I don't think you need to switch existing holdings, but on a going forward basis VWDA is just fine. It adds a bit of emerging markets exposure not found in IWDA. VWDA's expense ratio is slightly higher, but it's still quite reasonable.Hi BBC, what is your opinion if i were to switch from iwda to the new vanguard fund vwra?
Thank you for your opinion.I don't think you need to switch existing holdings, but on a going forward basis VWDA is just fine. It adds a bit of emerging markets exposure not found in IWDA. VWDA's expense ratio is slightly higher, but it's still quite reasonable.
It's better if your Retirement Account (formed on your 55th birthday) is predominantly and fully funded from your Ordinary Account dollars. That's because your Special Account earns a higher interest rate. That's the whole point of Special Account "shielding," really.
I don't think it's a good idea to underfund your Retirement Account in order to make $7,000/year deposits for tax relief. The tax relief is nice, and (assuming it works) I see the value in getting one episode of tax relief while you have your SA/OA shields in place. But the tax relief is not so wonderful that you'd forego the attractive 4%/year that RA earns -- at least, I don't think that makes much sense.
If you're not going to be maxing out your 401(k) -- because you cannot afford to -- yes, that makes sense. Note that you and your spouse are still eligible for "backdoor" Roth IRAs, so the applicable maximum here is 401(k)+IRA. If you're anywhere below that total maximum contribution limit (due to affordability concerns), then the Traditional 401(k) is fine to start.
The New York 529 Direct plan isn't too exciting when the educational spending is immediate or near immediate. In that case you'd have to invest the funds in the Vanguard Short Term Reserves Account (the most conservative fund within that 529 plan), but the interest paid is miniscule, and thus the tax savings are also miniscule. It's really not worth doing in that "cash in, cash soon out" scenario. You're restricting those dollars too much for too little reward. A 529 plan is really for medium-term (or longer) time horizons, to give that money time to grow.
However, the I Bond, a type of U.S. Savings Bond, looks pretty good for these purposes. You can purchase up to US$10,000 per individual per year (so up to US$20,000 between you and your spouse), they're U.S. tax deferred while held, and if you cash them in and use the proceeds for qualified educational expenses then the interest is U.S. tax free. Also, I think they're U.S. tax free when you become an ex-U.S. person, and they're not restricted to educational spending -- no tax penalty if you need the cash for other purposes. And once you have a U.S. Social Security number and open a Treasury Direct account to buy them, I think you're able to buy savings bonds and Treasuries in the future, too, even if you're an ex-U.S. person. If you wish.
The only catch is that you have to hold them for at least one year (actually more like 11.1 months since you can buy them about 3 days before the end of the month and that counts as if you bought on the first of the month), and if you redeem them before 5 years you lose 3 months of interest. But that's still a good deal, and they'll track the U.S. inflation rate -- that's what the "I" means. They're also the safest place you can park U.S. dollars since they're U.S. federal government general obligation bonds. And it's quite possible New York State and New York City won't tax them either if you use the proceeds for qualified educational expenses -- or even that they won't tax them regardless, because they're federal debt. (I'd have to double check that.)
Per your standard/ordinary investment program. You can take a few or several months to cycle the windfall through your program if you feel uncomfortable with slamming all the dollars in at once.BBC, how would you invest a sizable lump sum payout from your employer that represents 30% of your total NIA (the other 70% is fully in equities). Also note that you are a US Person in your late 40’s who has reached the limit of what can be excluded, deducted, exempted and credited on your US taxes.
You have to withhold a *lot* of dollars from your RA that could be earning 4%/year in order to have much room below the Full Retirement Sum to claim $7,000/year tax relief increments. On the order of $100,000, give or take. It's hard for me to imagine that'd be a good idea in general, unless that ~$100,000 has a reliably better place to be.- on the tax relief vs 4% interest, I think it depends on the tax rate applicable to the person. If the tax rate is much more than 4%, it might be profitable. Also, I think it can stretch to more than just one year. Of course, the more years one is considering, the higher the tax rate needs to be, as the 7k topped up in later years suffer opportunity costs (the 4% interest) longer.
No. As I understand it, you contribute to a 529 from post-tax dollars, and the interest/dividends/capital gains are tax free when you spend the proceeds for qualified educational expenses. Check me on that, of course.I read the the New York 529 College Savings plan will allow us to contribute up to $10,000 per annum. Given that the state tax for our joint filling would be 5.65% does that mean that by contributing to the account we can potentially "save" $565 before any interest returns?
No. As I understand it, you contribute to a 529 from post-tax dollars, and the interest/dividends/capital gains are tax free when you spend the proceeds for qualified educational expenses. Check me on that, of course.
So you can see why I'm lukewarm on cycling dollars through a 529 plan on a short-term basis (if my understanding is correct). You won't get competitive interest on the short-term basis, and the tax savings on the interest income will be tiny. You'd be better off using conventional short-term savings outlets offering more competitive interest.
Per your standard/ordinary investment program. You can take a few or several months to cycle the windfall through your program if you feel uncomfortable with slamming all the dollars in at once.
OK, I dug into this a bit more, and yes, you can take a deduction of up to US$10,000 on your joint New York State income tax return. So if you put US$10,000 into the New York 529 Direct plan, and assuming you're in the 6.57% tax bracket, you save $657 on your state income tax. You aren't required to itemize deductions to take this particular deduction, and there doesn't seem to be any impediment to "laundering" money, i.e. making a qualified 529 plan withdrawal (direct payment to a qualified higher educational institution) immediately after contributing. New York hasn't accepted the recent federal change for secondary school tuition, so this has to be post-secondary education. Also, I haven't checked to see whether there are any "gotchas" for part year New York residence, so do a little more checking to see what happens during your "entry" year and your "exit" year.If I read the rules correctly, the contribution would be from post-tax dollars, however i am able to file a IT-195 to reclaim the New York State Taxes that were paid.
OK, so the defined benefit program is being "cashed out" (whether by choice or not), and you were/are 100% invested in equities otherwise. Have I got that right?Unfortunately I do not have a standard/ordinary investment program for non-equity holdings. This defined benefit program was my sole risk hedge. I have never touched bonds in my entire my life.
VWLUX is another possibility if you want long bonds. The expense ratio is 2 basis points higher, but there's no broker commission in/out. If you don't have the $50,000 minimum for VWLUX then Vanguard offers an Investor Class which has a higher (but still reasonable) expense ratio until you get up to the $50,000 level.The only idea I have come up with so far is to dump the entire thing into MUB. But my reasons for doing so seem rather flimsy:
1. It is the most popular muni bond ETF
2. Expense ratio is extremely low 0.07%
3. Historical price has been fairly stable
4. The yield is around 2.5%
5. It is US tax free
Any advice you can give would be appreciated.
I really don't have a good forecast for that.I've noticed that the SSB interest rates have been on a downward trend for the past few months, with this month's interest rate being the lowest I've seen in a while.
1. Do you think this downward trend will continue in the coming months?
Some more Singapore dollar inflation would be nice.2. What needs to happen in order for bonds to increase their interest rate?
So did you/do you value the defined benefit nature of this asset? If so, I think you go shopping for a deferred annuity.Yes, you are 100% correct... I’m being cashed out of my defined benefit program - and I have no choice in the matter.
And yes, 100% equities outside of this. So I now need a safe non-equity vehicle, preferable one that is US tax free.
If your time horizon is long enough -- and it seems to be -- then you'd probably just go for the long-term municipal bond fund before you go for the high-yield variant. Both will be somewhat more volatile than alternatives, and both should be higher yielding (over long enough or longer time horizons), but the former has less portfolio risk and should do reasonably well across GFC-style events. Of course you can mix them if you want, and if it's via Vanguard it'll be minimum US$50,000 per fund to get the "Admirals" lower expense ratio.I noticed there are also high yield muni ETFs like HYD (current yield = 4.2%) but these are riskier. But if it just risk of default, does that even matter since they are holding such wide array of bonds?
So did you/do you value the defined benefit nature of this asset? If so, I think you go shopping for a deferred annuity.
It’s what you seem to value given that you’re 100% invested in equities otherwise. It doesn’t hurt to get a quote or two.I do value the guaranteed nature of a DB, but not the inflexibility. I’m a little leery of annuities because they are typically expensive, but I’ve heard Vanguard has low cost versions with reasonable terms.
Yes, and not on principal (premium) since that’s after tax, presumably.To be honest, my knowledge of annuities is pretty weak. I’m guessing deferred means all income & gains generated do not get taxed until the annuity starts paying out?
On the taxable portion only, and a lower treaty rate may apply if your surviving spouse lives in a treaty country. The tax is still deferred. In addition, deferred annuities are available with refund of premium if you die before payout start, if you wish.That seems attractive, but one concern — if something happens to me and my nonresident alien spouse gets the annuity... are there tax implications? So long as my $11.4m lifetime exemption applies, and the annuity is liquidated upon my death, then maybe it’s ok — but if the annuity continues after my dealth, I suspect the 30% nonresident rate would apply on the outflow.
Did I? I suggest(ed) you consider a high quality long-term municipal bond fund since this isn’t going to be a short-term parking place. On the contrary, it’ll be something you carry through to and beyond retirement, and add to.BBC, when you mentioned that I am going to be getting into some long duration bonds if I go with MUB+HYD...
It’s what you seem to value given that you’re 100% invested in equities otherwise. It doesn’t hurt to get a quote or two.
On the taxable portion only, and a lower treaty rate may apply if your surviving spouse lives in a treaty country. The tax is still deferred. In addition, deferred annuities are available with refund of premium if you die before payout start, if you wish.
Did I? I suggest(ed) you consider a high quality long-term municipal bond fund since this isn’t going to be a short-term parking place. On the contrary, it’ll be something you carry through to and beyond retirement, and add to.
MUB, for example, holds munis with a weighted average maturity of between 5 and 6 years. Isn’t that too short (if anything) for what you’re trying to do rather than too long?
SSBs are still useful, but they’ve never been the most likely bond/bond-like choice for long-term investing.With the decrease in yield of the SSB, would this still be an option that you would recommend to buy and hold investors for their bond holdings?
About that: get over it! You only need sufficient, adequate liquidity. And I don’t think “all three” CPF top ups make sense for most people. Directed MA, SA, and RA top ups are more interesting.I do not have any holdings in bonds and am not comfortable with topping up my CPF OA/SA, in case I need cash urgently and have to liquidate my investment as a last resort (which may be at a loss).