Need to Invest 400k and Portfolio Help Requested

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Topic Author
naha
Posts: 2
Joined: Thu Oct 14, 2021 1:25 pm

Need to Invest 400k and Portfolio Help Requested

Post by naha »

Hello,

I’m a newbie investor and I just started studying investing and came across this website. My mother has become disabled and she cannot live independently, so she recently sold her property and moved in with me and my husband. She gifted me a lump sum of money ($700k) from selling her property. She does not want to burden us financially and she wants us to invest the money well. My husband wants to open his own dental practice in the near future (within 1 year), so we are keeping 300k in our checking account and trying to invest 400k following the three-fund portfolio. We also need to reallocate our retirement funds since we randomly picked the funds and left some cash uninvested for a few years. Our goal is to keep our portfolio as simple as possible and invest for the next 10-15 years until we can coast FIRE. As a new investor, I want to feel confident with my investment plan and I also want to get help and support from people who have already accomplished FI from investing well.

Emergency Funds: 6 months

Debt: 
1. Primary Residence: 470k mortgage at interest rate 2.6%
2. Rental Property: 135k mortgage at interest rate 3.5%

Tax Filing Status: Married Filing Jointly

Tax Rate: 22% Federal, No State Income Tax

State of Residence: NV

Age: 34

Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 20% of stocks

Approximate size of your total portfolio: 700k

Current Retirement Assets

Taxable
57% Cash. Plan to invest 400k at Vanguard. VTSAX / VTIAX / VBTLX (70/20/10)

39% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.04%)
11% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) (0.11%)
7% Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) (0.05%)

His Solo 401k at Fidelity
9% Cash (money market funds)
11% Fidelity Freedom Index 2055 Fund - Investor Class (FDEWX) (0.12%)
15% Fidelity Large Cap Growth Index Fund (FXPGX) (0.035%)

His SEP IRA at Fidelity
3% Cash (money market funds)
2% Fidelity Four-in-One Index Fund (FFNOX) (0.12%)

His Roth IRA at Vanguard
2% Vanguard Target Retirement 2055 Fund (VFFVX) (0.15%)

Her Roth IRA at Vanguard
1% Vanguard Target Retirement 2055 Fund (VFFVX) (0.15%)

Contributions
New annual Contributions
$ ~35k in his Solo 401k
$ 6k in his Roth IRA
$ 6k in her Roth IRA
$ ~2k per month in taxable

I will open an HSA and 529 accounts in 2022.

Available Funds

Any funds available from Fidelity Solo 401k
Any funds available from Vanguards Roth IRA and the Vanguards/Fidelity taxable account

Questions:
1. I’m more familiar with Vanguard and I want to do Roth IRA conversion near our retirement, so I was going to invest the lump sum of money (400k) at Vanguard. But my husband has been contributing into his Solo 401k at Fidelity and Fidelity also has similar funds available for the three-fund portfolio (FSKAX / FTIHX / FXNAX (70/20/10): Fidelity Total Market Index Fund (FSKAX) (0.015%), Fidelity Total International Index Fund (FTIHX) (0.06%), & Fidelity U.S. Bond Index Fund (FXNAX) (0.025%). Which brokerage company is better option for my situation?

2. My husband missed the December Solo 401k deadline, so he opened up his SEP IRA at Fidelity first. He has both SEP IRA and Solo 401k at Fidelity right now, but only contributes in the Solo 401k. Can he rollover his SEP IRA to Solo 401k without affecting taxes? If he starts his own business and hires full time employees (3-4 people) in the future, he cannot contribute to the Solo 401k anymore and he needs to open a Simple IRA or contribute to his SEP IRA. Would it be better to do the account consolidation to one final account then?

3. For the tax advantage retirement account (Solo 401k), do you recommend keeping all the funds in the Fidelity Freedom Index 2055 Fund - Investor Class (FDEWX) (0.12%) or exchanging it to be the three-fund portfolio (FSKAX / FTIHX / FXNAX (70/20/10)? I like the TDF, but I can rebalance once a year when we make contributions. Does exchanging funds in the Solo 401k affect taxes?

4. Please let me know if there is more tax efficient asset placement then the three-fund portfolio I have.

5. Any other ideas or comments to improve my asset allocation would be appreciated.
User avatar
David Jay
Posts: 14587
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Need to Invest 400k and Portfolio Help Requested

Post by David Jay »

Welcome to the forum!

First, one needs to look at your family’s portfolio as a single portfolio, then decide how to invest in an efficient manner across the various accounts.

In general, it is not advisable to hold bonds in taxable accounts. All gains inside tax-deferred accounts (401K, SEP-IRA) are taxed as regular income, but in a taxable account there is a special, lower tax rate (long term capital gains) for stock funds with qualified dividends.

So one starts with a 3-fund but one puts the bond portion in tax-deferred and holds stocks with qualified dividends in taxable. I know that VTSAX has had qualified dividends for many years, so that is a great choice.

For more details on tax efficient fund placement, see the Wiki here: https://www.bogleheads.org/wiki/Tax-eff ... _placement
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Topic Author
naha
Posts: 2
Joined: Thu Oct 14, 2021 1:25 pm

Re: Need to Invest 400k and Portfolio Help Requested

Post by naha »

Thank you for your input! I'll research more about tax efficient fund placement and start investing with VTSAX first.
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