Hi Philip, is the Roth IRA the child's Roth IRA? I prefer to see 529s used, then any other of the child's assets, then taxable accounts - does the child work? I really hate to see parents using their own retirement accounts or tax-deferred accounts to pay for college.
Philip, this question requires knowing a lot more about your circumstances. In general, I do think a Roth IRA is an appropriate tool in many circumstances for college saving before a 529 plan... specifically because we can control the investments, the idea of college financing is changing so quickly that it may not be what we imagine, many 529 plans push excessive risk assets on clients that they otherwise would not be comfortable with. But, I would want to know more about your overall financial picture and have a deeper conversation before advising on any strategy.
I'm so sorry HJ. I agree with you - true wealth is much more than money. I wish you and your husband the best in your time together.
@Phil - 529 plans generally only serve one purpose efficiently - paying for "qualified education expenses." If your choice is to save towards your retirement in a Roth OR save for you children's education, then I would suggest saving to the Roth first. At least with the Roth (and to some extent the HSA) money can be utilized to satisfy multiple savings objectives. I generally suggest that clients save for themselves first and their children second.
Hassan, I love the Wellesley and Wellington funds - I do hope the Vanguard advisor did a full risk profile before making those recommendations - including risk tolerance, risk capacity and risk required.
Bob, as you may imagine, people often call us after they've purchased these products. If we can get traction on the fiduciary rule coming up (that the financial services industry is fighting), that would sure help! Look for an opportunity to comment on the proposed legislation - I know Kiplinger's will be all over it to serve their readers.
Hi @DCRider, do you have a high deductible health care plan? Maxing out an health savings account might help a bit. Does the company you work for have a deferred comp plan? Or are you self employed?
DCRaider - I'm one that isn't confident that max funding a 529 is always the best option. The way college financing is changing so quickly.... what if in 18 years proposals to fund the first 2 years of college pass? I prefer to maintain flexibility, and you're doing that in the 401(k) and Roth, but perhaps a tax-efficient taxable account is also something worth considering. It certainly requires some tax planning to determine if the trade-offs of the 529 are worthwhile. If you decide to go with it, 529's allow you to actually fund up to 5 years of the gift tax ($70,000 for you, $140,000 if you have a spouse) in the first year (it's treated as you make the give over the next five years).
@DCRaider - if you, by chance, have any unrealized losses in a personal/taxable investment account then you could harvest these in order to partially offset the gains from the property sell.
Hi DCRaider - I think Robert's point about the changing landscape of college funding is a very important one to keep in mind.
It's the people that do the right thing and save that are the most impacted by future financing benefits! If you've got a 529 plan, you get no tax credits for using those funds... if you qualify for future tax credits in 18 years will be another story :)
Hi Will, people love pensions. Some of my clients in California have exquisite pensions! They're still around, they just don't generally cover as well as they used to and for younger people not in the education or public service, they're pretty rare these days. It's wonderful that you and your wife have them.
For DCRaider, the folks asking college financing questions so far haven't mentioned sticker price but I do hope we get to place where those paying (usually parents) require more for their money or require paying less. But until that happens, I don't think we'll get much relief on the prices. The oldest person I've seen die with student loans was 63 . . I'm concerned this will become normalized - ugh.
Bob, all true. The power people have that they're not using is to save enough to protect having choices. That alone would solve some of the stresses.
Phillip, I think you've got a lot going for you. You may be a little weighted presently towards real estate, so perhaps getting a little more in your own retirement plans makes sense. I've got a few thoughts throughout here on college financing and 529's. It's a tool. It has tax-benefits (presently). You may bump up your 401(k) and Roths. You can always withdraw from the Roths what you put in for part. You can potentially take low-cost loans against a 401(k) for part. Consider as well if you may be able to pay more from cash flow in the future than you can today... I find many young couples do not consider that their income rising over the next 18 years may provide a great way to pay for college (or, a part any how).
@Philip - You are correct. At this point, you are able to stock pile health related receipts with the idea that you can eventually use them to "reimburse" yourself from the HSA.
A big thank you to the NAPFA planners who joined us this morning!
Hi, I'm Pat Jennerjohn, CFP, in Oakland, California, joining the chat today.
Joining us for the next two hours are Michael gibney, Maryan Jaross, Russell Hall, Bobbie Monroe and Pat Jennerjohn. Welcome!
Hi, I'm Maryan Jaross in Boulder joining in today
Good morning! I am Bobbie Munroe, CFP, a NAPFA registered financial planner. My firm is Supporting Your Choices Inc and we are in Havana, FL and Atlanta, GA but work with clients all over the US virtually. Thanks to Kiplinger for giving me the opportunity to join in the conversation. It is always fun.
Tax Diversification, if you do NOT have money in other IRAs you might be able to do a back door ROTH contribution. You make a non-deductible traditional IRA contribution (no income limits) and convert it by rolling it over tax free (it was non-deductible) into a ROTH (no income limits for conversions). IF YOU ALREADY HAVE FUNDS IN AN IRA THAT WERE BEFORE TAX THIS DOES NOT WORK WELL!!!!! That said, some of my clients have rolled their old IRAs back up into their current company plan (if the investments are good and low expenses) just so they can do this.
@Need tax diversification. You can contribute after-tax dollars to your IRA and they will be be withdrawn at retirement proportionately without being subject to Required Minimum Distributions.
Tax Diversification, if you DO make non-deductible contributions to your IRA and stop there, BE SURE to keep track of your basis in your IRA. Sometimes that can slip away over the decades and you don't want to pay tax twice on that money.
Have a pension ... annuity. Why are your advisors suggesting an annuity? Could be the high commission unless they're fee-only and suggesting a low fee annuity, such as Vanguard or Fidelity
@Need Tax Diversification - a back door IRA conversion will also not work well if you have more than one IRA - for example, a rollover IRA from an old employer retirement plan.
But you can probably roll that old plan into your current plan so tat the new IRA will only have non-deductible contributions.