Thursday, June 7, 2012
Baby Step #4
I just spoke with my Retirement financial adviser and upped my Contributions to my pension to 15%! I also got information on college savings plans, which I will probably start putting money in next month when he returns. College savings is one thing I have NO idea what amount to invest in. It's also something my husband and I have very different views on. He doesn't think we should save for college and make the kids pay their own way. Can you guess which one of us actually went to college??? I do want them to work hard and help pay for their own college, but I also don't want them to graduate with a HUGE amount of debt when they're just starting out in the real world.
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Wow, you guys are doing great! I would love to get rid of some of our monthly payments but the accountant in me says no because our interest rates are so low and we can make more money investing.
ReplyDeleteI'm curious about your pension... do you have to pay income taxes on it when you withdrawal? If so, I would highly recommend doing a Roth IRA where you pay the tax now and then when you retire it's all tax-free. The reason is that chances are you are in a really low bracket with two kids right now so might as well use the low rates now. Once you're retired you might be making more and have less deductions (especially if you're planning on paying off your house and won't have mortgage interest to deduct) so you will be paying a lot higher income tax rate. Any way you look at it though, saving is saving and you're doing way better than a lot of people!
We haven't started a college savings plan either. You can use a Roth to fund kids' college so we'll probably max that out first before we even consider a 529 plan. I'm hesitant about doing one of those in case one or both of our kids doesn't end up going to college which I am fine with too. The nice thing is you can use it all on one kid or split it or whatever so hopefully one of them will be able to use it either way.
My pension is pre-tax and I was only going to put the 4.5% in that my employer matches, and put the other 11.5% into a ROTH IRA, but honestly I just changed it to 15% at my employer b/c it was the easiest way to do it.
DeleteI had thought about using a ROTH for the college funds. The LearningQuest 529 plan is the other thing I'm looking at. The adviser told me that if our kids didn't use it or ended up not using all of it, it could be transferred to my retirement fund with a 10% penalty on the interest. He also said that both kids could be named as beneficiaries, so in case on of them needed more money than the other they'd be able to use it still.
When I was talking to the financial adviser about paying off the mortgage and he said, "oh, no I wouldn't do that now while rates are low." I think he was a little shocked when I said, "Well it's the only debt we have." :)