Why shouldn't I supplement college savings from a Roth?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

Why shouldn't I supplement college savings from a Roth?

Postby JonUSN » Thu Feb 07, 2013 6:45 am

I’ve been reading various threads on here for months and just finished reading the Larimore/Lindaur/Leboeuf ‘Bogleheads Guide to Investing’ and yet I’m still deciding what type of investment account would be best for my wife and me.

Currently we’re both contributing to our respective employer’s retirement programs and nothing more. I’m contributing 13% pay to TSP that I’ve taken the time to divide into an AA that I’m happy with. The wife works for state university and has a 403b plan that has a 10% contribution; currently in FID Freedom 2040.

We have three goals that we’re trying to accomplish: increase amount being saved monthly in retirement accounts, start a fund (other than emergency savings) for future large purchase at an undetermined time (car,house) and college savings for our less 2 month old baby.

Baby will enjoy the benefits of Post 9/11 GI Bill education benefits, so wanting to start savings to supplement costs of living expenses and such. Goal is only approx 30K over the next 18 years.

Myself being 30 and wife 28 we’ve kind of gotten a late start on retirement savings. We’ve finished paying off all college loans and now we have plenty of extra money at the end of every month and need to start doing something smart with it.

I know typical boglehead retirement priorities go as such:
-401K to company match
-Roth IRA
-401K to max
-taxable

On the retirement funds side, neither of us has any ‘company match’ situation, so I should probably start a Roth IRA and then increase amount I contribute to TSP.

Roth fund could also double as a fund to pull a couple thousand out of if needed because there is no penalty for withdrawing contributions, correct?

Would there be any advantages for starting a traditional taxable mutual fund account AND a Roth IRA?
JonUSN
 
Posts: 7
Joined: Fri Sep 07, 2012 5:14 pm

Re: Why shouldn't I supplement college savings from a Roth?

Postby OneDay » Thu Feb 07, 2013 9:05 am

JonUSN wrote:Roth fund could also double as a fund to pull a couple thousand out of if needed because there is no penalty for withdrawing contributions, correct?


Ya, but I wouldn't. Also you wouldn't be able to touch earnings without a penalty, just what you put in. Ideally this is your retirement though, so most people don't look at it is an EF vehical.

JonUSN wrote:Would there be any advantages for starting a traditional taxable mutual fund account AND a Roth IRA?


Not really from my perspective. Roth seems good, and then it really depends on your priorities. College savings seems pretty important to you so a 529 plan might come before the taxable. It really comes down to how much you are paying yourself first for retirement and if that is enough before you start spreading the wealth,
OneDay
 
Posts: 24
Joined: Tue Feb 05, 2013 8:28 pm

Re: Why shouldn't I supplement college savings from a Roth?

Postby JonUSN » Fri Feb 08, 2013 5:46 am

If I shouldn't use Roth contributions to pull out for a future special project, now i'm wondering do I just tripple my contribution amount to TSP and not start a Roth OR start one and barely increase TSP contribution amount.

I am trying to keep things simple, so the fewer accounts the better.
JonUSN
 
Posts: 7
Joined: Fri Sep 07, 2012 5:14 pm

Re: Why shouldn't I supplement college savings from a Roth?

Postby livesoft » Fri Feb 08, 2013 7:56 am

Many folks around here contribute the maximum to all possible retirement accounts before they contribute to a taxable account or to a 529 plan or to an emergency fund (a Roth IRA can be used as an emergency fund) or a car fund or to a house downpayment fund. Here is a poll: viewtopic.php?t=42313

Whether you should too depends on your cash flow. However, there is no way one should start a college fund for children or nieces or nephews until one is making the maximum possible contributions to one's retirement accounts. If you do, you will find that when college comes around for your children that you will be able to pay for it just from cash flow: stop the contributions in those years and divert to the college of your offspring. You will not even have to use savings to pay for college, so there is no need to save for college.

Of course, if you have a high enough income, there is no reason not to put the maximum possible in retirement accounts, contribute to one or more taxable accounts, and even contribute to 529 plans. All those contributions will mean you are living below your means and then you will have choices later in life: Buy new cars, new TVs, retire early, nice vacations, or whatever money can buy. Or give it all away to charity.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
livesoft
 
Posts: 34182
Joined: Thu Mar 01, 2007 9:00 pm

Re: Why shouldn't I supplement college savings from a Roth?

Postby BL » Fri Feb 08, 2013 9:35 am

TSP is so great with such low expenses compared to most 401ks so that advice may not be valid. There is something in the Wiki here about TSP but I don't have time to look it up.

Your car/house are not part of retirement investments, so keep that separate. Advice here is usually for long-term retirement savings.
User avatar
BL
 
Posts: 2378
Joined: Sun Mar 01, 2009 3:28 pm


Return to Investing - Help with Personal Investments

Who is online

Users browsing this forum: Leeraar, Yahoo [Bot] and 18 guests