Saturday, November 1, 2008

Is anyone else REALLY scared?

I have an IRA and I'm a bit worried. I also have some funds for my kid's college squirreled away and I'm terrified he may have to live at home until he finishes his master's degree.

Thankfully, retirement is about 30 years away for me (who would have ever thought I'd be writing a sentence like that?!), but unfortunately, in three short years, my son will be a freshman in someone's institution of higher learning. Thought I'd have at least that first year covered via the nice little 529 college savings program I've been dumping money in since my divorce 10 years ago ('cause Lord knows his lame-o dad isn't even thinking about how to pay for his first-born's education) - but now things aren't looking so good. Thanks, Wall Street.

The beauty about state college saving's programs is that the money can be withdrawn tax-free if used for education. That's the bad news, too. In other words, if I do what I REALLY want to do and take out every penny and put it in a nice, safe CD, I'd owe Uncle Sam tax on the interest earned. If I leave it in and Wall Street keeps doing the crazy dance it's done since September, there may not be anything left not to tax when Junior's (his name is actually Malcolm) tuition bill is due.

In theory, there is plenty of time for my IRA to rebound before I wave farewell to the world of work, but I barely even have 33 months for the college funds to earn back what was lost and grow. Do I dare continue to contribute at all? Should I take the remainder of what I was to contribute for 2008 and open that CD? CUNY is looking awfully good right now - and he doesn't even know what he wants to major in yet...

My 87-year-old grandmother lived through the depression and never had a bank account until about a year ago. She literally cashed her paychecks and paid all her bills in person or mailed in a USPS money order. I used to think that was crazy, but now I'm thinking it may not be such a bad idea after all...


  1. I know what you mean - well anyone with money in some sort of investment account knows what you mean. I've watched our retirement account dwindle, but I'm bouyed by the fact that I'm investing long term and we won't need the money for another 25 years or so. With Malcolm's 529 you're going to take the tax hit for cashing out and you're going to lock in whatever loss you're seeing. Right now that loss is on paper; cashing out makes it real.

    I'm still investing in our retirement account because, theoretically, we're buying cheap right now. But (there's always a "but"), I've never seen the kind of market we're in, so I'm still nervous.

    If you're really worried you're pouring good money down a rat hole, you might want to take your current 529 contribution and divert it into a CD or savings account (which get about the same rate, especially if you're looking at an ING savings account), but leave what's there alone for now. You have 33 months until Malcolm's college career starts, but you can stil use that money for four years (or more) after that. Hopefully the market will rebound and stay rebounded by then!

    In the end, it's your money and you've gotta be comfortable with how it's going. Good luck and don't loose too much sleep, we're all in the same boat.

  2. Oh yes, I'm scared! The "good" news for me personally, is I had no investments whatsoever!

    No savings either, but that's the bad news...

    I'm 56, and my 25-year-old son graduated from college 2 years ago. He's keeping up with his student loans, which covered half his education (the rest was paid for by a $25K divorce settlement, from his dad, my ex who had no $ of his own to contribute, but inherited a considerable amount from his own mother at the time of divorce).

    I've worked at the same institution for 23 years, and have an old-fashioned "defined benefit" pension plan that is fully vested. It was the only option for the first 12 years of my employment, and when 401k was first offered instead of pension about 10 years ago, I was right on the "bubble" between those whose age and years of service made it smarter to switch to 401k, or to stick with pension. At the moment, I'm glad I chose pension -- just hope that if I live long enough to collect it, that the company is still solvent and can honor it!!!

    What's really terrifying is that my late father's retirement package, which had been providing well for my mom, is an investment portfolio...

    Matt's advice, above, seems sound -- don't cash out the 529, but put new contributions into a CD.

    I guess we all have to cross our fingers, and pray...


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