“Our daughter did a great job in college. She did so well in her major that she got more grants each year than we planned. We have some money (almost $30,000) left over in our 529 plan for our daughter. She graduated and started a great job in July. She’s not sure if she will need grad school or other training so we don’t know if or when she might need this money. Under these circumstances, how should we invest this money?”
Congratulations to your daughter! And to her mom and dad!
Under these – wonderful – circumstances, you might consider investing her 529 plan funds in a balanced (stock-bond) portfolio. Some 529 plans have funds that are specifically noted as balanced funds. This would make your lives a bit easier. Other plans have stock and bond funds that are quite separate and would need to be combined to form the balanced (roughly 50% in stock funds and 50% in bond funds) portfolio you seek.
And, of course, if she doesn’t end up needing the money herself . . . can you say grandbabies?
“My husband and I are both 40, we have two great kids, and two jobs we enjoy. We have saved some money for retirement, but we disagree on how it should be invested. He keeps his IRAs in bank CDs. I invest my IRAs in mutual funds in the stock market. I say that we have more than 20 years until we retire so we should try to get higher returns. He says he would rather go slow and steady. Who’s right?”
Disputes between husbands and wives are easy to answer. The wife is always right.
There’s a wide spectrum between CDs and the stock market. There’s a wide spectrum between ‘slow and steady’ and appropriate and sensible. The key to your question is the timeframe. You have more than twenty (20) years before you will access these funds. That much time supports taking the risk of the market – at least until you both get within two or three years of pulling the trigger on retirement. At that point you would most likely adjust your investments to more of a 50-50 approach. Ironically, that is where you are today, but it’s fifteen (15) or twenty (20) years too early.
If your husband’s anxiety is simply too much for a full blown equity portfolio, he might want to start with a high quality balanced fund. This would allow him to get his feet wet in stocks, but have the advantage of a professional fund manager adding some bonds to the mix as well. This will often soften the ups and downs of the market from a full-on roller coaster ride to the kiddie rides at the fair.
Best of luck.
“Last year, my wife and I realized our dream. We sold our PA home and our little shore house and we moved to a great new home at the shore. Everything went so smoothly and we are very happy in our new home. During the transition, we ended up taking about $40,000 out of our IRAs for moving and other expenses. Now that we are in our new house, our living expenses have dropped almost $1,500 a month. My idea is to put that $1,500 back into our IRAs for the next couple of years to get our accounts back where they were. We’re both 66 and won’t need to take withdrawals from our IRAs until we hit the RMDs. Does this make sense to you?”
Maybe. It depends.
I am so very happy that your dreams have come true in such a wonderful way. I certainly support your intention of bolstering your retirement funds to the greatest extent possible. My question to you is will either of you be working during the next few years.
IRS code allows you to return dollars to an IRA, but only if it is done within sixty (60) days. That no longer applies to you. The IRS code allows you to contribute to an IRA up to age 70 – if you have earned income. And only up to the IRA contribution limits allowed.
For the two of you, if you have earned income (as an employee or self-employed net income) you can currently contribute up to $7,000 each year to a traditional, deductible IRA (or Roth IRA, but that’s a discussion for another time) so a total of $14,000 annually. However, a second limiting factor is you may not deduct more than 100% of your earned income. So, if you have a part-time job paying just $9,000 per year your maximum contribution would be limited to $9,000.
Your plan of ‘returning’ $1,500 each month ($18,000 each year) will not work. If you have no earned income, you will not be allowed to contribute any of these dollars to your IRAs.
Do not despair, if this is your circumstance, you can still put your $1,500 aside each month in investments of your choosing. You should examine your options for both investment return opportunity and tax advantages. Consider working with a financial advisor to explore your options and select the choice that best fits you.