Best Strategy to (Re)Organize?

[eyescrossing]

Background:
I'm relatively new to GCC (a number of months) and recently found and am reading the JL Collins stock series. I am an (overly) analytical person; however, I sadly do not enjoy researching and implementing funds, investments, stocks, and related. I like reading about the big picture strategies, but tend to hit analysis paralysis when digging into the weeds to figure out implementation. As a result, my MO has been to do enough research to pick funds from the available list in company retirement programs, set the deferral and forget about it. This continues such that my retirement accounts trail behind me, never having been changed or consolidated as my employment changed. I don?t recall ever seeing index funds on any employers list, so I?m in various managed mutual funds with the old accounts.

I am currently self employed and have a solo-401K. That account is maxed out each year in a Vanguard target date retirement fund. I selected a target retirement fund to automatically accomplish the portfolio rebalancing that I am clearly negligent in doing myself. Some of my family has recently become enamored with dividend investing, so I've also been trying to research that to see if I agree or not.

Ultimately, I?m interested in input relative to strategies to get me on the most set-it-and-forget-it track I can get on. While I?d rather reach FIRE asap (I?m early 40s and single), some of my priorities don?t entirely align with super-FIRE individuals (i.e. my willingness to cut certain expenses ? mostly housing). My situation/goals:

• My business represents a great opportunity to generate high income. It is a situation with an uncertain duration, thus my strategy is to take advantage of the opportunity while it exists to maximize my income and retirement savings. I?m in a higher tax bracket.
• When the business situation changes, I would like to have the financial freedom to, at a minimum, take a sabbatical. Ideally, however, I?d prefer to be in a financial situation where I have choices relative to a new/different career that requires less time and allows more freedom.
• While interested in traveling for an extended period and/or for portions of the year (largely in the US for various reasons), I value having a home base. I live in an expensive market and prefer not to move. Thus, I see owning my current house as part of my long-term life design.
• To date, nearly all of my investing has been in retirement accounts. I need to get some taxable investment accounts going that can provide income before I?m eligible to tap into retirement accounts. I will continue to max out my solo 401K as long as possible (I also max out my HSA each year, but that?s minor.)
• I tend to be relatively risk tolerant in retirement investing (one bank rep tried to gain my business and did a review of my holdings and was fairly horrified ? like I said, I pick ?em and forget ?em, likely with insufficient knowledge about the options to begin with :shock: ).
• I?m intrigued by the tax gain harvesting concepts I?ve read on GCC after I move out of the accumulation phase, but that doesn?t appear to work well with a mortgage (as it limits my ability to play with my income levels), and I?ve generally been under the impression I should invest rather than pay the mortgage off given the current low interest rates. So, that's a new twist I'm contemplating...
• I own commercial property (through an LLC) that I lease out. I could potentially use cash to pay it off and become the bank there, if wise. I'm certain I'd need to ask my accountant a few questions as I don't know the ramifications of this, as it may change the tax picture in ways I can't fathom.

TL;DR:
I need to move all my old company retirement accounts over to Vanguard, where my current account i401k lives, as well as start a new taxable investment account there that can generate income before I?m eligible to withdraw from retirement accounts. How would you optimize the following to maximize FIRE potential for a single, early 40s, self-employed individual? I have additional assets not listed; the following is what I can put to work for me in this context:

~$380k in current Vanguard i401K (100% in target retirement fund; will continue to max out contributions, open to changing funds)
~$300k in various funds across multiple types of IRAs from former companies (SEP, Simple, ESOP, etc.)
~$7k in Roth IRAs in various funds
~$300k cash to invest
~$420k mortgage at 3.875% (no other personal debt, but I recently moved so this is still near the beginning of its 30 yr period)
~$182k mortgage at 4.25% for the commercial property I own through an LLC; leased out NNN*

*As to the commercial property: balloon payment becomes due in/around 2020; could pay off instead of refinancing (using cash noted above) and become the bank (would generate ~$2300/month rent to my LLC; tenant pays all other costs per triple net). Am I oversimplifying when calculating that becoming the bank here would generate a ~15% ROI ($2300 x 12 / 182k)? Was considering planning for this payoff if/when interest rates increased...haven't checked commercial rates lately.

Thanks!

[Jim]

I think you have several questions you are contemplating all at once (how to simplify your current portfolio holdings across several account types, what to do with your cash and commercial property, what your investment strategy is now vs. after you are done working, etc.).

My personal suggestions would be:
1) Rollover all of your IRAs to Vanguard and either invest them all in VTSAX or the same Target Date fund your current 401k is invested in. Since you are in a high tax bracket, you will want to make sure you roll traditional account to traditional IRA and Roth accounts to Roth IRA.

2) $7k in Roth IRAs should match your asset allocation (most likely the same target date fund since you don't like to re-balance from the sound of things)

3) You mention wanting to start a taxable brokerage account.  Using the $300k in cash, you could start putting that to work in a Vanguard taxable brokerage account (either VTSAX or your target date fund). 

4) As for the balloon on the commercial property, it might be wise to shop around some interest rates now.  If you could refinance at a similar rate, then you could deploy all of your cash in the market.  If the rates are significantly higher, might want to deploy the cash to pay off the property.  I'm not entirely sure how the property fits into your overall financial strategy and plan.

Let me know if any of this helps or you have clarifying questions.  Of course, this is my personal preference and how I would change things around, but you might have different goals and are a little bit older than me and probably have a different perspective.

[prognastat]

Personally I would do quite similar to Jim's recommendations. Roll over your Traditional accounts to a Vanguard Traditional IRA, roll over your Roth accounts to a Vanguard Roth IRA. Invest them in VTSAX, from the 300k cash max out your Traditional/Roth IRA depending on your eligibility and stick the rest of it in a brokerage account with Vanguard.

As for the commercial property keep in mind when calculating the ROI that this is if the property is rented out 100% of the time. If something happens and you lose your tenant then this would drop your ROI significantly and cost work to get a new tenant which you also can't fully factor in to your ROI. Also I don't know if you did or not, but you'd also want to subtract maintenance expenses from the monthly income the property generates to get a more accurate ROI. If you feel comfortable with all of these then I would keep the property. If you don't then I would look to sell and invest the profits in your Vanguard brokerage account.

Also since your mortgage on your residence is at a relatively low interest rate(sub 4%)  I would probably not be in a hurry to pay that off and instead leave the money invested rather than paying it off as you are very likely to exceed 4% over the 30 year term. You can switch to paying off your mortgage after finishing your accumulation if you want to reduce your expenses to reduce the necessary income you'd be drawing from retirement accounts/capital gains.

[eyescrossing]

Thanks, Jim and prognastat for your input!

I agree with the rolling over and appreciate the specific fund advice (VTSAX and/or target date fund). I feel like the larger concept of getting everything rolled over the Vanguard is clear to me, it's more the details where I get hung up as to how best to invest it when there. Of course, I'm also interested in bigger picture thoughts.

As for the commercial property, I like the idea of the passive income from that and hope it can be one of my income streams down the road (it cash flows now, I just don't think of it as income at the moment). That's one benefit of commercial - the lease is "triple net" (NNN) which means the rent I mentioned is truly just the rent. In addition to rent, the triple "nets" (taxes, insurance and maintenance) are covered by the tenant along with utilities and related. In fact, under a NNN lease, if the AC unit were to break it is the responsibility of the tenant to fix or replace it. Kind of interesting. Of course, lease rates are lower than a full service lease. I have a separate account for the LLC that contains sufficient funds to cover the mortgage and costs for about 18 months to accommodate tenant changes and unknowns.

And yes, to prognastat's point, I'm trying to wrap my mind around how to take a sabbatical and/or retire before I would have access to my retirement accounts. On a straight cash basis, the rental income would cover my mortgage expenses. I own an RV (no loan) and would largely travel that way, which provides some ability to manage expenses (how fast/far you travel, where you stay).

[prognastat]

Sorry slight clarification about what I mean when I said expenses in relation to post FIRE. I mean expenses even including mortgage payments as these would rive up your AGI by needing to draw more from your accounts increasing your tax liabilities.

This is where having no mortgage does carry a benefit in that it lowers the amount you need to take out and thus lowers your AGI and in turn tax liabilities. If you want to go for this I would wait and leave paying it off till the very end giving your money as much time to grow in investments as possible.