AA and portfolio review, please

[JohnDoe]

Hello. I haven't posted much lately. I've gotten a lot of help here over the years, so I am back.

I am mid 50's and wife is a little older. I think we are looking to retire in 2-4 years or until w* impleads too much on our personal time. It's already getting to be not fun but the income provides lots of freedom.

I kind of over looked rebalancing last year so I want to consolidate funds and rebalance to 60/40.

This is the plan for 2024. We've acquired a few accounts over the years. Thoughts?

401k 32% VFIAX,VSMAX,DODLX
IRA 18% CDs, index ETFs
IRA 26% CDs, VWINX, FCNTX, FSPSX
IRA 2% MMF
Roth 6% MMF
Roth 7% MMF, index ETF
Taxable 9% MMF, index ETFs

We're maxing out our Roth's, min 401k just enough to get the match, and the rest to taxable.

Thanks for looking.

 

[Al18]

It’s unusual to have your RothIRA filled with MMF. Most people have mostly stocks or stock funds in their RothIRA to achieve growth without taxes. Same argument with your taxable account.

In you early retirement years, you can sell a lot of stock without any taxes due because of the 0% Capital gains bracket

 

[JohnDoe]

It’s unusual to have your RothIRA filled with MMF. Most people have mostly stocks or stock funds in their RothIRA to achieve growth without taxes. Same argument with your taxable account.

In you early retirement years, you can sell a lot of stock without any taxes due because of the 0% Capital gains bracket

Thanks. I think I was trying to reduce risk in those accounts since they are a small portion of the portfolio and I would need that cash in the early years to reduce reported income.

I was trading stocks and ETFs a little in those accounts over the last few years.

I could definitely hold more $$ in EFTs in the Roth's.

I have about 9k in short term gains in the taxable account this year. (still holding)

 

[Al18]

The 0% Capital gains bracket applies to long term capital gains. Short term capital gains are taxed at your normal tax bracket.

What is your overall stock/bonds/fixed income %?

 

[JohnDoe]

Right now I am 60 stocks, 30 cash, 10 bonds.

Looking to maintain that but consolidate funds give or take 5%.

 

[Al18]

I think your plan is good. It looks like you’ll need to save/invest up about 5 years of expenses in taxable, which you’ll spend between age 55 and 59 1/2. You may be able to withdraw from your 401k if your 401k plan supports the rule of 55.

 

[DrRoy]

You might set up a spreadsheet that calculates your overall AA. Pick the funds that you want to stay in and then work out what distribution keeps your AA where you want it.

 

[mrfeh]

We're maxing out our Roth's, min 401k just enough to get the match, and the rest to taxable.

https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit


I don't understand why you wouldn't max out 401K, assuming you're in a higher tax bracket now.

 

[pb4uski]

Given that you have so much in tax deferred and plan to retire before you are 59-1/2 you should take a hard look at whether you will have enough penalty-free access to money to carry you to 59-1/2 and penalty-free access to your tax-deferred money.

You may want to consider a SEPP/72t withdrawal plan.

Then depending on your other income sources you should take a hard look at low tax cost Roth conversions before starting SS or RMDs.

 

[JohnDoe]

I think your plan is good. It looks like you’ll need to save/invest up about 5 years of expenses in taxable, which you’ll spend between age 55 and 59 1/2. You may be able to withdraw from your 401k if your 401k plan supports the rule of 55.

Thanks. Fortunately, my company does offer a pretty good low cost 401k that does support that.

 

[JohnDoe]

https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

I don't understand why you wouldn't max out 401K, assuming you're in a higher tax bracket now.

I'll need access to money that doesn't count as income so I need to keep building up my taxable account.

When I retire, I'll need to keep my reported income under 48,000 to take full advantage of ACA subsidies. The taxable account will help with that.

 

[JohnDoe]

Given that you have so much in tax deferred and plan to retire before you are 59-1/2 you should take a hard look at whether you will have enough penalty-free access to money to carry you to 59-1/2 and penalty-free access to your tax-deferred money.

You may want to consider a SEPP/72t withdrawal plan.

Then depending on your other income sources you should take a hard look at low tax cost Roth conversions before starting SS or RMDs.

I never really considered Roth conversions before so I don't know much about them. I should educate myself on that topic.

I wish I would started earlier and more aggressive with Roth's. I should have considered the Roth 401k that was available to me.

 

[mrfeh]

I'll need access to money that doesn't count as income so I need to keep building up my taxable account.

When I retire, I'll need to keep my reported income under 48,000 to take full advantage of ACA subsidies. The taxable account will help with that.

You have 22% of your portfolio in Roths and taxable...that's not enough to get one of you to 59.5, when you can start withdrawing from pre-tax accounts?

 

[target2019]

Right now I am 60 stocks, 30 cash, 10 bonds.

Looking to maintain that but consolidate funds give or take 5%.

Right now cash is great, earning significant interest rate(s).

What happens as rates are cut to the bone? Will that loss of interest impact you a lot?

 

[JohnDoe]

You have 22% of your portfolio in Roths and taxable...that's not enough to get one of you to 59.5, when you can start withdrawing from pre-tax accounts?

That's a great question. I forgot that wife will be there before me and that qualified Roth w/d's are not counted as income.

We probably could make it to 59.5 but I wouldn't want to deplete those accounts that soon. ACA would have to last to 65, right?

I think 30 to 35% is the goal I am shooting for. I know our spending is going to be higher in the next 10 years for travel.

 

[JohnDoe]

Right now cash is great, earning significant interest rate(s).

What happens as rates are cut to the bone? Will that loss of interest impact you a lot?

I did just set up a 5-year CD ladder yielding 5%. I'll have to reevaluate as those mature and MMF funds start dropping.

I don't think the loss of interest will impact too much. We have 1.5mm now and are adding about 65k a year in contributions.

 

[Finance Dave]

I did just set up a 5-year CD ladder yielding 5%. I'll have to reevaluate as those mature and MMF funds start dropping.

I don't think the loss of interest will impact too much. We have 1.5mm now and are adding about 65k a year in contributions.

Is that ladder using non-callable CDs? 5% seems pretty high for non-callable.

 

[JohnDoe]

Is that ladder using non-callable CDs? 5% seems pretty high for non-callable.

Yes. I bought the last about a month ago at 4.9% for 5 years.

 

[livingalmostlarge]

You should rebalance now and move aggressive stuff to Roth as well. More to draw when you want to retire. So maybe look holistically at the whole portfolio and start rebalancing even in accounts.

 

[JohnDoe]

You should rebalance now and move aggressive stuff to Roth as well. More to draw when you want to retire. So maybe look holistically at the whole portfolio and start rebalancing even in accounts.

Yes, I am taking that advise and rebalancing and adding ETFs to the Roth's.

Thanks.