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College Savings and Retirement Planning

December 5th, 2008 at 01:57 pm

So, I know i'm only 22 years old, but i'm already thinking about retirement. I've been reading "Smart Couples Finish Rich" By: David Bach, and it's really got me thinking alot on how I want to live my life when I'm retired. The only thing is that I don't really know much about IRA's. My father-in-law was telling me that our best bet is to get a Roth IRA, something about taxes being taken out now rather than later. Now, with me being a SAHM, my husband can open me a Spousal IRA. Don't really know much about that except we have to make enough money for him to open me one.

Anyway, on the other hand, College Savings for the munchkins. I've been thinking about opening a savings account for them next month that way when they're older, we can give them the money. I've been told by my mother-in-law that that I had to be careful about it. She said that by saving them some money, it can disqualify them for financial aid when it comes to college. Now, is this true? I don't understand why it would disqualify them for financial aid.

Also, another question that I have is College Funds. What is the difference between Coverdell and 529 Plans? What if I invest all this money for the schooling, and they decide they don't want to go to college? What happens to the money then?

UGH! Maybe I should just cross my fingers and hope the girls will have a free ride to college?

4 Responses to “College Savings and Retirement Planning”

  1. merch Says:

    I would say that it's more important you save for retirement. For college, there are loans, grants, scholarships, etc. But not for retirement.

    Coverdell is like an education IRA, you put max of $2,000 a year per account. It can be used for college and private schools. There are limits depending on income.

    529 has no yearly contribution but a max contribution limit. It's in the I think it's over 200k. Some states allow tax deducations if you use the states 529 plan.

    I am opening 2 529 plans for my sons. Mainly because of my income. I am using the Nebraska plan. I live in massachusetts but Mass. doesn't reduce my state income tax for using their plan.

    I would start here https://personal.vanguard.com/us/planningeducation/college

    This should hel give you a general idea, but again, retirement first then college.

  2. creditcardfree Says:

    In order to open an ira you have to have earned income equal to the amount that you are depositing. Yes, you can have an IRA in your own name even though you do not work since you are married. Maximum contribution is $5000 per person. So, as long as your husband makes $10,000 you could put $10,000 into your two Roth iras. We have our roths at Vanguard. We max them out and my husband also sends 4% to his TSP. Start with what you can afford and work your way up. If you make approximately less than $50,000 annually you can qualify for a savers credit on your tax return. Good luck!

  3. zetta Says:

    Does the military offer anything similar to a 401(k), where the government matches part of your husband's contribution? If so, contribute to that first to get the free money, and then $5k each toward the two ROTH IRA's.

    529's are great in that you keep control of the money, where a savings account in the child's name becomes their property at age 18. The money can also be used for trade school if they decide not to go to college, or you can use it yourself or transfer it to another family member. I don't know about the impact on eligibility for grants and student loans, but wouldn't you rather have money saved than rely on the goverment to have money available 20 years from now?

    Coverdell can be used for private elementary and high school (some grandparents pay for private schools this way), otherwise my impression is that the 529 is generally a better deal.

  4. creditcardfree Says:

    zetta, military has a TSP(thrift savings plan)...like a 401K but no matching. If you stay in the service long enough, 20 years, one can get a retirement benefit like a pension.

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