Planning for Retirement, but still have fun.

[emanon1501]

I am trying to figure out the best plan to diversity the retirement fund without sacrificing good life for my family. We are 39 years old and have three kids (5, 7, and 10 years old). Right now, I am maxing out 401K and no money is going into Roth IRA. I want to change on how I am doing this to ensure I have reasonable retirement and still be able to take family to camping, vacations, etc.

I have 100K in traditional IRA that was rolled over from my old 401k with no money going in. I have been thinking about converting this to Roth IRA. I also have 25K in my current 401K. I was jobless for almost 5 years and that is why I am behind on my 401K. My wife has few thousands in Roth IRA. I have about 14k in stocks, but I want to sell them all and just focus on 401K and Roth IRA. Is that good idea or bad idea?

Which is better?

Option A.
Put $17,500 to 401K
Put $5,000 to Roth IRA
Put $5,000 to my wife’s Roth IRA (Can I do this? My wife is a stay at home mom)
This option is stress free and ensures I will have good retirement fund.

Option B.
Put $10,000 to 401K
Put $5,000 to Roth IRA
Put $5,000 to my wife’s Roth IRA (Can I do this? My wife is a stay at home mom)
Buy 4-8 rental properties with mortgage (cannot pay cash for this property)
This option will free up $7,500 for fun things like camping, vacations. This option will also generate some income from rental properties. However, I want to make sure I have enough income for retirement.

Let me know if you need more info or if we should do financial health check, so you can give me better suggestions.

[riverwed070707]

Everything else aside, if you an an inexperienced landlord, buting 4-8 rental properties is never a good idea. Further, if you don't have the cash to pay for them, they arne't going to make you money and you are not going to be able to get financed for 8 properties. Hard to assess plan A without knowing other specifics of your situation. Can you afford to be saving that much?

[Petunia 100]

Yes, you can fund an IRA for your wife, so long as you are filing jointly.

The IRA limit for 2013 is $5,500.

As to whether you should choose option A or option B, that depends on a number of variables.

I will say that IMO, a happy life is all about balance. If you feel you are saving so much that you and your family never have any fun together, then you are probably saving too much.

Also, keep in mind that if you have 4-8 rentals, unless you are going to hire someone to take care of them, you aren't going to have many free weekends to go camping with your family.

Why don't you try working backwards? How much do you think you should have saved by age 65 (or whatever age you want to retire) to live comfortably? Are you on track to reach that, to fall short, or to surpass that number? The answer will help you determine if you should dial back your savings rate or not.

[MonkeyMama]

Agreed with riverwed.

Also, it's not quite as simple as you save $7500 if you put $7500 less to your 401k. You would save less than that, as you would lose the tax deduction that goes along with that.

Likewise, deciding to put that much into your ROTHs could also tie up cash flow. Maybe you should contribute to regular IRAs (yes your spouse can) and get more of a current tax break for retirement contributions. There is some financial incentive there.

IT's hard to offer any advice without knowing what your income is. (To figure how you are doing on retirement savings, how much you should be saving, and what tax ramifications and options are).

[~bs]

I am trying to figure out the best plan to diversity the retirement fund without sacrificing good life for my family. We are 39 years old and have three kids (5, 7, and 10 years old). Right now, I am maxing out 401K and no money is going into Roth IRA. I want to change on how I am doing this to ensure I have reasonable retirement and still be able to take family to camping, vacations, etc.

I have 100K in traditional IRA that was rolled over from my old 401k with no money going in. I have been thinking about converting this to Roth IRA. I also have 25K in my current 401K. I was jobless for almost 5 years and that is why I am behind on my 401K. My wife has few thousands in Roth IRA. I have about 14k in stocks, but I want to sell them all and just focus on 401K and Roth IRA. Is that good idea or bad idea?

Which is better?

Option A.
Put $17,500 to 401K
Put $5,000 to Roth IRA
Put $5,000 to my wife’s Roth IRA (Can I do this? My wife is a stay at home mom)
This option is stress free and ensures I will have good retirement fund.

Option B.
Put $10,000 to 401K
Put $5,000 to Roth IRA
Put $5,000 to my wife’s Roth IRA (Can I do this? My wife is a stay at home mom)
Buy 4-8 rental properties with mortgage (cannot pay cash for this property)
This option will free up $7,500 for fun things like camping, vacations. This option will also generate some income from rental properties. However, I want to make sure I have enough income for retirement.

Let me know if you need more info or if we should do financial health check, so you can give me better suggestions.

converting traditional ira to roth is going to involve a big tax hit. Best done only if your income is low, so you wont get hit with the high tax brackets. In 2010/2011, I believe there was a law that let you spread the tax hit across 2 tax years. Don't think it's still in effect. Probably would have been best done while you were jobless or if your wife was a stay at home mom.

How will you afford that many rentals? Does your normal income allow you to pay mortgage on all of them if you can't find renters?

You have 3 kids. I personally wouldn't do anything drastic, and continue plugging away saving money. Utilizing leverage with rentals involves risk, and could seriously be detrimental to the financial wellbeing of you and your family.

I believe she can contribute to a roth as well, as long as your combined wages exceed 11,000.

[jpg7n16]

I am trying to figure out the best plan to diversity the retirement fund without sacrificing good life for my family.

What retirement planning have you done?
How much do you guys earn today?
How much do you think you'll need to retire and live the lifestyle you want?
Is your current savings enough?

http://www.aarp.org/work/retirement-planning/retirement_calculator/

I have 100K in traditional IRA that was rolled over from my old 401k with no money going in. I have been thinking about converting this to Roth IRA.

Cool. Do you have the $25-30k in cash necessary to pay the tax on conversion? (plus state tax)

If you already make enough to save $27,500/year, you're probably in the 25-28% bracket. Adding another $100k to your income would bump you way up.

I was jobless for almost 5 years and that is why I am behind on my 401K.

Then you would need to play catch up for a bit to build up required money for retirement.

Option B.
Put $10,000 to 401K
Put $5,000 to Roth IRA
Put $5,000 to my wife’s Roth IRA (Can I do this? My wife is a stay at home mom)
Buy 4-8 rental properties with mortgage (cannot pay cash for this property)
This option will free up $7,500 for fun things like camping, vacations. This option will also generate some income from rental properties. However, I want to make sure I have enough income for retirement.

As others have pointed out, your option B is not realistic. As MM said, you wouldn't get the full $7500 because of taxes. As RiverWed said, inexperienced people don't just jump in and immediately profit on real estate.

Besides, where would you get the downpayments for the properties? They don't just give them out for free. So your $7500 (less taxes) would need to be saved towards downpayments and rennovation expenses to get you in the door and make the homes livable. You wouldn't be able to take the vacations, etc. that you chose option B for.

You need to run through the retirement calculator above before making your decision.

[TheCorporation]

Option A.