Confused parent needs help with investing

Investing
#1

Hello everyone!

I’ll try and keep things short. I’m a 42 year old biz owner, my wife is 41, and we have 2 kids; a 4 and 2 year old.

We have no debt, we currently rent our home and we don’t have a ROTH IRA (I KNOW, I KNOW)!

I set up various retirement vehicles a few years ago for my wife and I (defined benefit pension plan, capital split dollar plan) that will eventually pay out a few million dollars tax free so I’m not too concerned about retirement at this very moment BUT we can’t access those funds until we’re 62 and my wife and I have already decided we want to “retire” when we’re 50.

My questions are regarding the more liquid capital we have access to:

  1. We have about 780k in a target date index fund (VFFVX). Should I keep continuing to fund this account or should I try and setup another/ more? The reason I ask is because I see other investors (like Jeremy, for example) have more than just “one”. Is it due to diversification?

NOTE: This account isn’t really for “retirement”. I don’t really plan to touch it - I just want it to grow with limited downside. We have other much higher-risk investments and these funds are just for something with a lot less risk.

  1. I have a minimum of 5k/ month I can invest. Should I put the funds in VFFVX above? Why/ why not? See my thoughts below in #4.

  2. I have 40k lump sum I want to invest. Should I put the funds in VFFVX above? Why/ why not? See my thoughts below in #4.

  3. If I have more cash available this year ( a few hundred k) and I want to invest in something low-risk, should I put the funds in VFFVX above? My thought process is the money will grow here faster than a new account since there’s already a balance there.

  4. My 4 year old has a savings account w/ 7k and my 2 year old has about 2k - should we open UTMA accounts for them? Initially, I was thinking of putting all the money in the VFFVX account since we won’t touch that money and it will grow faster in there, but I’m unsure.

NOTE: I don’t plan on saving up for their colleges. I had to pay my way and want them to do the same.

  1. I have ~30k in an old 401k from my last employer. What should I do with those funds? I heard of a back-door roth IRA - can I do that with these funds?

  2. I have another 30k IRA in Bank of America I haven’t done anything with in ages. What should I do with those funds?

I’m so sorry for the long post. I’ve been confused about a lot of my questions and I’m hoping to get some help.

Thank you so much!

#2

I think part of the problem may be you are mixing up funds and accounts (or using them interchangeably). If not I apologize.

Notes: As a business owner you have access to a few different retirement account types that W2 workers don’t. Researching these accounts may be worthwhile.

Roth accounts aren’t always the best for everyone. There are income limitations and ways to optimize. Understanding what account works best for you is key.

1.) Your first account is in a target date fund. You mention liquidity. I’m under the assumption this is a regular brokerage account with taxes on dividends and capital gains?

Also assuming with the accounts you mention you are US based. If this is a brokerage account and you have a target date fund you’re diversified. You mentioned other retirement accounts further down.

2.) Your consideration is to account for the 12 years between 50 and 62. You have the 780k (assuming brokerage) you can access. Using a 4% withdrawal that’s roughly $31,200/year spend while letting principal continue to grow. Is that enough to cover expenses for 12 years?

3.) I believe the account/fund interchange is occurring again. 2 accounts with the same funds will grow at the same rate, assuming the same tax limitations, i.e. both Roth or both brokerage etc.

The growth for VFFVX will be the same in 2 accounts of the same type. The tax implications won’t affect growth, but will affect spending. Invest in what you know and are comfortable with.

4.) What’s the purpose of this investment? More funds for the early retirement? Later retirement savings? Long term or short term investment? 5 years or more or less than 5?

5.) What are the advantages/disadvantages of the UTMA accounts? They aren’t for college so what purpose will they serve? What’s your timeline again?

6.) 401ks have legal protection that Roths don’t. If you don’t have umbrella insurance or some other ways of protecting assets I would leave the 401k alone depending on fees.

Backdoor Roths generally occur when 1. Income is too high so non-deductible contributions to a traditional IRA are converted to Roth (taxes are still paid on the amount) 2. 401k for higher earners is maxed but can still contribute after tax dollars onto the 401k for tax free growth.

  1. What is the 30k invested in? How are the fees in the IRA? You can always open an IRA at another brokerage (Fidelity, Schwab, Vanguard) that you have an account with, sell the investments in the IRA and then transfer the balance to the new brokerage and invest in their funds.

Notes 2: This is a lot of info and I tried to condense A LOT. I am not a CFP, CPA, or expert. I’m just, as @Jeremy says, a guy on the internet.

I’m also not a high income earner. I’m not as familiar with income limitations and such on the high end. Also not married and don’t have kids either so again not as familiar territory. I’m just an enthusiast :grin: