Portfolio/Plan Review After Marriage in High-Tax State

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creon
Posts: 12
Joined: Thu Jan 20, 2022 2:49 am

Portfolio/Plan Review After Marriage in High-Tax State

Post by creon »

Thanks for comments on my own portfolio last year (they helped me simplify things and shifted contributions to pre-tax instead of Roth); here's a combined portfolio after the wedding and what we hope is a good plan for the next 20-30 years:

Income and Taxes:
Her: $200k (includes bonuses; uncertain as to how much overall compensation will vary in the future, though expecting about the same for this year)
Him: $85k (very slow increases)
His job is fairly safe for the intermediate future (5-10 years), hers is less secure but not super risky. No debt. Ages 35/31.
High tax state (CA, likely 24% federal tax rate and 9.3% state tax rate) in high (but not highest) cost of living area.

Current Assets:
Her 401k: 95k (all in Vanguard 2060 Target Date Fund)
Her HYSA: 200k (saving for down payment)
Her Rollover 401k: 1.5k (VTSAX)
Her I-Bonds: 30k
Her Emergency Fund/Checking: 20k

His 403b: 15k (80% VIIX Vanguard Institutional Index, 20% VIEX Vanguard Extended Market Index)
His 457: 25k (in a fund balance that generally matches VTSAX)
His Brokerage: 50k (10% VEMAX Emerging Markets Index, 15% VFSAX Small Cap Int'l Index, 55% VTSAX, 20% VVIAX Value Index)
His Roth IRA: 25k (60% VTSAX, 20% VVIAX, 20% VTMGX Developed International Markets)
His HSA: 2k (FZROX Fidelity Zero Total Market)
His HYSA: 30k
His Emergency Fund/Checking: 20k

Current Contributions:
We are planning on maxing out her 401k (w/employer match up to ~10k), his 403b, his 457, his Roth, and ideally her Roth once we resolve her lingering rollover IRA for a total of ~$90k a year in retirement savings. After taxes and expenses (expenses estimated at 60k a year), we should then have about 50-80k a year in leftover income to save/invest, depending on how much we want to spend on things like vacations and on variances in compensation (e.g. bonuses). In a few years, I will be vested in a pension plan, which will continue to grow each year, but starts very small.

Current priorities:
- Have her roll the rollover IRA into the current 401k, so that we can max the backdoor Roth for her without worrying about pro-rata issues [or, if this proves unworkable, I suppose just convert the rollover IRA to a Roth IRA and pay taxes on that]
- Save up for more of a down payment to try to keep a monthly housing payment reasonable. Starter house in this area would be a minimum of $700k. With a $200k downpayment, our monthly mortgage payment would apparently be in the ~$3800 a month range, which seems really high. Rent + utilities in apartment is currently 3k a month. Apartment is ok for now, but not ideal in the long term, especially with goal of kids in 2-3 years.

And some specific questions:
1. Allocation Suggestions Any suggestions to change in terms of the allocations? Right now we have a bit of a tilt to value and about 25-30% international, which seems about right to us.

2. Small Cap Value? I have the option of purchasing a small cap value fund in my 403b (DFSVX, at .29 ER). Is it worth buying into at that ER premium? There aren't really any other good options in the 403b besides the ones that I have already and I'd like to get into small cap value more, but the .29 ER makes me think twice. I do like the small cap value thesis and this would be with a 20+ year horizon.

3. Where to save? Continuing an age-old question on this forum, where should we put the $$ that we are trying to save for a downpayment? Would a series of short-term 3 or 6 month treasuries work well here to maintain some liquidity while getting tax advantages and a higher rate than the HYSA (currently 3.4%)? Or just keep it all in the HYSA for now for simplicity's sake? I don't see us buying a house in the next 6 months, but it really depends on the interest rates and local market--the prices on the market have come down a bit from the recent highs and we could start to get to 300k for a down payment if we waited a year.

4. Get rid of HSA? The HSA is annoying for tax purposes and we already have a lot of funds to keep track of. This state does not recognize HSAs and I don't have high-deductible options anymore. Is there any way to get rid of it cheaply? The mental load off would be worth it for me if the price is right. I am currently leaving the dividends and interest in that account as cash instead of re-investing to avoid having to deal with calculating basis points.
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