VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

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Snowfire
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VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

I have VBTLX in Vanguard's Roth IRA where the max allowed contribution amount is $6k as everyone knows.
I have brokerage in which I have VTSAX and VTIAX. I have been mainly auto-investing into these for quite some time now which has skewed the contributions in the brokerage vs Roth IRA account. I have around 350k in brokerage divided between VTSAX and VTIAX versus just 32k in Roth IRA into VBTLX.

I want to understand how can I contribute more to VBTLX since buying more of it in Roth IRA is no more an option after maxing it out for the year. I want to have a 70/30 stock/bond ratio in my portfolio ideally.

I am currently maxing out all the other accounts I have - my pre-tax 401k which has 4.5% employer match, Roth IRA annual limit, HSA annual limit.

Please let me know if any more details would help in answering my query. Any redirects to existing posts that discusses this would be helpful too (my own search didn't yield anything to me).

Thank you :happy

Edit:
Adding my current portfolio details -

Age: 29 years
Marital status: Single (would most likely be married in the next year or two if at all that helps).
State of Residence: California (Bay Area)

My current portfolio details -

Vanguard:
Brokerage - $350k =
VTSAX: $265k and
VTIAX: $85k
Roth IRA - $32k =
VBTLX: $25k
VTIAX: $7k (this was the very first lumpsum I made and then I realized it was probably a mistake so I stopped contributing to it there onwards and just kept buying VTIAX in brokerage)


401k Fidelity:
LIFEPATH IDX 2050 F - $150k


Emergency funds:
BofA Savings account - $30k (12 months of net income)
Last edited by Snowfire on Sun May 23, 2021 1:12 pm, edited 1 time in total.
Makefile
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Re: VBTLX maxed in Roth IRA

Post by Makefile »

Usually you would want bonds in Traditional, filling your Roth space with stocks.
Is your 401(k) already full of bonds? Does it offer a bond index fund?
stimulacra
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Re: VBTLX maxed in Roth IRA

Post by stimulacra »

I would keep equities in your Roth IRA and move VBTLX over to traditional or 401k.
Topic Author
Snowfire
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Re: VBTLX maxed in Roth IRA

Post by Snowfire »

Usually you would want bonds in Traditional, filling your Roth space with stocks.
Is your 401(k) already full of bonds? Does it offer a bond index fund?
My current employer's 401k offering is pretty limited among which I have been enrolled under a target date fund since I began investing 3 years ago. I am changing my employer next week so do you suggest I look for something specific in their offering?

Also, as far as stocks in Roth go, isn't the eventual problem going to be faced the same - that of Roth IRA having an upper limit? What after that? :confused
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Snowfire
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Re: VBTLX maxed in Roth IRA

Post by Snowfire »

I would keep equities in your Roth IRA and move VBTLX over to traditional or 401k.
1. How do you suggest I make the move now, since I already have so much in the brokerage? Would a Vanguard Fund Exchange work here? i.e move to Roth IRA without incurring fees?
2. To my previous point again - I anyway cannot move more than 6k$ in Roth IRA, correct? What about the other amount then?
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Eagle33
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Re: VBTLX maxed in Roth IRA

Post by Eagle33 »

Snowfire wrote: Sun May 23, 2021 12:24 am My current employer's 401k offering is pretty limited among which I have been enrolled under a target date fund since I began investing 3 years ago. I am changing my employer next week so do you suggest I look for something specific in their offering?
You can change the target date fund in 401k to a date closer to today to increase your bonds.
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by LadyGeek »

This thread is now in the Personal Investments forum (portfolio help). I added the fund name to the title.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
Sahara
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Re: VBTLX maxed in Roth IRA

Post by Sahara »

Snowfire wrote: Sun May 23, 2021 12:24 am
Usually you would want bonds in Traditional, filling your Roth space with stocks.
Is your 401(k) already full of bonds? Does it offer a bond index fund?
My current employer's 401k offering is pretty limited among which I have been enrolled under a target date fund since I began investing 3 years ago. I am changing my employer next week so do you suggest I look for something specific in their offering?

Also, as far as stocks in Roth go, isn't the eventual problem going to be faced the same - that of Roth IRA having an upper limit? What after that? :confused
I think the concept here is that you can exchange funds within each of the tax-advantaged accounts without any current tax consequences.
Many prefer to fill their Roth with higher growth assets such as stock, as the earnings will never be taxed. They then manage their overall AA by an increase in bonds in their tax deferred accounts. This is not a hard and fast rule, but a preference of many. The brokerage complicates things and you may choose to keep the bonds in the Roth if that's the best way to maintain your desired AA.

I'm unclear what you mean by "upper limit" here. Can you clarify your assumption?

I might suggest you edit your original post in the portfolio review format, or share the value and composition of your brokerage, 401k and Roth accounts so that members can provide more detailed answers in terms of setting up the new 401k. You could break that out into 3 index funds, or simply choose a target-date fund with a higher percentage of bonds. There's no rule that says you have to pick the target date by your actual retirement date, you can choose based upon your desired AA.

viewtopic.php?f=1&t=6212
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retired@50
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by retired@50 »

Snowfire wrote: Sat May 22, 2021 9:47 pm I want to have a 70/30 stock/bond ratio in my portfolio ideally.
The decisions about putting which assets in which accounts is discussed in this wiki page. You might find some useful lessons in it.

Tax efficient fund placement.
https://www.bogleheads.org/wiki/Tax-eff ... _placement

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
sycamore
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by sycamore »

Snowfire wrote: Sat May 22, 2021 9:47 pm I want to understand how can I contribute more to VBTLX since buying more of it in Roth IRA is no more an option after maxing it out for the year.
Are you single or married? If married, your spouse could contribute to an IRA and buy VBTLX.

How close are you to age 50? At age 50 or above you can contribute a $7000/year to an IRA.
Topic Author
Snowfire
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Re: VBTLX maxed in Roth IRA

Post by Snowfire »

Sahara wrote: Sun May 23, 2021 8:37 am
Snowfire wrote: Sun May 23, 2021 12:24 am
Usually you would want bonds in Traditional, filling your Roth space with stocks.
Is your 401(k) already full of bonds? Does it offer a bond index fund?
My current employer's 401k offering is pretty limited among which I have been enrolled under a target date fund since I began investing 3 years ago. I am changing my employer next week so do you suggest I look for something specific in their offering?

Also, as far as stocks in Roth go, isn't the eventual problem going to be faced the same - that of Roth IRA having an upper limit? What after that? :confused
I think the concept here is that you can exchange funds within each of the tax-advantaged accounts without any current tax consequences.
Many prefer to fill their Roth with higher growth assets such as stock, as the earnings will never be taxed. They then manage their overall AA by an increase in bonds in their tax deferred accounts. This is not a hard and fast rule, but a preference of many. The brokerage complicates things and you may choose to keep the bonds in the Roth if that's the best way to maintain your desired AA.

I'm unclear what you mean by "upper limit" here. Can you clarify your assumption?

I might suggest you edit your original post in the portfolio review format, or share the value and composition of your brokerage, 401k and Roth accounts so that members can provide more detailed answers in terms of setting up the new 401k. You could break that out into 3 index funds, or simply choose a target-date fund with a higher percentage of bonds. There's no rule that says you have to pick the target date by your actual retirement date, you can choose based upon your desired AA.

viewtopic.php?f=1&t=6212
By the "upper limit" , I mean I can only contribute a total of $6k per year to a Roth IRA, correct? So for the funds that I have in Roth IRA, if I cannot go over 6k, where do I purchase those funds for the current year with the extra money that I have ? Vanguard Brokerage? Or somewhere else?
Topic Author
Snowfire
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

sycamore wrote: Sun May 23, 2021 9:30 am
Snowfire wrote: Sat May 22, 2021 9:47 pm I want to understand how can I contribute more to VBTLX since buying more of it in Roth IRA is no more an option after maxing it out for the year.
Are you single or married? If married, your spouse could contribute to an IRA and buy VBTLX.

How close are you to age 50? At age 50 or above you can contribute a $7000/year to an IRA.
Thanks for the suggestions. I have updated my original post with details about my current portfolio as well as about myself :)
Topic Author
Snowfire
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

retired@50 wrote: Sun May 23, 2021 8:51 am
Snowfire wrote: Sat May 22, 2021 9:47 pm I want to have a 70/30 stock/bond ratio in my portfolio ideally.
The decisions about putting which assets in which accounts is discussed in this wiki page. You might find some useful lessons in it.

Tax efficient fund placement.
https://www.bogleheads.org/wiki/Tax-eff ... _placement

Regards,
Yep, I did go over that page when starting out and also recently. But my main question still remains uncleared - no matter which fund I keep in my Roth IRA, if I can contribute only a total of $6k annually whereas I have more than that spare to contribute, where do I purchase and keep the same funds?
Sahara
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Sahara »

Once you have filled your tax-deferred space, your taxable account options include brokerage accounts and savings accounts.
Is this what you are asking? :D
Sahara
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Sahara »

Snowfire wrote: Sat May 22, 2021 9:47 pm I have brokerage in which I have VTSAX and VTIAX.
Is this a tax advantaged account or an after tax account? If it's after tax, maybe this illustration will help with the overall big picture. You'd be short about $9,600 in bonds for your 70/30 if you fill the 401k with bonds. Does this make sense?

Brokerage $350,000.00 >> Stock
Roth $32,000.00 >> Stock
401K $150,000.00 >> Bond

TOTAL $532,000.00 $372,400.00 Stock
$159,600.00 Bond
Last edited by Sahara on Sun May 23, 2021 1:31 pm, edited 1 time in total.
Topic Author
Snowfire
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

Sahara wrote: Sun May 23, 2021 1:21 pm
Snowfire wrote: Sat May 22, 2021 9:47 pm I have brokerage in which I have VTSAX and VTIAX.
Is this a tax advantaged account or an after tax account?
This the after tax account (Vanguard's default brokerage account).
I max out my employer sponsored 401k each year to its annual limit ($19k) and also max out Roth IRA in Vanguard to $6k every year.
Topic Author
Snowfire
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

Sahara wrote: Sun May 23, 2021 1:20 pm Once you have filled your tax-deferred space, your taxable account options include brokerage accounts and savings accounts.
Is this what you are asking? :D
Yes I had that feeling too the more I thought about it but I wanted to still double check in case I might be missing out on something. I keep fearing that my strategy would turn out to be wrong in the long run and I would end up with a huge amount in the wrong account :?

So if I understand correctly what you are saying - since I am currently maxing out my Vanguard Roth IRA every year AND maxing out my employer sponsored 401k account every year, I am basically left with just a regular bank savings account and the default Vanguard brokerage account to place whichever funds I wish to for the same year, right?
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Snowfire
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

Sahara wrote: Sun May 23, 2021 1:38 pm Yes. Unless your 401k allows the Mega Backdoor https://thefinancebuff.com/rollover-aft ... roth.html

Some good resources for prioritization:
https://forum.mrmoneymustache.com/inves ... msg1332607
Reddit Flowcharts
https://i.imgur.com/u0ocDRI.png
https://u.cubeupload.com/demonlesondled ... wChart.png
1. Yes, I have read that my new employer probably has an option for mega backdoor Roth which I am planning to make full use of if that turns out to be true.
2. Thanks, I have gone over that reddit flowchart just yesterday the 2nd time to make sure I didn't miss out on something. :)

PS: That cubeupload link is dead, just saying.
Sahara
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Sahara »

krow36
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by krow36 »

Are you considering the asset allocation of your portfolio as a whole, not just by account? I think you should. Ideally, bond funds in your 401k to avoid dividend taxation if in brokerage account, only stock funds in your Roth IRA for maximum growth, only stock funds in your taxable brokerage account, stock funds OK in 401k if bonds there leave room.
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by retired@50 »

Sahara wrote: Sun May 23, 2021 1:21 pm
Snowfire wrote: Sat May 22, 2021 9:47 pm I have brokerage in which I have VTSAX and VTIAX.
Is this a tax advantaged account or an after tax account? If it's after tax, maybe this illustration will help with the overall big picture. You'd be short about $9,600 in bonds for your 70/30 if you fill the 401k with bonds. Does this make sense?

Brokerage $350,000.00 >> Stock
Roth $32,000.00 >> Stock
401K $150,000.00 >> Bond

TOTAL $532,000.00 $372,400.00 Stock
$159,600.00 Bond
I think something like the above is probably what will be needed.

However, this will mean a change in the 401k plan from the target date fund you're currently using to a pure bond index fund.

Do you have a decent total bond market fund or intermediate term bond index fund as a choice in your 401k plan?

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Snowfire
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

retired@50 wrote: Sun May 23, 2021 1:47 pm
Sahara wrote: Sun May 23, 2021 1:21 pm
Snowfire wrote: Sat May 22, 2021 9:47 pm I have brokerage in which I have VTSAX and VTIAX.
Is this a tax advantaged account or an after tax account? If it's after tax, maybe this illustration will help with the overall big picture. You'd be short about $9,600 in bonds for your 70/30 if you fill the 401k with bonds. Does this make sense?

Brokerage $350,000.00 >> Stock
Roth $32,000.00 >> Stock
401K $150,000.00 >> Bond

TOTAL $532,000.00 $372,400.00 Stock
$159,600.00 Bond
I think something like the above is probably what will be needed.

However, this will mean a change in the 401k plan from the target date fund you're currently using to a pure bond index fund.

Do you have a decent total bond market fund or intermediate term bond index fund as a choice in your 401k plan?

Regards,
Hmm, that's something I would have to look at once I enroll in my new employer's plan this week. I will update this thread once I know what all they have with them to offer in terms of bond index funds :happy
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Snowfire
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

Sahara wrote: Sun May 23, 2021 1:21 pm
Snowfire wrote: Sat May 22, 2021 9:47 pm I have brokerage in which I have VTSAX and VTIAX.
Is this a tax advantaged account or an after tax account? If it's after tax, maybe this illustration will help with the overall big picture. You'd be short about $9,600 in bonds for your 70/30 if you fill the 401k with bonds. Does this make sense?

Brokerage $350,000.00 >> Stock
Roth $32,000.00 >> Stock
401K $150,000.00 >> Bond

TOTAL $532,000.00 $372,400.00 Stock
$159,600.00 Bond
This makes sense. However, as I mentioned in my portfolio description, I have ~$25k bonds in my Roth IRA right now. Do I just discontinue contributing further to the bonds in Roth IRA and instead keep putting stock funds (say, VTSAX) moving forward so that over time the proportion of these 25k stocks diminish over time? Because if I were to sell them in order to purchase them for buying stock funds, that would incur some penalties + fees, right?
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by lazynovice »

Snowfire wrote: Sun May 23, 2021 4:20 pm
Sahara wrote: Sun May 23, 2021 1:21 pm
Snowfire wrote: Sat May 22, 2021 9:47 pm I have brokerage in which I have VTSAX and VTIAX.
Is this a tax advantaged account or an after tax account? If it's after tax, maybe this illustration will help with the overall big picture. You'd be short about $9,600 in bonds for your 70/30 if you fill the 401k with bonds. Does this make sense?

Brokerage $350,000.00 >> Stock
Roth $32,000.00 >> Stock
401K $150,000.00 >> Bond

TOTAL $532,000.00 $372,400.00 Stock
$159,600.00 Bond
This makes sense. However, as I mentioned in my portfolio description, I have ~$25k bonds in my Roth IRA right now. Do I just discontinue contributing further to the bonds in Roth IRA and instead keep putting stock funds (say, VTSAX) moving forward so that over time the proportion of these 25k stocks diminish over time? Because if I were to sell them in order to purchase them for buying stock funds, that would incur some penalties + fees, right?
No. Transactions within the Roth are not taxable. You are not taking money out of the account, just changing the investments.
Sahara
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Sahara »

[/quote]
No. Transactions within the Roth are not taxable. You are not taking money out of the account, just changing the investments.
[/quote]

This applies to your 401K as well.

Moving forward, you can also use your contributions to maintain your AA.
Say you get the new 401k, you exchange the current 401k to bonds.
You are short the $9,600 to make you exactly 70/30.
So in the new 401k contribute only bonds until you have your 70/30.
Then you could allocate contributions in a 70/30 manner as below:

19,500 + 6,000 = 25,500 (30% = 7,650)
Contribution allocation

Roth 6,000 Stock
401K 7,650 Bonds and the rest stock 11,850
Topic Author
Snowfire
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

lazynovice wrote: Sun May 23, 2021 4:26 pm
Snowfire wrote: Sun May 23, 2021 4:20 pm
Sahara wrote: Sun May 23, 2021 1:21 pm
Snowfire wrote: Sat May 22, 2021 9:47 pm I have brokerage in which I have VTSAX and VTIAX.
Is this a tax advantaged account or an after tax account? If it's after tax, maybe this illustration will help with the overall big picture. You'd be short about $9,600 in bonds for your 70/30 if you fill the 401k with bonds. Does this make sense?

Brokerage $350,000.00 >> Stock
Roth $32,000.00 >> Stock
401K $150,000.00 >> Bond

TOTAL $532,000.00 $372,400.00 Stock
$159,600.00 Bond
This makes sense. However, as I mentioned in my portfolio description, I have ~$25k bonds in my Roth IRA right now. Do I just discontinue contributing further to the bonds in Roth IRA and instead keep putting stock funds (say, VTSAX) moving forward so that over time the proportion of these 25k stocks diminish over time? Because if I were to sell them in order to purchase them for buying stock funds, that would incur some penalties + fees, right?
No. Transactions within the Roth are not taxable. You are not taking money out of the account, just changing the investments.
Does that mean I can literally just go into my Vanguard account and exchange the entire $25k worth of existing bond funds into 1 or more stock funds without any charges at all - fees, penalties, load/commissions, etc? :greedy :-o :-D
Topic Author
Snowfire
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

Sahara wrote: Sun May 23, 2021 4:45 pm
No. Transactions within the Roth are not taxable. You are not taking money out of the account, just changing the investments.
This applies to your 401K as well.

Moving forward, you can also use your contributions to maintain your AA.
Say you get the new 401k, you exchange the current 401k to bonds.
You are short the $9,600 to make you exactly 70/30.
So in the new 401k contribute only bonds until you have your 70/30.
Then you could allocate contributions in a 70/30 manner as below:

19,500 + 6,000 = 25,500 (30% = 7,650)
Contribution allocation

Roth 6,000 Stock
401K 7,650 Bonds and the rest stock 11,850
Absolutely brilliant ! :sharebeer
I am definitely going to check and set my auto-contribution % in Vanguard Roth IRA and whichever new 401k I get. Thank you so very much! :D
Sahara
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Sahara »

[/quote]
Does that mean I can literally just go into my Vanguard account and exchange the entire $25k worth of existing bond funds into 1 or more stock funds without any charges at all - fees, penalties, load/commissions, etc? :greedy :-o :-D
[/quote]

Yep, as long as it's a Roth at Vanguard with Vanguard funds.
Sahara
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Sahara »

Snowfire wrote: Sun May 23, 2021 4:49 pm
Sahara wrote: Sun May 23, 2021 4:45 pm
No. Transactions within the Roth are not taxable. You are not taking money out of the account, just changing the investments.
This applies to your 401K as well.

Moving forward, you can also use your contributions to maintain your AA.
Say you get the new 401k, you exchange the current 401k to bonds.
You are short the $9,600 to make you exactly 70/30.
So in the new 401k contribute only bonds until you have your 70/30.
Then you could allocate contributions in a 70/30 manner as below:

19,500 + 6,000 = 25,500 (30% = 7,650)
Contribution allocation

Roth 6,000 Stock
401K 7,650 Bonds and the rest stock 11,850
Absolutely brilliant ! :sharebeer
I am definitely going to check and set my auto-contribution % in Vanguard Roth IRA and whichever new 401k I get. Thank you so very much! :D
My pleasure. Keep us posted.
Topic Author
Snowfire
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

Sahara wrote: Sun May 23, 2021 5:06 pm
Snowfire wrote: Sun May 23, 2021 4:49 pm
Sahara wrote: Sun May 23, 2021 4:45 pm
No. Transactions within the Roth are not taxable. You are not taking money out of the account, just changing the investments.
This applies to your 401K as well.

Moving forward, you can also use your contributions to maintain your AA.
Say you get the new 401k, you exchange the current 401k to bonds.
You are short the $9,600 to make you exactly 70/30.
So in the new 401k contribute only bonds until you have your 70/30.
Then you could allocate contributions in a 70/30 manner as below:

19,500 + 6,000 = 25,500 (30% = 7,650)
Contribution allocation

Roth 6,000 Stock
401K 7,650 Bonds and the rest stock 11,850
Absolutely brilliant ! :sharebeer
I am definitely going to check and set my auto-contribution % in Vanguard Roth IRA and whichever new 401k I get. Thank you so very much! :D
My pleasure. Keep us posted.
So my new employer has the following funds for 401k belonging to the the Bond category -
  1. Fidelity® U.S. Bond Index Fund (FXNAX)
  2. Fidelity® Long-Term Treasury Bond Index Fund ( FNBGX)
  3. Loomis Sayles Core Plus Bond Fund Class N (NERNX)
  4. DFA Inflation-Protected Securities Portfolio Institutional Class (DIPSX)
If I understand correctly the previous correctly, then I should take the following 2 actions for the fund I end up choosing -
  1. Setup my per paycheck contribution to go into this fund as pre-tax 401k to get employer match as well in it
  2. Exchange (NOT SELL FOLLOWED BY BUYING) all the existing contribution amount from the current target date fund and exchange it to this new fund
Please let me know if my understanding is correct or if I missed out on something.

As an aside, my employer also provides the mega backdoor Roth 401k option which I am planning to make full use of, unless the community here suggests otherwise :?:

Thank you for all your help until you and in advance for the future help too :happy

PS: Please let me know if I should create a separate post for the discussion on mega backdoor Roth 401k contribution plan or link me to an existing discussion that might be directly relevant / useful here
Sahara
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Sahara »

I am going to take this in steps for you.

1 as discussed you want to exchange the VBTLX in your Roth into VTSAX
2 here’s where we need clarity - the old 401k - is it moving into the current 401k? If yes, move that in and buy FXNAX. If no, provide bonds available with the old provider and we can suggest the best option for exchange within the account.
3 for the new 401k you want to contribute at your AA. You’ll want to use 30% of($19,500)FXNAX 7,650. And then a broad stock market index and an international index. Can you provide the details for the funds in your new 401k.

You are currently about 25% international. What is your desired international allocation?

Please let us know if this makes sense and we can get this piece settled. Then the MBR can be explored. :happy
Topic Author
Snowfire
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

Sahara wrote: Tue Jun 01, 2021 10:48 am I am going to take this in steps for you.

1 as discussed you want to exchange the VBTLX in your Roth into VTSAX
2 here’s where we need clarity - the old 401k - is it moving into the current 401k? If yes, move that in and buy FXNAX. If no, provide bonds available with the old provider and we can suggest the best option for exchange within the account.
3 for the new 401k you want to contribute at your AA. You’ll want to use 30% of($19,500)FXNAX 7,650. And then a broad stock market index and an international index. Can you provide the details for the funds in your new 401k.

You are currently about 25% international. What is your desired international allocation?

Please let us know if this makes sense and we can get this piece settled. Then the MBR can be explored. :happy
  1. Yes, I have already submitted that transaction and it is underway. As you can see in this image, it shows a buy (exchange) and a sell (exchange) both posted on the same day and have the exact same amount in them, which I assume indicates that it will end up just swapping the funds without incurring any tax / penalties.
  2. So things are not as straightforward here as I had hoped for (at least for me, maybe because it's the first time for me doing this) - both my old and new employers are with Fidelity. However, I have been contributing to both pre-tax 401k (to get the company match) as well as Roth 401k for the last 3.5 years totaling to the amount I mentioned in the very beginning. When I spoke with Fidelity rep today, they said that - a) My new employer does not do a Roth 401k roll-in so I would have to speak with Fidelity's Roth 401k team to know my options for how to move the money out from my old employer. b) If there is the exact same fund in the pre-tax with my new employer that I have been contributing towards at my old employer, then I won't have to do anything on my end, they would simply port the same fund over to my new employer. However, if there is no direct matching of the funds in the pre-tax, then I would have to decide and tell them which fund do I want to move those funds to in the new employer's pre-tax 401k.
    Given this to be the case then, if I understand correctly, I believe the part a) would need me to provide the list of funds that are available at my old and new employers (which I have done here below) and for b) FXNAX is the answer assuming there is no 1-1 matching of bonds (I cross checked and do see that there is NOT direct mapping, but I will still let Fidelity confirm the same to me when I get back in touch with them) ?
    The list of funds with my old employer and new employer can be found here
  3. The first part of your qs here can be answered based on the list of funds I shared above. For the 2nd part, I am 25% international mostly because I just kept contributing to the target date (lifepath) funds knowing that they are automatically rebalanced (and that I was a bit of a noob back then when I started) and that the lifepath 20XX was the year that I was looking to retire eventually (I hope) :confused
Sorry if this has turned out to be a rather long reply, please take your time to go over it and let me know if I misunderstood or missed anything from your requested questions.
Sahara
Posts: 603
Joined: Tue Dec 04, 2018 5:21 pm

Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Sahara »

Snowfire wrote: Wed Jun 02, 2021 1:09 am
Sahara wrote: Tue Jun 01, 2021 10:48 am I am going to take this in steps for you.

1 as discussed you want to exchange the VBTLX in your Roth into VTSAX
2 here’s where we need clarity - the old 401k - is it moving into the current 401k? If yes, move that in and buy FXNAX. If no, provide bonds available with the old provider and we can suggest the best option for exchange within the account.
3 for the new 401k you want to contribute at your AA. You’ll want to use 30% of($19,500)FXNAX 7,650. And then a broad stock market index and an international index. Can you provide the details for the funds in your new 401k.

You are currently about 25% international. What is your desired international allocation?

Please let us know if this makes sense and we can get this piece settled. Then the MBR can be explored. :happy
  1. Yes, I have already submitted that transaction and it is underway. As you can see in this image, it shows a buy (exchange) and a sell (exchange) both posted on the same day and have the exact same amount in them, which I assume indicates that it will end up just swapping the funds without incurring any tax / penalties.
    Excellent
  2. So things are not as straightforward here as I had hoped for (at least for me, maybe because it's the first time for me doing this) - both my old and new employers are with Fidelity. However, I have been contributing to both pre-tax 401k (to get the company match) as well as Roth 401k for the last 3.5 years totaling to the amount I mentioned in the very beginning. When I spoke with Fidelity rep today, they said that - a) My new employer does not do a Roth 401k roll-in so I would have to speak with Fidelity's Roth 401k team to know my options for how to move the money out from my old employer.

    Since you have separated from this employer, you may be able to roll the Roth finds into your current Roth. If you do this, what is the dollar amount of pre tax 401k?

    b) If there is the exact same fund in the pre-tax with my new employer that I have been contributing towards at my old employer, then I won't have to do anything on my end, they would simply port the same fund over to my new employer. However, if there is no direct matching of the funds in the pre-tax, then I would have to decide and tell them which fund do I want to move those funds to in the new employer's pre-tax 401k.
    Given this to be the case then, if I understand correctly, I believe the part a) would need me to provide the list of funds that are available at my old and new employers (which I have done here below) and for b) FXNAX is the answer assuming there is no 1-1 matching of bonds (I cross checked and do see that there is NOT direct mapping, but I will still let Fidelity confirm the same to me when I get back in touch with them) ?

    If you currently utilize a target fund in your Fidelity 401k and they will port that over to the exact same target date fund, I believe you might just let that happen and then exchange into FXNAX. I see from the list that the target date funds are not the same. So in this event you will want to tell them to exchange pre tax 401k account balance into FXNAX.
    The list of funds with my old employer and new employer can be found here
  3. The first part of your qs here can be answered based on the list of funds I shared above. For the 2nd part, I am 25% international mostly because I just kept contributing to the target date (lifepath) funds knowing that they are automatically rebalanced (and that I was a bit of a noob back then when I started) and that the lifepath 20XX was the year that I was looking to retire eventually (I hope) :confused

    I had not included the international portion of your 401k when I estimated that you are 25% international. Considering the target date fund, you have a higher international allocation. However, what matters is what international allocation you would like to be moving forward. What do you think you would feel comfortable with in that regard? And we are all noobs at some point. You are taking the initiative and learning and getting yourself set according to a new set of principles, which is commendable and will serve you well in the long run.
Sorry if this has turned out to be a rather long reply, please take your time to go over it and let me know if I misunderstood or missed anything from your requested questions.
This was thorough and very helpful in informing the next steps. From the list of funds in the new 401k I believe the best choices are FXNAX, FXAIX and FSPFX. If you can review my blue and also bolded comments above we can continue to clarify your next moves. The specific amounts of Roth VS pre tax will be helpful. Do you plan to contribute 100% pre tax in the 401k moving forward?
Topic Author
Snowfire
Posts: 31
Joined: Sat Oct 07, 2017 9:18 pm

Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

Sahara wrote: Wed Jun 02, 2021 2:02 am
Snowfire wrote: Wed Jun 02, 2021 1:09 am
Sahara wrote: Tue Jun 01, 2021 10:48 am I am going to take this in steps for you.

1 as discussed you want to exchange the VBTLX in your Roth into VTSAX
2 here’s where we need clarity - the old 401k - is it moving into the current 401k? If yes, move that in and buy FXNAX. If no, provide bonds available with the old provider and we can suggest the best option for exchange within the account.
3 for the new 401k you want to contribute at your AA. You’ll want to use 30% of($19,500)FXNAX 7,650. And then a broad stock market index and an international index. Can you provide the details for the funds in your new 401k.

You are currently about 25% international. What is your desired international allocation?

Please let us know if this makes sense and we can get this piece settled. Then the MBR can be explored. :happy
  1. Yes, I have already submitted that transaction and it is underway. As you can see in this image, it shows a buy (exchange) and a sell (exchange) both posted on the same day and have the exact same amount in them, which I assume indicates that it will end up just swapping the funds without incurring any tax / penalties.
    Excellent
  2. So things are not as straightforward here as I had hoped for (at least for me, maybe because it's the first time for me doing this) - both my old and new employers are with Fidelity. However, I have been contributing to both pre-tax 401k (to get the company match) as well as Roth 401k for the last 3.5 years totaling to the amount I mentioned in the very beginning. When I spoke with Fidelity rep today, they said that - a) My new employer does not do a Roth 401k roll-in so I would have to speak with Fidelity's Roth 401k team to know my options for how to move the money out from my old employer.

    Since you have separated from this employer, you may be able to roll the Roth finds into your current Roth. If you do this, what is the dollar amount of pre tax 401k?

    b) If there is the exact same fund in the pre-tax with my new employer that I have been contributing towards at my old employer, then I won't have to do anything on my end, they would simply port the same fund over to my new employer. However, if there is no direct matching of the funds in the pre-tax, then I would have to decide and tell them which fund do I want to move those funds to in the new employer's pre-tax 401k.
    Given this to be the case then, if I understand correctly, I believe the part a) would need me to provide the list of funds that are available at my old and new employers (which I have done here below) and for b) FXNAX is the answer assuming there is no 1-1 matching of bonds (I cross checked and do see that there is NOT direct mapping, but I will still let Fidelity confirm the same to me when I get back in touch with them) ?

    If you currently utilize a target fund in your Fidelity 401k and they will port that over to the exact same target date fund, I believe you might just let that happen and then exchange into FXNAX. I see from the list that the target date funds are not the same. So in this event you will want to tell them to exchange pre tax 401k account balance into FXNAX.
    The list of funds with my old employer and new employer can be found here
  3. The first part of your qs here can be answered based on the list of funds I shared above. For the 2nd part, I am 25% international mostly because I just kept contributing to the target date (lifepath) funds knowing that they are automatically rebalanced (and that I was a bit of a noob back then when I started) and that the lifepath 20XX was the year that I was looking to retire eventually (I hope) :confused

    I had not included the international portion of your 401k when I estimated that you are 25% international. Considering the target date fund, you have a higher international allocation. However, what matters is what international allocation you would like to be moving forward. What do you think you would feel comfortable with in that regard? And we are all noobs at some point. You are taking the initiative and learning and getting yourself set according to a new set of principles, which is commendable and will serve you well in the long run.
Sorry if this has turned out to be a rather long reply, please take your time to go over it and let me know if I misunderstood or missed anything from your requested questions.
This was thorough and very helpful in informing the next steps. From the list of funds in the new 401k I believe the best choices are FXNAX, FXAIX and FSPFX. If you can review my blue and also bolded comments above we can continue to clarify your next moves. The specific amounts of Roth VS pre tax will be helpful. Do you plan to contribute 100% pre tax in the 401k moving forward?
  1. Cool
    1. I noticed that Fidelity is not allowing me to view my own past contributions because I am no longer an employee of my ex-employer (heh). My guess is they will let me view it again once I transfer over completely to my new employer. However, I can still see the home page that shows the allocation in %. That allocation is here. As you can see, it shows ~38% in Roth 401k and the rest is in pre-tax since the employer match was also only in pre-tax 401k. Taking the original figures I shared at the beginning of this post then, it means I have ~$57k in Roth 401k and remaining in the pre-tax 401k.
    2. I am not sure I understood your point about rolling over Roth 401k from the old to the new since, like I said before, my employer doesn't allow Roth 401k roll-ins :|
    3. Understood the point about moving to FXNAX eventually. Will do so once I get everything in place with Fidelity.
  2. Tbh, I didn't give much thought to the US vs non-US allocation since I mainly relied on the broadly classified index mutual funds to do the work of deciding the US/non-US(aka international) allocation percentages. I don't want to diverge into another thread here but if there is any particular post on this forum or elsewhere that you can share about understanding how to narrow down into percentages for US vs non-US allocation, I am open to spending time on it and learning more about it :happy
  3. Moving forward, I am planning to stick to the allocation that we discussed above in this same post. That should be fine, right ?
Sahara
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Sahara »

What I’m saying about the Roth 401k is that I believe once you have separated from that employer, the Roth 401k may be rolled into you Roth IRA. Does that make sense?

Yes, the allocation we discussed previously will work well. I have a spreadsheet I will share in a few days outlining the allocation for the current accounts and the contributions moving forward. The spreadsheet will rely upon knowing how much is in which account. So I will chunk all of the Roth together and then the remaining pre tax together and then your taxable.

As for international there are a zillion threads and a zillion opinions. I like 20% of stock international which comes out to about 17% of the overall portfolio. Take some time to decide what will be comfortable for you. The target date funds have a higher percentage in international and also include international bonds, which is not something the forum feels a strong need to include. Maybe just do a little more reading on the 2 and 3 fund portfolio. Have you read JL Collins, the Simple Path to Wealth? That might be helpful.

The one question I have still unanswered is whether you plan to continue to contribute to the 401k with both pre tax and Roth?
Topic Author
Snowfire
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Joined: Sat Oct 07, 2017 9:18 pm

Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

Sahara wrote: Thu Jun 03, 2021 1:00 pm What I’m saying about the Roth 401k is that I believe once you have separated from that employer, the Roth 401k may be rolled into you Roth IRA. Does that make sense?

Yes, it does. I would have to look into the process for doing that since I have not done it before though.

Yes, the allocation we discussed previously will work well. I have a spreadsheet I will share in a few days outlining the allocation for the current accounts and the contributions moving forward. The spreadsheet will rely upon knowing how much is in which account. So I will chunk all of the Roth together and then the remaining pre tax together and then your taxable.

Looking forward to it! :happy

As for international there are a zillion threads and a zillion opinions. I like 20% of stock international which comes out to about 17% of the overall portfolio. Take some time to decide what will be comfortable for you. The target date funds have a higher percentage in international and also include international bonds, which is not something the forum feels a strong need to include. Maybe just do a little more reading on the 2 and 3 fund portfolio. Have you read JL Collins, the Simple Path to Wealth? That might be helpful.

Haha, yes I did get the exact same thought about lots of already existing posts even when I was typing. I will search around the forum to see what I get. Also, for the book, I have that as a to-read item having read Learn to Earn, One Up Wall Street, Millionaire Next Door, The Bogleheads Guide to Investing(this was a couple of years ago when I had just started learning and wanted to invest my money for the first time) before. Will pick up this one next I suppose.

The one question I have still unanswered is whether you plan to continue to contribute to the 401k with both pre tax and Roth?

I do, unless suggestions are otherwise :happy
Sahara
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Sahara »

Regarding the Traditional VS Roth decision, if your current tax bracket is above 22% and you will not have a pension in retirement, it’s usually best to contribute to the Traditional (pre tax) 401k. This is because you will withdraw the funds in retirement when you should be in a lower tax bracket. This is something you can monitor and adjust as you age and things in your life change such as marital status etc.

Regarding the 401k Roth funds that can’t be rolled in to the new 401k, I would suggest giving Fidelity or the benefits/hr department of the previous job a call and asking whether the plan provisions support a transfer from the Roth 401k to a Roth IRA. If so, then we can look at the specific steps of that process.

I noticed you haven’t mentioned the funds in the HSA, is that a total stock market index as well?
Topic Author
Snowfire
Posts: 31
Joined: Sat Oct 07, 2017 9:18 pm

Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

Sahara wrote: Fri Jun 04, 2021 12:33 am Regarding the Traditional VS Roth decision, if your current tax bracket is above 22% and you will not have a pension in retirement, it’s usually best to contribute to the Traditional (pre tax) 401k. This is because you will withdraw the funds in retirement when you should be in a lower tax bracket. This is something you can monitor and adjust as you age and things in your life change such as marital status etc.

I am currently in the 32% tax bracket. I am also on an H1B with very slim hopes of ever landing a green-card / citizenship in the US - either because if I stay here it will still take a very very long time (some say > 25yrs) for a GC or most likely I will just go back in the next few years (because I miss my mom and dad :( ). So the topic of how someone in my state of affairs should go about investing is another one that I had banged my head for a long time before even putting a single penny towards investment outside of the pre-tax 401k match lol, and is a topic for a post of its own

Regarding the 401k Roth funds that can’t be rolled in to the new 401k, I would suggest giving Fidelity or the benefits/hr department of the previous job a call and asking whether the plan provisions support a transfer from the Roth 401k to a Roth IRA. If so, then we can look at the specific steps of that process.

Yes, now that I know what to do with the 401k regarding rollovers and subsequent contribution steps, I will give them a call in a day or two to talk about it and would bring up the Roth 401k topic at the same time


I noticed you haven’t mentioned the funds in the HSA, is that a total stock market index as well?
I have HSA with HealthEquity from the previous employer having ~$6k in it that are all kept in VIIIX
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celia
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by celia »

I agree that the old Roth 401k should be moved to a new Roth IRA at Fidelity and you can invest it in whatever you want at the moment, but eventually you want that $57K in a stock fund.

The old pre-tax 401K (about $93K) should be moved to your new 401K and be invested in FXNAX, a bond fund. The first $57K of new contributions should go to the same fund, as well as the next $9K. For each $10k of new contributions going to bonds, the same amount of money in the new Roth IRA should go to a stock fund.

Then, after $57K + $9K of new contributions are made to the new 401K, you should be close to a 70% /30% (stocks / bonds) portfolio with assets being in the correct location.

There are no tax consequences in the current year when you sell something in a retirement account, like there is in a taxable account.


According to the Tax-efficient Fund Placement wiki page, you want to maximize future tax-free growth in your Roth accounts so you put stock funds there. Since there are no tax advantages to bond interest, bonds should be in tax-deferred accounts. That will also slow down the account’s growth and future RMDs (and taxes in retirement). Stock funds and International funds in taxable accounts will generate qualified dividends and Long Term Capital Gains that will be taxed at a lower rate than your regular income.

I think there were two things that contributed to the original confusion in this thread. First, you were referring to your Taxable accounts as “Brokerage accounts”. It appears that ALL of your Vanguard and Fidelity accounts are BROKERAGE accounts. That means that the account can hold individual stocks and bonds as well as mutal funds and ETFs (Exchange Traded Funds). Your Taxable accounts, your IRAs, and your employer retirement accounts are all brokerage accounts.

Secondly, I think you were confusing the limits of annual contributions with something that did not have limits (the value of an investment in an account). You can sell any investment, then buy something new with the money. But in brokerage accounts, there is a two or three day wait for “settlement” to occur. Think of this as you are selling 100 shares of a stock. At the same time, someone else is buying those shares from you for the same price you are selling at. You can’t re-invest the sale proceeds right away, since it can take three business days for the buyer’s money to get to your account. (Recently this time lag was shortened to two business days.). To avoid this time lag, if you are selling and buying funds marketed by your custodian, you can do an “exchange” instead.

Hope this makes more sense to you. We try to use the correct terminology here to help avoid miscommunication.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
Sahara
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Sahara »

The linked spreadsheet will hopefully illustrate the changes we’ve discussed. Celia has kindly and clearly mapped out the numbers for you. The few minor clarifications have been very helpful and we can see that you are currently about 83% stock and 17% bonds, with 21% of your stock in international.

Please let us know how we can continue to support your learning and implementation as you simplify and solidify.

https://docs.google.com/spreadsheets/d/ ... quxP4/edit
Topic Author
Snowfire
Posts: 31
Joined: Sat Oct 07, 2017 9:18 pm

Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

celia wrote: Fri Jun 04, 2021 2:41 am I agree that the old Roth 401k should be moved to a new Roth IRA at Fidelity and you can invest it in whatever you want at the moment, but eventually you want that $57K in a stock fund.

Understood.
Action item: I will call Fidelity and tell them to move ~$93k from my old pre-tax 401k to FXNAX in new pre-tax 401k and ~$57k from my old pre-tax 401k to FXAIX in newly created Fidelity's Roth IRA. Both of these should be a non-taxable event if I understand correctly (as mentioned below here in your response).



The old pre-tax 401K (about $93K) should be moved to your new 401K and be invested in FXNAX, a bond fund. The first $57K of new contributions should go to the same fund, as well as the next $9K. For each $10k of new contributions going to bonds, the same amount of money in the new Roth IRA should go to a stock fund.

Small qs: For each $10k going to FXNAX in pre-tax 401k, how can I put $10k in Roth IRA? Isn't the annual limit as of now only $6k for Roth IRA contributions?
Action item: Set up the automatic paycheck contributions to new pre-tax 401k to go only into FXNAX until the new contribution totals to $66k ($57k + $9k).


Then, after $57K + $9K of new contributions are made to the new 401K, you should be close to a 70% /30% (stocks / bonds) portfolio with assets being in the correct location.

There are no tax consequences in the current year when you sell something in a retirement account, like there is in a taxable account.


According to the Tax-efficient Fund Placement wiki page, you want to maximize future tax-free growth in your Roth accounts so you put stock funds there. Since there are no tax advantages to bond interest, bonds should be in tax-deferred accounts. That will also slow down the account’s growth and future RMDs (and taxes in retirement). Stock funds and International funds in taxable accounts will generate qualified dividends and Long Term Capital Gains that will be taxed at a lower rate than your regular income.

I think there were two things that contributed to the original confusion in this thread. First, you were referring to your Taxable accounts as “Brokerage accounts”. It appears that ALL of your Vanguard and Fidelity accounts are BROKERAGE accounts. That means that the account can hold individual stocks and bonds as well as mutal funds and ETFs (Exchange Traded Funds). Your Taxable accounts, your IRAs, and your employer retirement accounts are all brokerage accounts.

Secondly, I think you were confusing the limits of annual contributions with something that did not have limits (the value of an investment in an account). You can sell any investment, then buy something new with the money. But in brokerage accounts, there is a two or three day wait for “settlement” to occur. Think of this as you are selling 100 shares of a stock. At the same time, someone else is buying those shares from you for the same price you are selling at. You can’t re-invest the sale proceeds right away, since it can take three business days for the buyer’s money to get to your account. (Recently this time lag was shortened to two business days.). To avoid this time lag, if you are selling and buying funds marketed by your custodian, you can do an “exchange” instead.

Hope this makes more sense to you. We try to use the correct terminology here to help avoid miscommunication.
I apologize for the confusion. I will make a point to understand, remember and use the correct terminologies moving forward to avoid any confusion :happy
Thank you for the detailed reply including the action items + explanation. I feel grateful to have such teachings showered upon me :D
Topic Author
Snowfire
Posts: 31
Joined: Sat Oct 07, 2017 9:18 pm

Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

Sahara wrote: Fri Jun 04, 2021 8:10 am The linked spreadsheet will hopefully illustrate the changes we’ve discussed. Celia has kindly and clearly mapped out the numbers for you. The few minor clarifications have been very helpful and we can see that you are currently about 83% stock and 17% bonds, with 21% of your stock in international.

Please let us know how we can continue to support your learning and implementation as you simplify and solidify.

https://docs.google.com/spreadsheets/d/ ... quxP4/edit
Amazing! I had to spend a few minutes carefully reading the individual rows in that spreadsheet but at the end of it, it is fully clear to me how my portfolio should end up looking. Now I have something to work towards :happy
As for the international portion of my current portfolio, I will keep it as is until the other parts of my portfolio are adjust correctly and meanwhile try to read more about how to think on deciding the right amount of international exposure that I am fine having. :sharebeer
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by m@ver1ck »

Since binds really pay out $0 at this point, I’ve got all of the bonds in my taxable.
Sahara
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Sahara »

Snowfire wrote: Sat Jun 05, 2021 11:53 am
Small qs: For each $10k going to FXNAX in pre-tax 401k, how can I put $10k in Roth IRA? Isn't the annual limit as of now only $6k for Roth IRA contributions?


The old Roth 401k money going into the new Roth IRA is a direct trustee to trustee transfer. The limits do not apply to this transaction.

I'm unclear as to what Celia means by this: "For each $10k of new contributions going to bonds, the same amount of money in the new Roth IRA should go to a stock fund."

I was operating under the assumption the Roth would be 100% Stock.
Sahara
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Sahara »

Snowfire wrote: Fri Jun 04, 2021 1:14 am
Sahara wrote: Fri Jun 04, 2021 12:33 am Regarding the Traditional VS Roth decision, if your current tax bracket is above 22% and you will not have a pension in retirement, it’s usually best to contribute to the Traditional (pre tax) 401k. This is because you will withdraw the funds in retirement when you should be in a lower tax bracket. This is something you can monitor and adjust as you age and things in your life change such as marital status etc.

I am currently in the 32% tax bracket. I am also on an H1B with very slim hopes of ever landing a green-card / citizenship in the US - either because if I stay here it will still take a very very long time (some say > 25yrs) for a GC or most likely I will just go back in the next few years (because I miss my mom and dad :( ). So the topic of how someone in my state of affairs should go about investing is another one that I had banged my head for a long time before even putting a single penny towards investment outside of the pre-tax 401k match lol, and is a topic for a post of its own

Regarding the 401k Roth funds that can’t be rolled in to the new 401k, I would suggest giving Fidelity or the benefits/hr department of the previous job a call and asking whether the plan provisions support a transfer from the Roth 401k to a Roth IRA. If so, then we can look at the specific steps of that process.

Yes, now that I know what to do with the 401k regarding rollovers and subsequent contribution steps, I will give them a call in a day or two to talk about it and would bring up the Roth 401k topic at the same time


I noticed you haven’t mentioned the funds in the HSA, is that a total stock market index as well?
I have HSA with HealthEquity from the previous employer having ~$6k in it that are all kept in VIIIX
Aha. A typical individual without a pension and in the 32% tax bracket would benefit from 100% pre tax/traditional 401k contributions. Although I am familiar with the difficulties of attaining that citizenship/GC, I am unfamiliar with how moving home might affect the investments. That is definitely something you want to explore.

The HSA fund looks fine to me.
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celia
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Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by celia »

Snowfire wrote: Sat Jun 05, 2021 11:53 am
celia wrote: Fri Jun 04, 2021 2:41 am I agree that the old Roth 401k should be moved to a new Roth IRA at Fidelity and you can invest it in whatever you want at the moment, but eventually you want that $57K in a stock fund.

Understood.
Action item: I will call Fidelity and tell them to move ~$93k from my old pre-tax 401k to FXNAX in new pre-tax 401k and ~$57k from my old pre-tax 401k to FXAIX in newly created Fidelity's Roth IRA. Both of these should be a non-taxable event if I understand correctly (as mentioned below here in your response).
I didn't want to overload this thread with too much detail, but it appears you now understand the main point. I also wanted to warn you that Fidelity likely won't be able to move the money out of the old 401K until you do some paperwork that involves having your old employer sign off on you having left the company. You usually can't move money out of an employer plan until you are 59.5 or you have left the company. Back when I was rolling over money from an employer plan, I had to obtain a form and get my old employer to sign off on what my last day of work was. That was mailed to the new plan along with a form to move the money. If you are mailing to two companies, you may need to photocopy the signed employer form. Just letting you know that this may take some time, unless the process has been streamlined, especially with your old and new 401Ks at the same custodian.

In addition, the correct term to use for both transfers out of your old 401K is that you want to do a "direct rollover", one rollover to a Roth IRA and one to the new 401K. A "direct rollover" means you don't have access to the money such as if a check is made out to you. Checks should be made out to the Roth IRA custodian (whoever is the custodian of the Roth IRA you want the money to go into, and Fidelity for the new 401K) "for benefit of (FBO) <SnowFire>". One or both checks will likely be mailed out to you. Then you have a chance to photocopy them and mail them immediately to the new custodians since the money needs to be in the new accounts within 60 days. [Make sure you don't get an "indirect rollover" which is a check made out to you as only you can deposit that in your checking account and complications will arise. If that happens, post back in this thread immediately, for assistance.]

It will seem weird if Fidelity mails you a check(s) that you just mail back to them, but this is part of the paper trail they need to do to close out the old 401K. They have to follow certain procedures, not just move money between different accounts, because you are closing out one employer plan and starting in a different employer plan. It is just a coincidence that both employers chose Fidelity to help administer each plan.

Yes, rollovers are non-taxable events as long as you move Roth money to another Roth account or pre-tax money to another pre-tax account.

The old pre-tax 401K (about $93K) should be moved to your new 401K and be invested in FXNAX, a bond fund. The first $57K of new contributions should go to the same fund, as well as the next $9K. For each $10k of new contributions going to bonds, the same amount of money in the new Roth IRA should go to a stock fund.

Small qs: For each $10k going to FXNAX in pre-tax 401k, how can I put $10k in Roth IRA? Isn't the annual limit as of now only $6k for Roth IRA contributions?
Action item: Set up the automatic paycheck contributions to new pre-tax 401k to go only into FXNAX until the new contribution totals to $66k ($57k + $9k).
Sahara wrote: I'm unclear as to what Celia means by this: "For each $10k of new contributions going to bonds, the same amount of money in the new Roth IRA should go to a stock fund."
I'm sorry for the poor wording as it is not easy to say it clearly, so I will give you an example.

I was assuming that the Roth rollover would stay as bonds, so follow along with me for a moment. In that case, suppose you contribute $500 each pay period to the new 401K into the Fidelity bond fund. You would then soon be over-weighted in bonds, compared to your goal of 30%. So, each time your contribution made it into the 401K bond fund, you could exchange $500 of bonds in the Roth IRA to a stock fund. But this means you would have to log in each pay period to reset your Asset Allocation. To avoid frequent logins, every time $10,000 went in instead (every 20 pay periods), you would sign into the Roth IRA and exchange $10,000 of the bond fund for a stock fund. That is what I meant, and I certainly wasn't clear.

But since the Roth IRA has all stocks now, it will take a while to get back to 30% of bonds somewhere. The way things are planned now, you would contribute to the 401K bond fund, but by the time you have $66K more of bonds there, the stock funds likely would have grown some more such as you would still be under-weighted in bonds. So you need to exchange something to bonds now. If you exchange something in your taxable brokerage account, that will be a taxable event (since that is a "sell" and "buy"), so I would temporarily change the Roth IRA until you are up to 30% bonds. That would take you back to what I was assuming, which isn't ideal, but you are restricted by the amount you have in taxable vs tax-deferred vs Roth and can only rebalance within the amounts you have in each account.

You can also invest new money in taxable to be in bonds. You can also change automatic re-investment in taxable to have the distributions go into a bond fund instead of buying more of the existing funds.

Does this make sense?
Topic Author
Snowfire
Posts: 31
Joined: Sat Oct 07, 2017 9:18 pm

Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

celia wrote: Sat Jun 05, 2021 11:45 pm
Snowfire wrote: Sat Jun 05, 2021 11:53 am
celia wrote: Fri Jun 04, 2021 2:41 am I agree that the old Roth 401k should be moved to a new Roth IRA at Fidelity and you can invest it in whatever you want at the moment, but eventually you want that $57K in a stock fund.

Understood.
Action item: I will call Fidelity and tell them to move ~$93k from my old pre-tax 401k to FXNAX in new pre-tax 401k and ~$57k from my old pre-tax 401k to FXAIX in newly created Fidelity's Roth IRA. Both of these should be a non-taxable event if I understand correctly (as mentioned below here in your response).
I didn't want to overload this thread with too much detail, but it appears you now understand the main point. I also wanted to warn you that Fidelity likely won't be able to move the money out of the old 401K until you do some paperwork that involves having your old employer sign off on you having left the company. You usually can't move money out of an employer plan until you are 59.5 or you have left the company. Back when I was rolling over money from an employer plan, I had to obtain a form and get my old employer to sign off on what my last day of work was. That was mailed to the new plan along with a form to move the money. If you are mailing to two companies, you may need to photocopy the signed employer form. Just letting you know that this may take some time, unless the process has been streamlined, especially with your old and new 401Ks at the same custodian.
I actually had a discussion about the 401k money movement process and the rep did say that there is an option of the paper trail available for me. However, he also did explicitly say that since both the accounts are with Fidelity, I can avoid the paper + mailing process and just give them a call once I have decided how do I want to do the movement and they would handle it entirely on their end. That, I am assuming, means this rollover has been streamlined on their end if both the old and the new accounts are with them.

In addition, the correct term to use for both transfers out of your old 401K is that you want to do a "direct rollover", one rollover to a Roth IRA and one to the new 401K. A "direct rollover" means you don't have access to the money such as if a check is made out to you. Checks should be made out to the Roth IRA custodian (whoever is the custodian of the Roth IRA you want the money to go into, and Fidelity for the new 401K) "for benefit of (FBO) <SnowFire>". One or both checks will likely be mailed out to you. Then you have a chance to photocopy them and mail them immediately to the new custodians since the money needs to be in the new accounts within 60 days. [Make sure you don't get an "indirect rollover" which is a check made out to you as only you can deposit that in your checking account and complications will arise. If that happens, post back in this thread immediately, for assistance.]
Thanks for the explanation of direct vs indirect rollover. I wasn't aware of that. First, taking into account my point above about the rep saying a call should suffice for skipping the paper+mailing way of doing the rollover, if I understand correctly, they would do the direct rollover on their end. However, now that you have mentioned this, I will make sure I point out the words "direct rollover" to them when I speak with them.
Second, the custodian of my Roth IRA should be Vanguard in this case then, and not me? Because my Roth IRA is with Vanguard.


It will seem weird if Fidelity mails you a check(s) that you just mail back to them, but this is part of the paper trail they need to do to close out the old 401K. They have to follow certain procedures, not just move money between different accounts, because you are closing out one employer plan and starting in a different employer plan. It is just a coincidence that both employers chose Fidelity to help administer each plan.
Haha, yes, that was my first thought when I got to know about the checks being drawn and sent back to them. Thanks for explaining the underlying reason :happy

Yes, rollovers are non-taxable events as long as you move Roth money to another Roth account or pre-tax money to another pre-tax account.
Thanks for the clarification! :greedy
The old pre-tax 401K (about $93K) should be moved to your new 401K and be invested in FXNAX, a bond fund. The first $57K of new contributions should go to the same fund, as well as the next $9K. For each $10k of new contributions going to bonds, the same amount of money in the new Roth IRA should go to a stock fund.

Small qs: For each $10k going to FXNAX in pre-tax 401k, how can I put $10k in Roth IRA? Isn't the annual limit as of now only $6k for Roth IRA contributions?
Action item: Set up the automatic paycheck contributions to new pre-tax 401k to go only into FXNAX until the new contribution totals to $66k ($57k + $9k).
Topic Author
Snowfire
Posts: 31
Joined: Sat Oct 07, 2017 9:18 pm

Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

Second, the custodian of my Roth IRA should be Vanguard in this case then, and not me? Because my Roth IRA is with Vanguard. Sorry, it is Fidelity themselves, you already cleared that above in that I need to create a new Roth IRA account with Fidelity for the purposes of the old Roth 401k rollover. Apologies.
Topic Author
Snowfire
Posts: 31
Joined: Sat Oct 07, 2017 9:18 pm

Re: VBTLX maxed in Roth IRA [Vanguard Total Bond Market]

Post by Snowfire »

Final update on this thread:
At this point, the rollover from my old to new employer's 401k is completed as a "direct" rollover and the Fidelity representative also confirmed that there won't be any taxable events, I would just be getting a form next year indicating this transfer between accounts, that's all.
The way things stand, I now have ~$100k in my pre-tax 401k invested in FXNAX and ~$60k in my Roth 401k invested in FXAIX.

Thank you all those who replied so much for your time and patience! This community has been truly amazing in helping me learn, grow and take the correct steps :happy

PS: I have created a new post since this was already a bit too long and also my intention is to discuss the MBR strategy (as was alluded to in this thread before) along with the HSA rollover strategies over there.
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