1956: Ask Farnoosh: Roth 401(k) Strategy, Avoiding the Wrong Insurance, Paying for Childcare & FAFSA Tips

What It Covers

Farnoosh Torabi answers listener questions on Roth 401(k) strategy for high earners making $450K–$550K annually, variable universal life insurance red flags, sustainable childcare arrangements, and how teen part-time income affects FAFSA eligibility, alongside housing market and K-shaped economy updates.

Key Questions Answered

• •Roth 401(k) Hierarchy: High earners should max Roth 401(k) contributions first, then fund traditional 401(k) accounts, then taxable brokerage accounts — in that exact order. This sequence prioritizes tax-free growth, then tax-deferred growth, then flexibility. Having both Roth and traditional accounts diversifies tax exposure in retirement, which matters when income replacement needs are 70–80% of current earnings.
• •Variable Universal Life Insurance Warning: Variable universal life (VUL) policies carry high maintenance fees, market-linked cash value risk, and are typically unsuitable for people without dependents or complex estates. Before accepting any adviser-recommended financial product, verify the adviser's compensation structure. Fee-only CFP fiduciaries must disclose commissions, while commission-based advisers profit directly from product sales like VUL policies.
• •Childcare Cost Strategy: Nanny shares — splitting a private caregiver with one other family, alternating host homes — can reduce childcare costs while limiting sick-day disruptions that daycare environments create. When a child is mildly ill, a home caregiver can still work with precautions. Once childcare costs end, redirect that same dollar amount immediately toward retirement catch-up or debt paydown.
• •FAFSA Teen Income Threshold: Dependent students can earn up to $7,600 annually before it affects federal financial aid eligibility. Above that threshold, 50% of excess income factors into the expected family contribution calculation. However, assets held in a student's name are assessed at a higher rate than parental assets in the FAFSA formula — keep significant teen savings in a parent's account.
• •K-Shaped Economy Navigation: Current economic data shows higher-income households increasing spending while lower-income households carry rising credit card debt and cut discretionary expenses. The practical response is a three-question financial checkup: Does an emergency fund exist? Can expenses be covered for several months without income? Is the resume current and professional network active enough to withstand a job disruption?