Here is our setup:
Emergency funds: Yes, about 1 year in expenses.
Debt: None
Tax Filing Status: Married Filing Jointly
Tax Rate: 0% Federal, 2.75% State (No distinction on income type)
State: OH
Age: 40
Desired Asset allocation: 100% stocks / 0% bonds (see questions)
Desired International allocation: 0% (see questions)
Approximate size of your total portfolio: 1.5M
Current retirement assets
Taxable
4.5% cash (CD ladder)
22.5% VFIAX VANGUARD 500 INDEX ADMIRAL C, .04% expense ratio Note: 335k with cost basis of 187k
4% SWTSX at Schwab Note: 48k with cost basis of 31k
His 401k at Fidelity
17.3% US LRG COM STK INDEX .0103% expense ratio
This is from my former employer but the expense ratio is so low that I'm not sure it's important to rollover into my IRA? There are no fees to leave it.
His Roth IRA at Vanguard
9.3% VANGUARD SMALL CAP GROWTH INDEX ADMIRAL CL, VSGAX .07% expense ratio
Her Traditional IRA at Vanguard
30% VFIAX
Her Roth IRA at Vanguard
2% VFIAX
Note we hold
10.4% This will be repaid in a balloon payment in the next year or 2 and I'm not exactly sure what to do with that cash. The repayment is not a taxable event.
Expenses
20K per year for probably the next few years then maybe increase to 40k
A little background. We retired 3.5 years ago at 37 (frugal DINK) and have been doing Roth conversions during that time (as much as we can while paying 0% fed tax rate so about 35k). We have been spending a few weeks a year working on a family member's farm during harvest (because we like it, not that we feel a financial need) and they pay us all above board with a W2 which lets us make an IRA contribution for the saver's credit due to the earned income and gives us some more SS credits (we are both above the first bend point and both already have our 40+ credits in). We get our health insurance through the exchange.
Questions:
1. Portfolio questions:
a. We are risk tolerant but almost certainly heavier than we should be towards US equities? Really bad or not a big deal?
b. We are heavier in equities than I usually see recommended but we have about 10 years living expenses and I feel the usual recommendations are a bit too conservative. My plan was to start slowly transitioning to bonds at maybe age 50-55 or even later (never?) because some of this money will likely go to a younger family generation?
c. Rollover my 401k? I feel like it's a very minor point due to the low expense ratio but maybe I should as part of the larger plan?
d. I understand the taxable mutual fund may not be optimal due to the dividends? But this point may not matter if my income tax strategy below looks correct?
e. Where to put the cash from repayment of the note? This might be part of one of the previous questions though as I appropriate the money out to domestic and global equities to fix my US bias?
2. Year to year income question.
I've been playing with scenarios and various tools I've found but ultimately settled on making my own spreadsheet and want to see if what I've calculated to be optimal sounds correct:
Income for 2024
4000 earned income
4000 dividends from taxable mutual fund
3000 interest from cds
25000 Roth Conversion
10000 capital gains harvesting
46000 total income
4000 Roth IRA contribution (for 2000 savers credit which becomes refundable to pay ACA premiums because I thought we'd only make 30k this year)
tax is 650 and 1350 in repayment of ACA credits so nets to 0
Exceedingly important to not go over 46000 as savers credit immediately drops to 800 (effective marginal tax rate of 120000%![:shock:]( "Shocked")
)
My question here is does it make sense to just pay the 10% and convert the last 10000 to Roth or capital gains harvest? I believe that if I keep this strategy up (ignoring the possibility of tax law changes) then I will eventually get all the IRA converted to Roth and all my capital gains harvested? I feel like I might be missing something here because it doesn't seem like anyone else does this. It seems almost everyone converts more of their IRA to Roth but also most peoples' portfolios seem to be some multiple of mine and also older than I am. Thoughts?
I sincerely appreciate your time looking at this. I feel pretty good about where we are but really would like more eyes on it to see if I'm missing something.
Emergency funds: Yes, about 1 year in expenses.
Debt: None
Tax Filing Status: Married Filing Jointly
Tax Rate: 0% Federal, 2.75% State (No distinction on income type)
State: OH
Age: 40
Desired Asset allocation: 100% stocks / 0% bonds (see questions)
Desired International allocation: 0% (see questions)
Approximate size of your total portfolio: 1.5M
Current retirement assets
Taxable
4.5% cash (CD ladder)
22.5% VFIAX VANGUARD 500 INDEX ADMIRAL C, .04% expense ratio Note: 335k with cost basis of 187k
4% SWTSX at Schwab Note: 48k with cost basis of 31k
His 401k at Fidelity
17.3% US LRG COM STK INDEX .0103% expense ratio
This is from my former employer but the expense ratio is so low that I'm not sure it's important to rollover into my IRA? There are no fees to leave it.
His Roth IRA at Vanguard
9.3% VANGUARD SMALL CAP GROWTH INDEX ADMIRAL CL, VSGAX .07% expense ratio
Her Traditional IRA at Vanguard
30% VFIAX
Her Roth IRA at Vanguard
2% VFIAX
Note we hold
10.4% This will be repaid in a balloon payment in the next year or 2 and I'm not exactly sure what to do with that cash. The repayment is not a taxable event.
Expenses
20K per year for probably the next few years then maybe increase to 40k
A little background. We retired 3.5 years ago at 37 (frugal DINK) and have been doing Roth conversions during that time (as much as we can while paying 0% fed tax rate so about 35k). We have been spending a few weeks a year working on a family member's farm during harvest (because we like it, not that we feel a financial need) and they pay us all above board with a W2 which lets us make an IRA contribution for the saver's credit due to the earned income and gives us some more SS credits (we are both above the first bend point and both already have our 40+ credits in). We get our health insurance through the exchange.
Questions:
1. Portfolio questions:
a. We are risk tolerant but almost certainly heavier than we should be towards US equities? Really bad or not a big deal?
b. We are heavier in equities than I usually see recommended but we have about 10 years living expenses and I feel the usual recommendations are a bit too conservative. My plan was to start slowly transitioning to bonds at maybe age 50-55 or even later (never?) because some of this money will likely go to a younger family generation?
c. Rollover my 401k? I feel like it's a very minor point due to the low expense ratio but maybe I should as part of the larger plan?
d. I understand the taxable mutual fund may not be optimal due to the dividends? But this point may not matter if my income tax strategy below looks correct?
e. Where to put the cash from repayment of the note? This might be part of one of the previous questions though as I appropriate the money out to domestic and global equities to fix my US bias?
2. Year to year income question.
I've been playing with scenarios and various tools I've found but ultimately settled on making my own spreadsheet and want to see if what I've calculated to be optimal sounds correct:
Income for 2024
4000 earned income
4000 dividends from taxable mutual fund
3000 interest from cds
25000 Roth Conversion
10000 capital gains harvesting
46000 total income
4000 Roth IRA contribution (for 2000 savers credit which becomes refundable to pay ACA premiums because I thought we'd only make 30k this year)
tax is 650 and 1350 in repayment of ACA credits so nets to 0
Exceedingly important to not go over 46000 as savers credit immediately drops to 800 (effective marginal tax rate of 120000%
)My question here is does it make sense to just pay the 10% and convert the last 10000 to Roth or capital gains harvest? I believe that if I keep this strategy up (ignoring the possibility of tax law changes) then I will eventually get all the IRA converted to Roth and all my capital gains harvested? I feel like I might be missing something here because it doesn't seem like anyone else does this. It seems almost everyone converts more of their IRA to Roth but also most peoples' portfolios seem to be some multiple of mine and also older than I am. Thoughts?
I sincerely appreciate your time looking at this. I feel pretty good about where we are but really would like more eyes on it to see if I'm missing something.
Statistics: Posted by matttttttttttttttttt — Tue Nov 26, 2024 1:01 am — Replies 0 — Views 105