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Dr. Don Taylor, CFA, Bankrate.com advice columnistSave for retirement or college?

Dear Dr. Don,
I'm 52 years old, married, with less than $8,000 between a 401(k) and Roth IRA saved for retirement. I have $3,000 cash on hand. I have two young children ages 5 and 3. At present we've set aside a small savings of $3,500 toward their college costs. I have $6,000 in debt.

My question is; "What can I do to improve my situation toward retirement and college for my kids." My monthly income can vary from $1,500 to $2,500. I would appreciate any advice you can offer to help us out.
Thank you,
-- Ron Retiring

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Dear Ron,
Your children will be college-age around the same time you reach retirement age. I think funding your retirement goals, however, should take precedence over college savings. If your employer has a 401(k) plan and has a contribution matching plan, you should try to contribute up to the limits of that match. Once you've reached that point you can decide whether it's more advantageous to put additional monies in the 401(k) or the Roth IRA account.

Funding retirement accounts gives you the flexibility to tap those accounts for education expenses later, but funding tax-advantaged Section 529 college savings accounts or prepaid tuition plans won't have any provisions for you to tap those funds for your retirement. You can check out your state's 529 plans on Bankrate's college finance home page.

For the money you've already set aside for college costs, if it's not in a tax-advantaged Section 529 account, you should look into these accounts. Another tax-advantaged solution is the Savings Bonds for Education plan. Although you're likely to have better investment returns in either a prepaid tuition plan or college savings plan, the savings bond approach keeps the money in your name (required), and that gives you a little more financial flexibility.

To ask a question of Dr. Don, go to the "Ask the Experts" page and select one of these topics: "financing a home," "saving & investing" or "money."

Bankrate.com's corrections policy -- Posted: Sept. 14, 2006
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