1845: Ask Farnoosh: Paid Off Mortgage. Now What? College Savings Problems, Roth 401(k) vs Roth IRAs and more

Summary

So Money with Farnoosh Torabi

Episode 1845: Ask Farnoosh: Paid Off Mortgage. Now What? College Savings Problems, Roth 401(k) vs Roth IRAs and More
Release Date: June 27, 2025

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Personal Anecdote: A Memorable Birthday and Life Lessons

Farnoosh Torabi opens the episode by sharing a heartwarming personal story about attending a Real Madrid FC Salzburg match with her 11-year-old son, Evan, fulfilling his birthday wish. This experience not only strengthened their bond but also provided Farnoosh with valuable insights into financial priorities and the sacrifices often made for passions like sports.

[04:30] Farnoosh Torabi: "Soccer is an incredible international sport that brings so many of us together, especially when it feels like we're not connected otherwise."

She reflects on the balance between supporting her children's interests and managing family finances, highlighting a poignant conversation with her 8-year-old daughter about the disproportionate responsibilities often placed on mothers.

[06:23] Farnoosh Torabi: "Society puts more pressure on moms to show up for everything, and it's not fair. But having your own money gives you the power to make choices."

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Weekly Financial Headlines and Insights

Farnoosh transitions into discussing the latest financial trends and news, providing listeners with actionable advice and deeper understanding of emerging topics.

1. Rent Reporting Boosts Credit Scores
   A New York Times report reveals that tenants who have their rent payments reported to credit bureaus can significantly improve their credit scores. The Urban Institute study cited shows that renters in the reporting group are more likely to achieve a score of 601 or higher—a "near prime" range that enhances access to better loan rates and credit opportunities.

   [07:55] Farnoosh Torabi: "If you're a renter, ask your landlord if they offer rent reporting. It's a low-effort way to build or repair your credit."

2. Prenuptial Agreements on the Rise
   Highlighting the high-profile marriage of Jeff Bezos and Lauren Sanchez, Farnoosh notes the increasing prevalence of prenups, especially among millennials and Gen Zers. She emphasizes that prenups are not just for the wealthy but are becoming standard practice for protecting assets, businesses, and future earnings.

   [09:10] Farnoosh Torabi: "Prenups are becoming much more common, even for those who aren't billionaires, as a way to protect what's important to them."

3. Subscription Fatigue is Real
   Citing a CNET survey, Farnoosh discusses the growing trend of "subscription fatigue," where about 60% of adults are reconsidering their various subscriptions. She shares her personal experience of canceling a gym membership to better align with her changing lifestyle and financial priorities.

   [10:30] Farnoosh Torabi: "Don't be afraid to audit your expenses and make those cuts. It's the low-hanging fruit we can address, especially when concerned about job security."

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Listener Questions: Navigating Financial Milestones and Choices

1. Paid Off Mortgage: What’s Next?
Question from Jason: "My wife and I are 36 with two young kids. We've just paid off our house. What should we do with the extra money?"

Farnoosh’s Advice:

• Emergency Fund: Ensure you have 6-9 months of savings.
• Retirement Planning: Assess and enhance your retirement savings.
• College Savings: Start or bolster 529 plans for your children's education.
• Future Investments: Consider purchasing a vacation home or investing in another property.
• Financial Planning: Consult a financial advisor to align your newfound financial freedom with long-term goals.

[16:48] Farnoosh Torabi: "You have a lot of options now, and that's financial freedom in my book. Prioritize what matters most to your family and dedicate the extra funds to those goals."

2. College Savings Challenges and Parental Support
Question from Marianne:
"My daughter is entering her third year of law school. We've been supporting her with $1,400 monthly, but we're running out of money after also funding our other child’s bachelor's degree. Should we continue or focus on our growing bills?"

Farnoosh’s Advice:

• Assess Financial Health: Prioritize your own retirement and financial stability.
• Conversations with Your Daughter: Have an honest discussion about financial boundaries and expectations.
• Encourage Financial Responsibility: Emphasize the importance of your daughter managing her own student loans and future financial independence.

[22:00] Farnoosh Torabi: "It's time to have a conversation with your daughter and be honest about your financial limitations while still supporting her aspirations."

3. Roth 401(k) vs Roth IRA: Making the Right Choice
Question from Krisa:
"I have a 401(k) and am considering opening a traditional IRA as well. Also, I'm curious about the differences between Roth 401(k)s and Roth IRAs."

Farnoosh’s Advice:

• Traditional IRA Benefits: Offers more diverse investment options and higher contribution limits if you've maxed out your 401(k).
• Roth 401(k) vs Roth IRA:
  • Contribution Limits: Roth 401(k) allows higher annual contributions compared to Roth IRAs.
  • Required Distributions: Roth IRAs do not have required minimum distributions, unlike Roth 401(k)s.
  • Employer Matching: Only Roth 401(k)s may offer employer matching contributions.
• Investment Strategy: Evaluate the performance of your current 401(k) target date funds and consider diversifying your portfolio with a Roth IRA if better options are available.

[30:09] Farnoosh Torabi: "Do your homework and don't just assume convenience is the best option. If target date funds aren’t performing well, explore other investment vehicles that align better with your financial goals."

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Key Takeaways and Final Thoughts

• Financial Empowerment: Building and maintaining credit through rent reporting can open doors to better financial opportunities.
• Protecting Assets: Prenups are an increasingly common tool for safeguarding personal and professional assets.
• Managing Subscriptions: Regularly reviewing and trimming subscriptions can free up significant financial resources.
• Post-Mortgage Strategies: Paying off a mortgage early provides financial flexibility, but it's crucial to have a strategic plan for utilizing the freed-up funds.
• Balancing Family Finances: Supporting children’s education is important, but so is ensuring your own financial security and retirement plans.
• Retirement Accounts: Understanding the nuances between different retirement accounts can optimize your investment strategy and financial growth.

Farnoosh encourages listeners to take proactive steps in managing their finances, seeking professional advice when necessary, and making informed decisions that align with their long-term goals and personal values.

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Notable Quotes with Timestamps

• On Rent Reporting:

  "If you're a renter, ask your landlord if they offer rent reporting. It's a low-effort way to build or repair your credit."
  [07:55]

• On Prenuptial Agreements:

  "Prenups are becoming much more common, even for those who aren't billionaires, as a way to protect what's important to them."
  [09:10]

• On Subscription Fatigue:

  "Don't be afraid to audit your expenses and make those cuts. It's the low-hanging fruit we can address, especially when concerned about job security."
  [10:30]

• On Financial Freedom Post-Mortgage:

  "You have a lot of options now, and that's financial freedom in my book. Prioritize what matters most to your family and dedicate the extra funds to those goals."
  [16:48]

• On Supporting Children’s Education:

  "It's time to have a conversation with your daughter and be honest about your financial limitations while still supporting her aspirations."
  [22:00]

• On Choosing Retirement Accounts:

  "Do your homework and don't just assume convenience is the best option. If target date funds aren’t performing well, explore other investment vehicles that align better with your financial goals."
  [30:09]

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For more insights and personalized financial advice, tune into future episodes of So Money with Farnoosh Torabi and join the So Money Members Club at SoMoneyMembers.com.

Transcript

[Farnoosh Torabi]

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Listening to so Money with award winning money guru Farnoosh Torabi. Each day get a 30 minute dose of financial inspir from the world's top business minds, authors, influencers, and from Farnoosh herself. Looking for ways to save on gas or double your double coupons. Sorry, you're in the wrong place. Seeking profound ways to live a richer, happier life. Welcome to so Money.

Welcome back to so Money, everybody. It's AskFarnoosh Friday. I'm Farnooche, and we're diving into your money questions. This summer Friday, we'll also be going into some of the headlines of the week and a little bit of what's on my mind, taking you behind the scenes of my life. Just got back from Philadelphia. Took our son to the Real Madrid FC Salzburg match. For those of you who don't know, Evan, my son, he's just turned 11 and he's all in on soccer. And this was his birthday wish, so we were very lucky enough to make it happen. We cheered for Madrid. They won three nothing. Such an unforgettable experience for him and for me as his mom, watching him go through all these emotions and feelings. And I've always appreciated the sport, but being there with Evan, watching his face light up with every pass and every goal, it really made me fall more in love with the game. We took an Uber and our driver was from South Africa, and he said that when he was younger, his mother would go to America to work and send $50 a month back to him and his brother for their food. And instead, they would spend 40 of that $50 on soccer tickets, and they would somehow make those extra $10 stretch for, like, for the month to eat. And he said, looking back, I would do it all over again. I was such a soccer fanatic as a kid, and when I got older and started to make my own money, I've been to soccer matches all over the world, and it really is this incredible international sport brings so many of us together at a time when it can feel like so many of us are not together. And we came back already planning our next trip. And I told Evan, you know, although FIFA World Cup 2026 is coming to New Jersey next summer, those tickets are not for the faint of heart. I think they're around $3,000 a pop on the cheap end. And so I told him, that's like working two to three weeks straight in America if you're earning just an average salary. And that's before taxes, and that's for one ticket. So I Think it's sunk in. And he knows we'll be hosting watch parties instead. It's cheaper to actually rent a theater, probably, and watch it live on that screen than to go to a live game. My daughter, on the other hand, is keeping us busy with very tricky questions. She's 8, and I was driving with her the other day on an errand. And from the third row of the car, she likes to sit in the third row, have her privacy. She said, mom, why do moms do everything? Oh, my God. Look, she's not wrong, right? And in our house, my husband and I, we split the load. But I do do more, at least more of the visible and invisible labor. And I think what prompted the question was that she found this photo of me at a recent field trip surrounded by other moms, all moms. And there were a few dads. They weren't in the photo. And those dads mostly stuck to themselves, while us moms, we wrangled 60 kids through our Dave and Busters like Navy seals on a mission, especially when it was time to gather everybody and take them back on the bus. So I take a breath, and I respond to her question with a question, which is a pro tip for parents out there. When your kids make you stop in your tracks with a very tricky question, whether it's about money or whatever, don't just dive into your answer. Ask them more questions. So I just said, what made you think that?

Why do you say that?

And she said, well, you know, moms are always chaperoning. They're always figuring out the schedule. They're always taking us places. So I felt like this was the appropriate time, as I was once that.

Child strapped in my car seat.

And my mother would often give me TED Talks on the way to the grocery store. And so I felt a mini TED Talk coming on, and I said, look, your dad does a lot, okay? And we're a team. But, yeah, you know what? Society puts more pressure on moms to show up for everything, do everything, and it's not fair. But here's the thing. When I show up to your events and your brother's events, and I coordinate your schedules and I shop for you and I plan for you, I do it because I want to. I chose this life. No one's forcing me to do it. And. And then, of course, I had to get into the personal finance of it all. And I said, there are times that I don't go to your things, and I work instead. And that's fine. That's allowed. Your dad may go instead. It's a give and take. What's important for you is to understand that this is why you need to make your own money. Because money is power. And when you have your own money, no one can make you and force you to do things that you don't want to do. You get to choose. You get to decide. And that's the lesson in all of this. And then she says to me, mom, is there an event going on at the library right now?

There's people coming out of the.

I was like, oh my God, did you hear any of what I just said? I don't know. I don't know if it sank it at all. I'll never know. Maybe I'll know one day when she's a mom or not. But I thought as soon as that happened, I thought, I gotta tell my so many audience that story. I know you would appreciate it. All right, onto this week's headlines and happenings in the money world. And then we're going to get into your mailbag questions First, a win for renters. The New York Times reports on a new study showing that when rent payments are reported to credit bureaus, the tenants, especially those that have existing credit scores, can see a significant boost. The Urban Institute tracked tenants who had their rent reported versus those who didn't. And the renters in the reporting group were more likely to achieve a score of 601 or higher, which is a quote, unquote, near prime range that can open doors to better loan rates, credit cards, even housing opportunities. If you're a renter, this is the tip. Ask your landlord or your property manager if they offer rent reporting and if they don't, there are third party platforms that can help. And I think it's a relatively low effort way to build or repair your credit. I love that this is even happening now. This wasn't a reality 15, 10 years ago, rent was not considered in your credit report and it should. Housing right now is so out of reach for many Americans. I don't have to get into the supply shock and rising interest rates, but it's true that if you're paying your bills on time, whether it's rent or your cable bill or your mortgage, that is a demonstration of being responsible with your bills or credit. It's basically someone gives you something and you promise to pay for it at the end of the month or the 15th of the month, you do it. Great. That should get reported positively on your credit report and help you build credit, which is such an important tool in our financial arsenal. As we build our financial lives. Next up, prenups are having a moment. And this is because Jeff Bezos and Lauren Sanchez are getting married in Venice next week. And while no one's confirmed whether there is a prenup from their camp, many legal attorneys experts assume that they must have one. Because the fact is, Bezos did not have a prenup when he divorced Mackenzie Scott, and she walked away with Amazon shares worth more than $35 billion. I'm not mad about that, by the way. I'm sure he is, but I'm not. Now, with his NET Worth over 200 billion, a prenup in this case isn't what only attorneys would call smart. It's kind of a requirement. But the bigger trend is that, as we know, as we talked about on the podcast, prenups are becoming much more common, even for people who aren't billionaires or millionair. Millennials and gen zers are increasingly signing them to protect assets, businesses, and future earnings. And just a reminder, prenups, while they can be branded as a precursor to divorce, they're not. Marriage is a contract, and we forget that, but it is. And if you split, what happens to your assets is determined by the state. And every state has different laws. So it's important to know the laws. If you're happy with those laws, if you agree with those laws, then you don't need a prenup. But if you're concerned about how the laws would dictate how your assets get divvied up, a prenup is something that can override that as we think about. Also this transference of wealth transferring from the boomers to Gen X and Millennials. A prenup can protect your inheritance as well. So again, not something that we always think about when we're getting married. And finally, subscription fatigue, I'm reading, is happening. It's real right now. A CNET survey found that about 60% of adults are reconsidering their subscriptions, everything from streaming services to fitness apps. Personally, I recently canceled my unlimited studio membership to a gym because my schedule has shifted. I'm leaning more into personal training, and that just fits my life better right now. And I have to say, it took me a few months to cancel it before I just forced myself to do it. I'm friends with the studio manager.

I felt like it was going to.

Be an awkward conversation, but we did it all through email and it was fine. I mean, I. I was reminded the studio manager is not new to this and she should understand that when your life changes, so does your membership. And I said to her, this doesn't mean that I'm never coming back to the gym. It just means that for me to make this monthly membership worth it, I need to come a certain number of times during the month. And I just, as you can see, I haven't been and I've been paying for this membership without really using it. And that was an important reminder to myself too, is that this studio has made a lot of money off of me and I'm cutting the cord and.

They should be okay with it because.

I've given them enough and perhaps more than I should have. But it's tricky and I'll be the first to admit, especially when you have a personal relationship with the person who's running the service. But don't be afraid to audit your expenses, make those cuts. And right now, as many of us are concerned about job security, these are.

The low hanging fruit things that we can cut.

You can also pause your subscriptions. Maybe you don't do away with them entirely, but you put them on pause, you freeze them for three months, six months. Many services offer that. It may not be advertised on their websites, but if you can call customer service and negotiate, that's usually how you get it done. If you miss any of our episodes this week, quick recap. On Monday we talked about some rules for stay at home parents that are a bit out of the box. Janice Torres, who's the host of Yokito Dinero podcast and a financial author, recently had a baby and is partnered and she talks about how she and her now husband arranged their lives so that he could be more of the stay at home parent. But more than that, the ways that they have decided to financially protect him is groundbreaking and makes me wonder why we aren't doing this for all stay at home parents. That was a very important episode. Episode 1843. And then on Wednesday, everything you need to know about 529 plans. I take you inside the so Many Members Club where we hosted a workshop recently on college planning and 529 plans. And I share that recording with us on Wednesday to just give you a sense of how we run things in the so Many Members Club. It was also a really important workshop. Right now many parents are grappling with the cost of college as they are graduating their high school seniors and looking ahead and going, what have we gotten ourselves into? For those of us who still have some time to save, the 529 College Savings Plan can be a really great vehicle that Episode featured Patricia Roberts, who's a leading expert. Her book is called Route 529. That was Wednesday's episode. Okay, now to the mailbag. We're going retro today and staying relevant with questions that truly have stood the test of time. These Questions were from 10 years ago.

[Farnoosh Tarabi]

10 years ago.

[Farnoosh Torabi]

But.

But guess what? They're still relevant. Questions like, what do you do when you're done paying off your mortgage? What happens now? What next? What if you've nearly run out of tuition money for your kid and now they're in year three of college? Should you open a second retirement account beyond your 401k? And what's the real difference between a Roth 401k, which many employers offer now, and a Roth IRA? Let's dive in.

We've got. Let's see a question here from Jason. He says, hey, Farnoosh, my wife and I are 36. We've got two kids ages 4 and 2. We just finished paying off our house.

Seriously?

That's awesome. Congrats. What should we do with all that extra money? Wow. That's a good question. That's a nice question. It's a good place to be in. Jason. Yeah. High five to you and your wife for paying off that mortgage. That's pretty remarkable, man.

I don't know.

What should you do without all that extra money? If I were you, I would project where you all want to be in the next few years. Do you want to maybe buy a vacation home? Do you want to send your kids to private school? Do you want to. First, I'd also ask, how are your rainy day savings doing? How is your rainy savings functioning? Do you have at least six to nine months reserved? If you don't, maybe you want to cushion that. How's retirement doing? Do you guys feel like you're doing okay as far as retirement planning and retirement investing? If not, maybe that's where some of that extra money would go. It's really about making sure that your foundation is still strong. So paying off your home at 36, that's awesome. And maybe if this is a house that you plan to live in for this is your forever house, then that's awesome. You don't have to worry about a mortgage for the rest of your life again. Unless maybe you take on a second property. I would also consider, because you have two kids now, how are their college savings accounts doing? Do you even have them set up for them? So if you don't, that's something that I think would need attention. Should merit some attention if you feel as though they're not very, they're not really full or they don't have enough in there for where being that they're only four, but say in the next 14 years, the next 16 years, they're going to go off to school. Have you done those projections? What will school cost back at that point and how much do you want to contribute? And so I think you want to.

Look at some, you want to look down the road.

Maybe it's that you also start working with a financial planner to help guide you through this maze a little bit and really distill what it is that you need to plan for what your priorities should be given that you have kids. So that's, that's the conversation that I would be having with your wife that I might want to bring in a financial advisor to, to get a second and third opinion and. But the good news is that you.

Have a lot of options and that.

Is financial freedom in my book. Being able to. Now, the fact that you're asking this question, what should we do with all that extra money? That's a good place to be in and you're going to be okay. Just make sure that you really stick to what is important to you and your family and your goals and dedicate the money to achieving those particular goals, both in the long run, like college and beyond retirement. And in the interim, so whether you.

Want to maybe invest in another property.

Or send your kids to private school, plan a vacation. This is where life gets fun. And congratulations for climbing that mountain.

[Farnoosh Tarabi]

Hey, this is Farnoosh Tarapi from the Sew Money podcast. Running a business means wearing a lot of hats, but ordering supplies shouldn't be one of the ones you don't like. Walmart business helps organizations like yours save time, money, and the headache of managing purchases. From office essentials to bulk break room snacks, it's all in one place. Online, in store, or right in their app. Sign up for [e-mail] and get back to what really matters or running your business. Hey, so money friends, I know so many of you are dreaming of starting something of your own or you're already building a business and trying to make the smartest moves possible with your time, energy, and of course, your money. If that's you, I want to recommend a podcast that's really aligned with the way we think here on Sew Money. It's called this is Small Business. And this new season is all about something I talk about often Risk Every episode dives into real founder stories, people who've taken calculated risks and faced major financial decisions and stayed grounded through the ups and downs of building something from scratch. Host Andrea Marquez thoughtfully unpacks how these entrepreneurs made bold moves and what we can all learn from their choices. This Is Small Business is full of financial and entrepreneurial insights that can help you take the next step with confidence. Whether you're wondering how to fund your idea, price your product, or know when the risk is worth it, these episodes give you that clarity.

[Farnoosh Torabi]

So go check it out.

[Farnoosh Tarabi]

Follow this is Small Business on Apple podcasts, Spotify, or wherever you listen. It's the kind of inspiration you don't want to miss When I'm on the.

[Farnoosh Torabi]

Hunt for my next place to buy.

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Or rent or just in the mood to dream, scroll through some incredible homes. My dream home would have a sunlit kitchen and a peaceful garden. I use the Redfin app.

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The homes for sale and apartments for rent in your neighborhood. Redfin lets you filter by price, bedrooms, bathrooms, square footage, and so much more. You can really tailor your search to find the perfect match. And if you find a place you love, Redfin makes it easy to go see it in person. Just schedule a tour right from the app. Even better, if you're planning to sell, Redfin agents know how to get you the best price possible for your home. That's because they close twice as many.

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And of course, saving money matters. With a listing fee as low as 1%, Redfin's fees are half of what others often charge, which means you'll have more money to put towards your next home. So whether you're looking to buy, rent, or sell, Redfin's got you covered. Download the Redfin app to get started. As soon as the weather warms up.

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The fabrics are soft and breathable, the.

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Give your summer closet an upgrade with quince. Go to quince.com sewmoney for free shipping and 365 day returns. That's Q U I N C E.com somoney Marianne asks.

My daughter is going into her third year of law school. We've been helping her by giving her $1,400 a month. She graduated from a top 20 university with no loans due to a generous financial package we paid her in board and spending which was 25,000 a year. If we don't help her with her third year of law school, she will end up with 120,000 in law school loans. Am I understanding this right? So you. She got a great financial package, but oh, but it was a loan. It wasn't. I was thinking like scholarship. We are running out of money now after also paying for our 21 year old's Bachelor's degree. Should we help our daughter with her third year or should we catch up on our growing bills? Help Marianne.

It's, it's a. You're like, it's like rock.

It feels like a rock and a hard place. But I will tell you that just based on my conversations with people that, that are in your similar situation and perhaps even older, the ones who are in retirement, I don't think you're going to regret having taken the time now to really save for yourself, for your future. If you're telling me that you don't have much of a retirement, that you don't have, that you're having a hard time just even paying your own bills, forget retirement then I think you know what you have to do. Your daughter's a big girl. $120,000 is scary. But the good news is that hopefully she finds that really lucrative job. She's graduating from a top 20 law school. She'll hopefully be qualified for a good job that pays six figures As a lawyer. This is something that she needs to inherit as her own financial responsibility at this point. You guys have been very generous helping her with her housing and her books and paying her a monthly stipend. It's gotta stop. And she was very fortunate that she had you to do that for her. I think that at this point, if you're recognizing that you are financially fragile as an individual, as someone who's got to worry about your own financial needs and retirement, I think it's time to have a conversation with your daughter and just be honest and say, look, we want to help you. We have been helping you. It is our honor to help you. We want to see you achieve your goal to become a lawyer. But at the same time we have to also be conscious about our growing needs as a family and retirement's not too far off and we want to be able to retire comfortably and not have to be stressed at that point. And we want to be able to enjoy our retirement, to be able to spend time with you wherever you end up moving. We want to visit you and we don't want to be strapped and we definitely don't want to ever be in a situation where we're in our retirement and needing money from you, our rich lawyer daughter. It's I jest, but it's something that a lot of parents are going through. We talk a lot about, we know a lot about at least the sort of sandwich generation of maybe 30 year old, 40 year olds who are supporting their own kids and then also their parents because their parents didn't save quite as much or enough for retirement. So I think you need to just apply a little bit of tough love to your daughter. But it's not even that tough. If she's going to graduate and get that good great big job, hopefully she will. Then she theoretically should be able to pay off that six figure loan assuming she doesn't go extra. She doesn't have this extravagant lifestyle. You know that she's smart about how she's paying for things like housing and food and she budgets smart. She prioritizes those loans. So she sounds like a smart lady. So that would be my honest to goodness advice. Chris asks Farnoosh, I love listening to your podcast. Great advice from you and your guests. I have a 401k and I'm considering opening a traditional IRA as well. Is that a good idea to open one? Even though I currently have a 401k? I would also love to know your thoughts on target date funds on 401k accounts. My 401k is currently invested in a target date fund and I just read an article by Jeff Rose saying that we should not invest in one. Wanted to know your thoughts about these particular funds. Sure. Krisa. First, to answer your first question, which is I have a 401k, you're considering a traditional IRA as well. I would say that if you feel as though you're you might be the way that a 401k works and the way that a traditional IRA works as far as taxes go, is similar. So you're going to be able to get the same tax, same kind of tax benefit. The money that you contribute to the fund will be you'll be able to lower your taxable income with that contribution, which is great. And you save today and then in the future you pay taxes on your withdrawals. If you feel as though your 401k at work is limiting in so far as the kinds of mutual fund options and investment options they have for you, then maybe a traditional IRA beyond that is would be attractive because then you'll be able to get access to more funds for diverse array of funds to help you just stay better diversified and have better access to ways to grow your money. And if you also feel as though your 401k, you've. If you've maxed that out, you've put in the. I think it's $18,000 this year, you've done the most that you can and you want to save more, then that's when an IRA is handy. You can open one up. I believe it's $5,500 annually to contribute. If you're playing catch up then it's in your older years, I believe it's $6,000 but. So those would be like the two scenarios or all of the above. When it makes sense to open up a traditional ira, you want access to more diversity of assets and funds that your 401k is not necessarily providing and or you've maxed out your 401k and you want another way to save for retirement. Great vehicle. Traditional Iraq. So that's the answer to the first question. Your second question is about target date funds. Target date funds are controversial. Read Jeff's article. Jeff's a friend of mine. He's a fantastic guy and also expert personal finance expert. He's a cfp, he's a financial planner. His website just to give him a shout out. Check it out. It's jeffrosefinancial.com and then he's also got a blog called goodfinancialsense.com he's on Twitter @jeffrose. I should have him on the podcast actually.

[Farnoosh Tarabi]

It's time.

[Farnoosh Torabi]

Jeff, if you're listening get in touch or I'll get in touch with you. But so he doesn't target date funds. His argument is that they've been target date funds just to educate everybody who may not know because can't assume everybody knows what a target date fund is. It's essentially a type of mutual fund that is usually you find these target date funds and they'll say target date 20, 20 target date 2030, target date 2040. That year implies that's the year that you're planning to retire. And so given that time length, that time frame between now and 2040 or now in 2050, that fund is designed in such a way to adjust for risk as you get closer and closer to that target date of retirement. So if you're 20 years old now and you're going to retire in 40 years, so that would be in 20, like 55, then right now the targeted fund, just generally speaking, it would be a little riskier, a lot riskier than what it would be the closer and closer you get to retirement. So it's very convenient and they're sold on their convenience that you don't have to worry about asset allocation, you don't have to worry about rebalancing. We do it for you automatically. Its target date will determine how the fund is designed as far as how risky it is, and then it'll adjust to be less risky as you approach retirement. So people love them because they are convenient. However, Jeff takes the position that they don't really return much.

They're.

What did he call them? He said they're crappy or something. He's very crystal clear about how he felt about them just because he believes in active management of your fund. And his pitch was, look, scrap the target date funds. The returns are no good, they're very small. And then on top of that there's fees probably attached to them. So they're actually not good for your portfolio. Instead, you would benefit, you'd be more, you benefit more from hand picking investments, creating your own kind of DIY target date fund that a financial planner could help you with. And he's a financial planner. Let's take it, let's be honest here. It's his, to his advantage to say this, but I think he's being honest too. This is, you would be far better off if you hired someone to help you pick and choose assets that met your retirement date. Your risk tolerance that were just a little more handpicked. Like go at, do an a la carte approach, you have to pay for that doesn't come free. So you gotta work with a financial planner. And so there's a caveat to that.

So what do I think?

I think like any investment, you need to do your homework, do your research. Not all target date funds are lousy. Some are great. It depends on the performance that you can track performance, you can see performance. You can go to sites like Yahoo. Finance, Morningstar. A lot of times they have the historical price charts and return charts that you can see how funds have performed over a period of time and you can use that as context for you as you decide where to put your money. And if your 401k does in fact have lousy target date funds that have lousy returns, then maybe you want to go and work with a financial planner or just call the 401k plan administrator and say, I don't want to do the target date fund. I want to do something that's a little more specific to me. I don't like the returns that I'm seeing. Is there a way to maybe create something a little more unique for me that acknowledges that I'm not going to retire for a while that I also don't want to take, but I want to be maybe moderate to very risky right now and then change that as time goes on. Help is out there for you. And that's, I think the real takeaway is that don't just assume. Don't just be sold on a product because it's quote unquote convenient. Really do the research, ask the right questions. It sounds like you are reading up on this. That's great. And be your biggest financial advocate. If you find out that these funds are lousy because their track records are poor, then don't invest in them. Go find something that's better, that you feel more comfortable, that you feel your dollars better spent doing so. That's my advice. And it's across the board with any financial product. If you feel as though you're not getting your money's worth, that there are other better things out there for you, explore them, explore those better options and then come to making a more educated choice. At that point, street asks, hey Farnish, what is the difference between a Roth 401k and a Roth IRA? My current employer offers 401k and Roth 401k and I'm funding both. And I've been thinking to start a Roth IRA also should I love your podcast. Thanks, Shriti. I think that it's a good question. There are many differences between a Roth 401 and a Roth IRA. Some of the bigger differences, a Roth 401K, because it's a 401K, essentially allows you to contribute more annually than a Roth IRA. The limit this year for a Roth 401k is 17,500. It's 23,000 if you're age 50 or older with a traditional or, sorry, with a Roth ira, you have a much smaller contribution limit. I believe it's 5,500 and then an extra thousand dollars if you're at 50 or older for catch up contributions.

[Heather]

So.

[Farnoosh Torabi]

So if you feel as though you've.

Maxed out your 401k at work, your Roth 401k, you want to contribute more to retirement. A Roth IRA could be a great vehicle for you. Another difference between a Roth 401 and a Roth IRA distributions, one of the benefits of the Roth IRA is that the account can exist pretty much in perpetuity forever without any minimum required distributions. But a Roth 401k, you will have to start making distributions at 70 and.

A half years old.

Something else to keep in mind about a Roth 401k is that I think it's an advantage potentially is if your employer offers a match, then you get to take advantage of that match. With a Roth IRA there is no match. And then but to flip it a Roth ira. A lot of times people like to have some investment vehicle outside of their work plan because it exposes them to a lot more investment options. So the 401k plan at work or the whatever you have, it's whether it's a 403B a 401K. A lot of times there's a limited basket of funds that you can choose from. So if you like those funds, great. If you don't, maybe you want to shop around for something supplementary like a Roth IRA or a traditional IRA outside of your works benefit retirement plan. So that is great too I think because it more options, more chances to be diversified, more chances to find low fee funds, et cetera. And so those are the differences. Should you have both? If you is after hearing this, if you think that there are benefits to having another retirement account outside of work, like you want to start, you want to contribute even more to retirement, you want to have access to more investment options then a Roth IRA could be another great way to diversify your retirement approach.

And that's our show questions from a decade ago. I actually looked at the date. It was June 14, 2015. I was barely into motherhood, barely into this podcast. My voice definitely sounded different, didn't it? I thought it would be really fun and interesting to go back in time and listen to these questions that again still relevant right now. Thanks for tuning in and I'll see you back here on Monday. I hope your weekend is so Money.

[Capital One Bank Guy]

Banking with Capital One helps you keep more money in your wallet with no fees or minimums on checking accounts and no overdraft fees. Just ask the Capital One bank guy it's pretty much all he talks about in a good way. He'd also tell you that this podcast is his favorite podcast too. Ah, really? Thanks. Capital One Bank Guy what's in your wallet? Terms apply see capitalone.com bank capital1na Member.

[Heather]

FDIC Heather is a nurse practitioner from UnitedHealthcare.

[Farnoosh Torabi]

We meet patients wherever they live.

[Heather]

During a house call, she found Jack had an issue.

[Farnoosh Torabi]

Jack's blood pressure was dangerously high. It was 217 over 110.

[Heather]

So they got Jack to the hospital and got him the help he needed.

[Farnoosh Torabi]

He had had a stent placed in his heart, preventing a massive heart attack. If it wasn't for my guardian angel, I wouldn't be here.

[Heather]

Hear more stories like Jack's at unitedhealthcare. Com. Benefits, features and or devices vary by plan. Area limitation and exclusions apply.