 Save for retirement or college?
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 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
 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."
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