#159: Should a 36-year-old father of three invest primarily in Traditional or Roth retirement accounts? Should Rose, a grandmother of four, open a Vanguard account for each of her grandchildren?

Should Nancy, who lives overseas and is the sole breadwinner in her family, invest in a Traditional or Roth TSP? Should Scott’s wife rollover her 403(b) from her former employer into an IRA? Should Patrick, age 35, cancel his life insurance plan?

Former financial planner Joe Saul-Sehy and I answer these five questions in today’s episode.

Our first caller is Mr. “Three Kids and Still Hoping for FI,” who asks:
As a young man I saved heavily into my traditional 401(k), less because of good long-term planning and more because that’s my natural way.

Last year learned about the FI movement, and I’m hoping to reach FI.

However, I’m 36 and married with 3 young kids, and I’m battling my expenses to regain the deep saving rates of my youth. While I have a healthy traditional 401(k) which has been my main investment for a decade, my work also offers the dual option of a Roth 401(k). I’ve saved about 5 percent of my worth there.

I’ve worked hard to widen the gap by raising my income, and with my salary now scraping against the eligibility ceiling for Roth IRA investments, I’m unsure of how to move forward.

Some people think that because I’m eligible to hold both a Roth 401(k) and a Roth IRA, I should open a Roth IRA and pump all my savings dollars after-tax into both, especially since any future raise or promotion would likely make me ineligible.

Others think that because my tax rate has been rising with my salary, I should be pushing my dollars into the traditional 401(k) because I will likely be in a lower tax bracket in retirement.

I would rather eat a live cockroach than pass up my company match or my maxed-out family HSA. But because of the expenses of three kids, I don’t yet have the savings rate to also be able to max out the $18,500 level.

Should I be trying to grab as many Roth dollars as I can before I can’t contribute anymore? Or should I just pour dollars into my traditional 401(k) and have my Roth conversion ladder and/or SEPP-72(t) ready?

I can afford any investment, but I can’t afford every investment. Which one should I choose?

Rose asks:
I have 4 grandchildren, ages 7 months to 6 years, and I’m saving around $30 per month for each grandchild. My intention is to eventually open a Vanguard account where I can leave the money there until they turn 18 years old.

I know some funds have a minimum amount required to start investing. I have about $1,200 for two of the kids. Can you please suggest the best fund I can start with?

Can you also suggest options for birthday gifts? I like giving money, and the kids don’t need anything materialistic. Stocks, perhaps? One stock at a time? Government bonds? I’d like it to be something I can give to them inside a card instead of cash.

Nancy asks:
I’m calling to get some information about the benefits of a Roth versus a regular TSP.

I’m 33 years old, married, and have an 8-month old. I work for the Federal government and we have a TSP. We’re living abroad and my spouse isn’t working. I’d like to retire within the next 20 years.

We’re conflicted about whether we should invest most of our money into a Roth or not. We keep getting conflicting information about whether we should take the tax deferment now, or whether we should pay the taxes now and not worry about it when we retire.

We don’t have much debt, and we have international properties as well as two properties in the Washington DC area. We’d like to know how best to manage the tax issue.

Scott asks:
My wife recently left a job at a hospital where she had a 403(b) and a Health System Defined Contribution Plan. What can I do with that money? Can I roll it over into something else?

Second, what do we do with the 403(b)? My first instinct is to roll it over into an IRA, where I have more control, but my wife and I (with our current income) cannot contribute to a Roth IRA so we’re making use of the Backdoor Roth conversion. It’s my understanding that rolling money from a 403(b) into an IRA will affect our ability to execute a Backdoor Roth conversion. Am I understanding that correctly?

Patrick asks:
I’m about 35 years old and recently married. My wife and I have a combined gross income of about $100,000.

I have some concerns about our MassMutual life insurance retirement accounts. I think MassMutual is a good product, but I think we are over-invested.

We’re both putting away a premium of about $500 a month (about $1,000 combined) into our MassMutual. The payout that we’re expected to receive at the end is about $350,000 for me, and about $400,000 for my wife.

I’m concerned that our premiums are too high and we could be using that money in better, more effective places. I tried to reduce my MassMutual payment a few months ago, and the cut in benefit was pretty drastic and not proportionate … it didn’t seem very fair to me. Any advice?

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We answer these five questions in today’s podcast episode. Enjoy!

By the way -- TRIVIA TIME!! At roughly the 36-minute mark of today’s episode, Joe and I talk about the late Senator William Roth, the namesake of the Roth IRA and Roth 401k. His birthday is July 22, 1921, which means his half-birthday is January 22. Which means we can celebrate his half-birthday soon!! Tune into the episode to hear our only-half-joking conversation about this. :-)   #AllTheCheesyBiscuits