Currently, they have three major sources of savings:
- A traditional 401k from a current employer (currently funding at max by a high earner)
- A traditional 401k from a past employer
- A basic savings account
As they have money sitting idly in their savings account, I think it would be a good idea to utilize at least a portion of it more efficiently with the following introductory plan:
- Contribute $6,500 per parent to a non-deductible traditional IRA (likely through Vanguard or similar) for both 2015 and 2016 (A total of $26,000).
- Instantly convert that $26,000 non-deductible IRA balance to a Roth IRA (they currently have no IRAs of any kind, so they could convert the entire thing).
- Use the Roth IRA as "play money" to demonstrate that investing in simple, boring index funds isn't scary.
- Roll over the past employer's 401k into a traditional IRA (now empty after the backdoor conversion) so it can be invested in boring index funds rather than the existing actively managed fund.
- Wait for confidence in investing to increase and then reassess future strategies, potentially with a taxable investment account (undecided).
The exact investment choices haven't been made. I used the term "index fund" in the above list as a placeholder. It could very well be some kind of boring targeted retirement fund or something.