Friend and freelance writer Les O’Dell shares this diary entry from the 1oth session of Financial Peace University, a 13-week course from national talk-show host Dave Ramsey.
A Sore Subject
Tonight’s Financial Peace lesson, “From Fruition to Tuition,” was somewhat painful for me. Designed to go with some of the later Baby Steps (after debt is eliminated), this lesson deals with funding your own retirement and college for your children. Baby Step 4 is investing 15 percent of your household income into Roth IRAs and other pre-tax retirement plans. If needed, Baby Step 5 is to be done at the same time. It is save for your children’s college using tax-favored plans.
Despite the fact that we have a student in college and another in high school, we’re still working on Baby Step 3 – the debt snowball – and probably won’t need to work on step 5 at all; by the time we get there, we won’t need it! Regardless, the lessons provided in this part of FPU are very good ones.
Please allow me to insert a side note of good news here: since attending this lesson, my son, who just completed his first year at a state university (mostly with dreaded student loans) just accepted a full scholarship (tuition, fees and books) to be the goalkeeper at an area community college. Funding his education just got easier!
Saving for Retirement
The first part of the lesson dealt with saving for retirement. The teaching was much too involved and complex to package in just a few paragraphs. Enroll in FPU, read Ramsey’s book Financial Peace or talk with your financial planner for details. Some highlights of the material include a discussion of qualified retirement plans including 401(k), 403(b), 457, Individual Retirement Accounts (including Roth IRAs) and Individual Retirement Accounts.
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Ramsey stressed the importance of saving for retirement with tax-favored accounts, meaning that the plans may grow tax free if meeting certain requirements. Taxes may apply upon withdrawal. He went into great detail on the benefits and characteristics of Roth IRAs and other retirement plans. He even gave suggestions of how to fund Baby Step 4 using employer matches and several retirement savings vehicles to our advantage.
Graduating to College Savings
Following the discussion of saving for retirement, Ramsey moved into the importance of saving for children’s college educations. Sharing facts about the current cost of a university education and the average student debt load of college graduates, he stressed how important saving early for college really is.
What came next was a presentation on specific ways to save for college including the use of an Education Savings Account, also known as an Education IRA. The ESA provides some tax free savings. Contributions are not tax deductible. Earnings are tax deferred and withdrawals are tax free for qualified educational expenses.
Additionally, Ramsey outlined 529 savings plans as well as UTMA and UGMA (Uniform Transfer/Gift to Minors Act).
The Impact on Us
I said earlier that this lesson on saving for college probably would not be pertinent to us, but I’ve been rethinking that. My youngest is a high school sophomore. If we really work Dave’s plan and roll through the other Baby Steps, we just may be in a position to save some for her education – or at least pay for school with good ol’ cash.
Les O’Dell is a freelance writer living in Carbondale, IL. His work can be seen in a number of newspapers, magazines, publications, and websites. He is co-author of the popular “He Said, She Said” newspaper column. He can be found on the web at www.lesodell.net. Les is not affiliated with or endorsed by LPL Financial.