% interest): 32K

Individual Investment Account: $306K VTI (30%), VEU (20%), FUSVX (40%), F (10%)

Traditional IRA $134K in VTI (50%), VEU (30%), BND (20%)

Roth IRA: $34K in VTI (50%), VEU (30%), BND (20%)

401K: $170K in VINIX

TOTAL ASSETS: $821K

Do you think it's worth rolling everything from my Traditional IRA into my current employers 401K so that I can easily do a back-door Roth contribution every year

Well a) you're way ahead of me, and most 35 year olds.

b) If your current employer offers low-fee style funds, like the Admirals from Vanguard, or the Spartan funds from Fidelity, it seems like it could be a win.

 

[BergLust]

Welcome to E-R.org!

What's your timeline to FIRE?

The answer to that question may help answer some of your others

Hi dropout. It should be achievable in 10 years. I use early retirement planner as my gauge. Your comments and suggestions are appreciated!

 

[NgineER]

You don't need to do a rollover of your tIRA in order to make backdoor roth IRA contributions easily... You should be able to do it anyway. I suspect that if your income is too high to make Roth IRA contributions, you'd not want to take the tax hit of rolling your tIRA over.

Another way to get more Roth IRA savings is to do After tax contributions to your 401(k), if those are allowed, you can roll those contributions over into a Roth IRA. My company allows 9% after tax contribution on top of the $18,000 to the 401(k). I roll that over every month into a Roth IRA.

 

[Fermion]

You don't need to do a rollover of your tIRA in order to make backdoor roth IRA contributions easily... You should be able to do it anyway. I suspect that if your income is too high to make Roth IRA contributions, you'd not want to take the tax hit of rolling your tIRA over.

Another way to get more Roth IRA savings is to do After tax contributions to your 401(k), if those are allowed, you can roll those contributions over into a Roth IRA. My company allows 9% after tax contribution on top of the $18,000 to the 401(k). I roll that over every month into a Roth IRA.

This +1

We did this when we found out about it up until retiring this year. $20k extra a year into a Roth beats a $5500 backdoor Roth (although my wife also did the backdoor Roth since she had no tIRA).

 

[BergLust]

Hello molof. Thanks for the comments.

You don't need to do a rollover of your tIRA in order to make backdoor roth IRA contributions easily... You should be able to do it anyway. I suspect that if your income is too high to make Roth IRA contributions, you'd not want to take the tax hit of rolling your tIRA over.

I am aware that I do not NEED to roll my tIRA into my 401K, but I think I would want to do this otherwise I have to pay tax on ALL of the money in the tIRA...even if I just convert a small amount to the rIRA. This is a website from boggleheads that I was reading on this topic. Backdoor Roth: A Complete How-To. Does this seem correct to you?

Another way to get more Roth IRA savings is to do After tax contributions to your 401(k), if those are allowed, you can roll those contributions over into a Roth IRA. My company allows 9% after tax contribution on top of the $18,000 to the 401(k). I roll that over every month into a Roth IRA.

Unfortunately, this is not an option for me. My employer only offers a Roth 401K and not after tax contributions into the 401K. Disappointing.

 

[NgineER]

Yes,
I'd trust the bogleheads guide

 

[retire2020]

Hello molof. Thanks for the comments.



I am aware that I do not NEED to roll my tIRA into my 401K, but I think I would want to do this otherwise I have to pay tax on ALL of the money in the tIRA...even if I just convert a small amount to the rIRA. This is a website from boggleheads that I was reading on this topic. Backdoor Roth: A Complete How-To. Does this seem correct to you?

You're correct. I was in a similar situation last year but my megacorp has better low cost options so I rolled over my IRA to current 401K and used backdoor Roth. I also found out that my mega corp allows after tax 401K(maxed out at 10% of salary) so I've been funding that as well. This way..I'm saving 24K in 401K, 12 K company Match, 6.5K backdoor Roth IRA and about 20K in Roth 401K - total of about 62K.

 

[retire2020]

Hello molof. Thanks for the comments.

Unfortunately, this is not an option for me. My employer only offers a Roth 401K and not after tax contributions into the 401K. Disappointing.

I think you are confused. You may want to check again with your employer. Roth 401K is after tax contribution in to 401K. My megacorp has the same option but you're still allowed to max out pretax 401K and then additional whatever % they allow in Roth 401K. However total contribution(PreTax 401K + Company match + Roth 401K) can not be greater than Annual Defined Contribution which is 53K for 2015.

 

[dallas27]

I think you are confused. You may want to check again with your employer. Roth 401K is after tax contribution in to 401K. My megacorp has the same option but you're still allowed to max out pretax 401K and then additional whatever % they allow in Roth 401K. However total contribution(PreTax 401K + Company match + Roth 401K) can not be greater than Annual Defined Contribution which is 53K for 2015.

I think you are confused.


Sent from my iPhone using Early Retirement Forum

 

[BergLust]

Hi All,
Thought I'd give an update of things since it has been a while. The biggest move I made was to tax loss harvest FUSVX in my individual account during the dip in September. TLH is -$6,321. I will use that loss to balance gains on some company stock that I was granted and I exercised. I still need to sell that company stock this year. I will only sell the amount that equals the TLH amount on the FUSVX. When I did the TLH I immediately reinvested some of that money in VTI and VEU (also in my individual account), which was part of my plan to begin with. So, I think it was a good move. Feel like I got some things "on sale" Your comments are welcome on that move.

Below are my holdings and value now. One note, if you compare this to my original post you will see 'F' is in my Roth account now. I made a mistake in my original post and reported it to you in the wrong account. I still intend to sell that and reallocate into VTI, VEU, BND in my Roth. I just haven't done it yet.

High Yield Savings (1% interest): $12,585

Other Various Savings (<0.04% interest): $31,906

Individual Investment Account: $432,588, VTI (49%), VEU (25%), COMPANY STOCK (7%), CASH (19%)

Traditional IRA: $130,560, VTI (52%), VEU (31%), BND (16%), CASH (1%)

Roth IRA: $32,577, VTI (28%), VEU (19%), BND (7%), F (44%), CASH (2%)

401K: $183,160, VINIX (100%)

TOTAL ASSETS: $823,356

My YTD IRR (calculated by quicken) is shown below. I'm not sure if this is a good measure or not, but the thing that is dragging the YTD IRR down seems to be the VEU in the accounts. Thoughts on my measure, allocation or strategy?

Individual Investment Account: -1.84%

Traditional IRA: +0.02%

Roth IRA: -1.29%

401K: +4.45%

Total: +0.32%

Finally, after much frustrating discussion my company will not allow AFTER TAX dollars in their 401K plan. It's simply not a priority for them to administer. There are other priorities they are working on and the business climate is such they cannot take on things like this in addition to their current priorities. At least I have an answer, I guess.

Well, that's all for now and I look forward your feedback!

 

[teej1985]

I feel like it is good to see that you've transferred a lot of that excess cash into your investments, that just seemed like a lot to have sitting in cash at your age.

 

[BergLust]

I feel like it is good to see that you've transferred a lot of that excess cash into your investments, that just seemed like a lot to have sitting in cash at your age.

Hi and thanks for the response. Yes, way too much cash and the plan was to start DCA in investments from the first of this year. So far, so good! Still doing monthly DCA...one extra in September due to the TLH of FUSVX.

 

[YeahNo]

If you are looking for some excitement in your diversification, I would suggest investing in something more tangible. Stocks in a way are quite boring to own. I found when we bought a couple rental properties that I really enjoyed the tangible-ness of it. The fact that I owned a place down the road that had someone paying the mortgage was/is fun.

Also, using some of that money to invest in your life experiences could be beneficial as well. We've made some choices that would seem non-optimized on paper but have contributed greatly to our happiness in life (IE, buying a boat and meeting subsequent friends in the boating community). Of course the experience (boat) we bought was bought smartly....it was used and most of the depreciation has been lost before we bought it and even if we own it for 5-6 years we will come out close to even on price.

 

[kgtest]

Haha, you are doing way better than I am. I picked the wrong career hehehe.

If I had that kind of money I would retire in 5-10yrs easily.

 

[Exit 2024]

OP, Looks like you are doing great!!! especially for your age, congratulations!

About back door Roth, yes you need to move Traditional IRA first, but your employer's 401k seems being not that good to plunge such sizable amount there.
We had the same issue but luckily for us we had tiny side business that was bringing about $1k revenue 7-8 years ago and now it brings almost nothing. For that business we got EIN from IRS (specifically requested) and opened Solo 401k (Keogh 401k) with Fidelity. Best part about it is that it will allow incoming rollovers (for example Vanguard Solo 401k does not allow)
That is where all former employers 401ks along with Traditional IRA went.
Yes there is hassle every year to file Schedule C with our tax return but that totally worth it for us.

Not sure if that is any help for you but if you have something going on the side (or can easily organize) - you may want to consider solo 401k.

 

[BergLust]

If you are looking for some excitement in your diversification, I would suggest investing in something more tangible. Stocks in a way are quite boring to own. I found when we bought a couple rental properties that I really enjoyed the tangible-ness of it. The fact that I owned a place down the road that had someone paying the mortgage was/is fun.

Also, using some of that money to invest in your life experiences could be beneficial as well. We've made some choices that would seem non-optimized on paper but have contributed greatly to our happiness in life (IE, buying a boat and meeting subsequent friends in the boating community). Of course the experience (boat) we bought was bought smartly....it was used and most of the depreciation has been lost before we bought it and even if we own it for 5-6 years we will come out close to even on price.

Thanks for the post and suggestions. I have thought about "investing" in a home, that could be a duplex. Currently, I don't own...mostly because I have a fear of being tied down somewhere. But, perhaps a duplex could ease that a bit.

In terms of life experiences - I do not short myself here and have been pretty happy with my choices. I've been to more countries than I can count (someday I'll do that) for business, and I make it a point to spend extra time there on my own to experience the culture. I have a love for travel and cultures. I also enjoy the outdoors and being in the mountains. I surround myself with people that enjoy the same thing in that regard. I'm happy to splurge on these things, as I realize I can't take money with me and it could all end suddenly tomorrow!

 

[BergLust]

OP, Looks like you are doing great!!! especially for your age, congratulations!

About back door Roth, yes you need to move Traditional IRA first, but your employer's 401k seems being not that good to plunge such sizable amount there.
We had the same issue but luckily for us we had tiny side business that was bringing about $1k revenue 7-8 years ago and now it brings almost nothing. For that business we got EIN from IRS (specifically requested) and opened Solo 401k (Keogh 401k) with Fidelity. Best part about it is that it will allow incoming rollovers (for example Vanguard Solo 401k does not allow)
That is where all former employers 401ks along with Traditional IRA went.
Yes there is hassle every year to file Schedule C with our tax return but that totally worth it for us.

Not sure if that is any help for you but if you have something going on the side (or can easily organize) - you may want to consider solo 401k.

Hi Exit 2024, thanks for the post. So, let me make sure I understand. YOu were able to open a Solo 401K because you officially have a business. Is this a LLC or something else? Anyway, you rolled your Traditional IRA into your Solo 401K, then are doing a backdoor Roth from your Solo 401K into your Roth IRA. Is that correct? I don't understand the Schedule C comment. Why do you have to do that every year?

Sounds interesting, just need some help understanding! Thanks!

 

[BergLust]

Haha, you are doing way better than I am. I picked the wrong career hehehe.

If I had that kind of money I would retire in 5-10yrs easily.

Ha! Well, everybody is different I guess. But I was reading your footer and sounds like you will have some nice real estate property in your portfolio, which I don't have. What is your philosophy with real estate? This is something I'm wanting to learn about as an "investment". Would appreciate your comments and experience here.

 

[Exit 2024]

Hi Exit 2024, thanks for the post. So, let me make sure I understand. YOu were able to open a Solo 401K because you officially have a business. Is this a LLC or something else? Anyway, you rolled your Traditional IRA into your Solo 401K, then are doing a backdoor Roth from your Solo 401K into your Roth IRA. Is that correct? I don't understand the Schedule C comment. Why do you have to do that every year?

Sounds interesting, just need some help understanding! Thanks!

Side business is not LLC, it is just "Sole Proprietor",
here is definition from IRS.gov

A sole proprietor is one individual who owns a company that is not incorporated or registered with the state as a limited liability company (LLC). Sole proprietors may or may not have employees.

In a sole proprietorship:

The business does not exist separately from the owner.
The risks of business apply to the individual's personal assets, including those not used for the business.
The sole proprietor reports business income on his or her individual tax return.

Taxes for that business filed on Schedule C of the tax return.
Technically you do not need to have EIN for such type of business and can use your SSN , BUT you still are eligible to get EIN assigned for the purpose of opening Keogh Plan which is "Solo" or "Self-employed" 401k.

Steps would be the following :

-- request EIN from IRS.gov, now you can do it online, when asked for the reason of such request - choose Keogh plan
-- go to fidelity.com and search for Self-Employed 401k, there is the standard plan document that you need to fill out to open account, requires to have EIN
--as soon as account opened you can roll over your Tradition IRA into it, call Fidelity - they will walk you step by step
--after rollover is completed now you do not have any funds in traditional IRA anymore
-- you can start doing back door Roth: make non-deductible contribution into any new Traditional IRA then convert that money into Roth, repeat every year
-- you will need to file Schedule C with your taxes every year for that business and will need to file form 8606 for backdoor Roth activities

Basically that Solo/SE 401k will be holding place for your traditional IRA money but because it is not an IRA it will not affect you ability to do backdoor Roth

 

[BergLust]

Side business is not LLC, it is just "Sole Proprietor",
here is definition from IRS.gov



Taxes for that business filed on Schedule C of the tax return.
Technically you do not need to have EIN for such type of business and can use your SSN , BUT you still are eligible to get EIN assigned for the purpose of opening Keogh Plan which is "Solo" or "Self-employed" 401k.

Steps would be the following :

-- request EIN from IRS.gov, now you can do it online, when asked for the reason of such request - choose Keogh plan
-- go to fidelity.com and search for Self-Employed 401k, there is the standard plan document that you need to fill out to open account, requires to have EIN
--as soon as account opened you can roll over your Tradition IRA into it, call Fidelity - they will walk you step by step
--after rollover is completed now you do not have any funds in traditional IRA anymore
-- you can start doing back door Roth: make non-deductible contribution into any new Traditional IRA then convert that money into Roth, repeat every year
-- you will need to file Schedule C with your taxes every year for that business and will need to file form 8606 for backdoor Roth activities

Basically that Solo/SE 401k will be holding place for your traditional IRA money but because it is not an IRA it will not affect you ability to do backdoor Roth

Thanks again! I thought it might be better served to post this in the FIRE and MONEY section because I had some more detailed questions on the back door. Your method sounds interesting. I moved this particular discussion topic here:

http://www.early-retirement.org/forums/showthread.php?t=79566

 

[BergLust]

Hi All,
It's been a while since I last gave an update here. It's been way too long! I feel like I've made very good progress executing my plan. As always, your comments are welcome. Below are my holdings and value now that can be compared to my original post and my second post from May 2015.

High Yield Savings (1.20% interest): $82,575

Other Various Savings (<0.04% interest): $52,486

Individual Investment Account: $583,628, VTI (61%), VEU (18%), COMPANY STOCK (13%), TSLA (3%), F (2%), CASH ($14,000)

Traditional IRA: $157,068, VTI (51%), VEU (30%), BND (14%), CASH ($7,461)

Roth IRA: $35,226, VTI (31%), VEU (20%), BND (7%), F (34%), CASH ($2,875)

401K: $298,437, VINIX (100%)

TOTAL ASSETS: $1,209,420

The following are some additional comments:

• I have no debt, I do not own a home. I rent.

• I own a car.

• I max out my 401K, and my employer matches my contributions at 7% (4% retirement contribution & 3% employer match).

• I cannot contribute anything to my Roth now because my compensation is above the allowed contribution limit. The current money showing in my Roth is from contributions many years ago.

• I still hold F in two accounts. It's a nice dividend and I'm in no rush to sell it, but will eventually. I also bought some Tesla as a "fun money" experiment. It's been a good unrealized gain so far. Let's see...

• I do have more cash on hand than I want right now, but have recently sold some company stock. I plan to DCA that into VTI and VEU in the coming months.

I'm still trying to find other ways to tax shelter some money and/or route more money to my Roth...but so far, I don't see any way to do it with the situation I currently have. Any other tax sheltering ideas would be very welcome. The other thing I was wondering is to see if anyone things shifting % of VTI and VEU...meaning, put a higher % in VEU in my individual account. For example bump up the VEU % to 25 or 30% with new DCA investments. Europe has lagged behind in recent years...perhaps their due for a larger growth rate in the coming years. I've been reading a little bit about this lately.

Thanks a lot for your input! Look forward to it!

 

[columbus]

I'd think about property if you could find a good deal and it makes sense for you. Duplex, live in one side, rent the other and get write offs. Can I ask why you use etf instead of admiral funds for my own knowledge?

 

[BergLust]

I'd think about property if you could find a good deal and it makes sense for you. Duplex, live in one side, rent the other and get write offs.

Thanks for the response. That's a good suggestion and one in which I haven't looked into much. Something for me to consider. If you know some good resources that I can read up on, I'd appreciate it if you could pass them along!

Can I ask why you use etf instead of admiral funds for my own knowledge?

In the beginning, it was simply because it was what i knew to be one of the more cost effective option (low expense ratio). Now, I continue simply because I use Ameritrade and the ETF's are no commission fee and the VFIAX area $50 commission fee (I believe). I know there are some general advantages to the Admiral funds, especially if you want to get out and move into a different fund without triggering capital gains. Maybe I'm missing something else significant and too focused on the commission fee? Thoughts welcome!

Thanks again!