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Who: Tim Taglauer, 49, and wife Lisa, 44
Where: Luray, Va.
Question: Focus on college or retirement?
For Lisa and Tim Taglauer, the conundrum of whether to save for college or retirement is especially puzzling. Married for nearly 20 years, the Taglauers are now the proud, late-in-life parents of 1-year-old Katelyn. They've put their former plans for an early retirement on hold while they juggle their jobs, day-care costs and the prospect of sending a child to college while they are collecting Social Security. "I'll be going to parent-teacher conferences with my walker," jokes Tim.
The Taglauers, who both work for Shenandoah National Park, contribute about 17% of their joint income (including employer contributions) to the federal Thrift Savings Plan. Their savings will supplement their federal pensions and Social Security benefits, and as federal retirees they qualify for subsidized health insurance for life.
Rather than starting a college savings fund, Tim wonders whether the couple would be better off building up his Roth IRA. Once he turns 591/2, long before Katelyn will be old enough for college, he could withdraw money from the Roth tax-free for any purpose. He figures that he and Lisa could use the money to pay Katelyn's tuition or to supplement their retirement income if she doesn't go to college.
Tax trump card. Most investors should focus on retirement savings first. But the Taglauers are well on their way to covering their retirement-income needs, says Brian Jones, a financial planner and vice-president of CJM Wealth Advisers, in Fairfax, Va. Jones suggests that they continue to fund their TSP accounts and open a Virginia 529 college-savings account.
In addition to offering tax-free withdrawals for qualified college expenses, the 529 plan provides an added benefit over a Roth IRA: a Virginia state income-tax deduction of up to $2,000 per account per year. Tim and Lisa could each establish a 529 account for Katelyn, which would allow them to deduct up to $4,000 in annual contributions from their state income taxes.
To come up with the cash to fund the college account, Jones suggests that Tim and Lisa shift the $300 a month they had been paying on a now-retired car loan to the 529 plan. By adjusting their tax withholding, they can increase their monthly income (and their savings) by an extra $150.
priorities. For people who don't expect to collect a pension or won't have access to retiree health benefits, saving for retirement is the priority, says Christine Fahlund, vice-president and senior financial planner for T. Rowe Price. Fahlund recommends that by the time you retire you have enough savings to equal ten to 12 times your final salary.
A comfortable retirement cushion would make it easier to use other sources of funds, such as loans, to finance college when the time comes, says Fahlund. You and your children have other ways to pay for collegeQincluding scholarships, summer jobs and, in many cases, gifts from grandparentsQthat aren't available for funding your retirement.
ALSO SEE: Build Your Nest Egg
POSTED BY: Deb (July 19, 2008 07:52 PM)
Lynn - you are like many women who take care of everyone else before themselves. Make sure you have contacted services that can help your father such as your city, county, community social services. He may qualify for additional help and this will help with your financial and/or emotional needs. Take good care of yourself.
POSTED BY: Nancy (December 27, 2008 08:56 AM)
I appreciate the question Ed posed regarding older parents choosing between a 529 plan and Roth to save for their children's college expenses. I have been wrestling with the exact same question myself. Janet Bodnar revisits this issue in her "Your 529-Plan Questions Answered" column saying a Roth could be a good alternative, and more flexible for older parents. I assume more flexible means that the funds don't necessarily need to be used for a child's college education, and could be used for retirement instead without being subject to the 529's 10% penalty. Does anyone know anything I'm missing? I sometimes wonder what would happen to funds in a 529 plan if I manage to cover my children's tuition by getting a position at the local university, and becoming vested in their free tuition benefit. With regard to Ed's post, I would note that it is not only VA that provides state tax savings for 529 contributions.
POSTED BY: Ken (January 31, 2009 02:34 PM)
I understand where all of you are coming from. We had one (she was 2.25 lbs) when I was 37 and another at 39. I am now 56. Both are smart, well educated HS kids, but I feel that we are not responsible to insure at all costs, that our kids get through college, but that they are motivated to seek their calling in life, which may or may not include college. Whichever path they choose, we need to totally support them, including, to the degree possible, financially, while they are in school. However, with retirement not that far down the road, I do not wish to be a financial burden for my kids, because their generation is being saddled with such unconscionable debt by the politicians, so that they will not be able to help. Thus, I will fund my Roth, before making funds available to them for education(both plan to attend college).
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