Scott, you pose an interesting question. Of course, you would ALWAYS get your own money back whether vested or not. And you get a tax break for contributing to your retirement. You need to look at how discontinuing your retirement contribution impacts your tax rates. Paying a third of your net income is like having a mortgage and no house. At your age, I would have no real problem with a small window of non contributions in order to prepay some of the loans. Have you looked at combining them or trying to get a lower rate?
Scott, start paying down that debt!
Thanks Matt! You can take this next question from Mazz, also about how to start investing.
Oops! Not investing, saving for a down payment
Jane, here's one from Manoj
And Debbie, you can take this one from Chris.
Just Married, I send my congratulations as well. And I am SO pleased you are asking about this now. I see so many problems post marriage that could have been avoided with a little work before the "I dos." I am going to strongly suggest that you meet with a fee only advisor for a couple of hours. You should each bring a list of your assets and your debts as well as a copy of your credit report to share with each other and the advisor (you would be surprised how often things like IRS debts or large credit card balances pop up). If there is anything unexpected, that doesn't mean the marriage is off. It just means you will enter it with eyes wiide open. Then discuss with the advisor how you will handle your money. Will you each maintain separate checking accounts (do keep credit in both names)? Will you each contribute to a joint account to cover monthly expenses and big ticket items (remembering that equal is not always fair if there is a big disparity in income). You might have the advisor do a short plan to show you how much you need to start saving to achieve some financial freedom for your future (it will NOT be easier to save later, especially if there are kids). Finally, the advisor can help you with the best ways to save: company retirement plans, Roths or IRA, and what investments to choose. Kiplinger I suspect you have some good articles on this subject that you can share. As I sign off, let me wish you a wonderful wedding day, one that you aren't going deep into debt for.
Manoj, College savings accounts can have an impact on on financial aid, but if the account is in the parent's name, it shouldn't make a huge difference. Income counts much more than savings in your ability to get financial aid.
I apologize, Adam J's question goes to Rich.
Mazz, there was a question earlier about using an IRA as a short/mid term savings account. You probably know that the IRS allows "first time" homebuyers to take money out without a penalty. In my mind, this is a bit complicated. I would start saving using CDs or a savings account. If this account grows over $5,000, I would consider funding the Roth IRA but if you're close to buying a house, you will not get the benefits of tax free growth. I try to follow the KISS principle as much as possible which suggests using a bank account and avoiding tax complications of adding an IRA for downpayment funding
Thanks, Bobbie! We definitely do have some articles aimed at newlyweds. I'll take a look. In the mean time, you can take this question from BMG Nikon.
Just Married, perhaps you could add a visit with a financial advisor to your registry and let someone give you this valuable gift.
Robert Long is Kiplinger.com's managing editor, and will be helping us out by following-up with some related links to your questions.
Hi Sarah, I have a duaghter in the same situation ------. There is no right answer to this question. There are a number of variables on this process, but if you will be earning really money once you do graduate, I'd favor reducing the loan payments and building a savings/investment account. If you do not have any cash saved, having some reseve may be necessary as you look for the "right" job. With luck, you'll have a job before you graduate, but right not that isn't always the case. If you use all your "free" cash to pay down the loans, you can reborrow the money. If you build up a cash reserve, you can alway pay down the loans later. Most stufent loan have highish rates, but even so, I think saving is important. Jamie
Congratulations on a terrific start to your financial life. Many companies that offer pensions (mandatory) often also offer 401(k)s or 457 plans. That would be my first recommendation to contribute to. Second would be a ROTH, assuming that your income does not prohibit it. Finally, a traditional IRA, even if you do not get a tax deduction due to income limits. Use an inexpensive custodian such as a discount broker to establish your IRA.
Jane, here's a question from EB29, also touching on CoverDells
Im not sure adamJ, if anything you may get the penalties waved that they charged for the shady shenanigans.
Alright, time for our next round of questions.
Great! Thanks, Matt. Here's a question from SAHMQuestion
And Jamie, you can take Judi Heitz
Rich, here's one from Aquone
And Debbie, here's one for you from Robot House
Love your spirit, Robot House.
Coverdells do have an income limit as well as a contribution limit, whereaas 529 savings accounts have no limit on income and let you contribute up to a very high maximum, so they are pretty flexible. Also, you can choose a 529 plan in a state not your own (although we recommend using your state plan if you get a tax benefit), so the 529 is a popular option.
Bowing out now--thanks for having me.
Thanks, Jane! We appreciate your help!
Aquone, each plan has their benefits. 529 plan you can contribute more, is tax deferred, but will be taxed on the earnings when withdrawn if they do not use it for school. You may want to look at unified gift to minors, which the parent will be the custodian and it will benefit the child. If they do not use it for college its ok, and will not be taxed. However, you pay taxes each year on whats inside.
Matt, here's the next question from Jay in Germany
Might be a tough one to answer!
I'm a graduate student, currently receiving a small fellowship to cover my tuition and costs of living while I finish my degree. I make enough that I can keep up with my monthly expenses and will be able to pay off the ~$9000 in loans that I have by the time I finish my degree in two years--but I can't afford to contribute anything to a retirement fund or otherwise build up any savings. Should I be making smaller payments on my loans every month so I can start saving now for retirement? In other words, is it better to pay down my debt ASAP, or finishing paying off my loans later and build up some savings in the meantime?
Scott, you pose an interesting question. Of course, you would ALWAYS get your own money back whether vested or not. And you get a tax break for contributing to your retirement. You need to look at how discontinuing your retirement contribution impacts your tax rates. Paying a third of your net income is like having a mortgage and no house. At your age, I would have no real problem with a small window of non contributions in order to prepay some of the loans. Have you looked at combining them or trying to get a lower rate?
Manoj, here's a look at assets that matter most to the financial-aid formula -- www.kiplinger.com
Hi Sarah, I have a duaghter in the same situation ------. There is no right answer to this question. There are a number of variables on this process, but if you will be earning really money once you do graduate, I'd favor reducing the loan payments and building a savings/investment account. If you do not have any cash saved, having some reseve may be necessary as you look for the "right" job. With luck, you'll have a job before you graduate, but right not that isn't always the case. If you use all your "free" cash to pay down the loans, you can reborrow the money. If you build up a cash reserve, you can alway pay down the loans later. Most stufent loan have highish rates, but even so, I think saving is important. Jamie
