DEAR DAVE: My wife and I have $25,000 in credit card debt, $2,500 in medical bills and $89,000 each in student loan debt from when we each got our master’s degrees. We make about $100,000 combined. Our son is 6 years old, and we have $18,000 in a 529 plan for him. Should we use that money to pay off debt instead?
—Sean
DEAR SEAN: I wouldn’t do that, if I were you. You’ll get destroyed with penalties, because if you take money out of a 529 for anything other than college, you’ll be taxed at your current tax rate and hit with a 20 percent penalty. The other thing is, you’ll have this weird feeling that you took money away from your kid.
Technically, it’s your money. You put it there. But when you did, it was in your child’s name. Plus, that doesn’t really solve your problem. You’ve got a ridiculous amount of debt, and that little bit won’t move the needle very much. Having more money in your hands isn’t the big answer here. What you both need is a behavior change when it comes to money.
My advice is to leave the 529 alone. Stop adding to it for the time being. Put any retirement saving you’re currently doing on hold, too. You guys need to start living on a budget, working a debt snowball plan and looking for extra income. Even tutoring would bring in some additional cash. I’ve got a feeling, too, that those master’s degrees can provide you with more money than you’re currently making.
It can be done, Sean, but it’s going to take a lot of hard work and discipline. It may even take four or five years to get this mess cleaned up, but you can’t keep living without a plan.
—Dave
Showing posts with label employer. Show all posts
Showing posts with label employer. Show all posts
Wednesday, July 30, 2014
Friday, November 15, 2013
Dave Ramsey: Question and answers with fans
Dear Dave, Do employer contributions count toward the 15 percent you recommend putting into retirement? -Brian
Dear Brian, Employer contributions do not count toward the 15 percent I recommend setting aside for retirement. It’s nice if you work for a company that offers perks like that, but I want you putting 15 percent of your money into retirement. Baby Step 4 of my plan says to put 15 percent of your income into retirement accounts. The first thing you should put money into is a matching retirement account. If you’ve got a 401(k), a Roth 401(k) or a 403(b) and your employer offers a match, you should do that up to the match before anything else. Let’s say your employer will match 3 percent. Since the goal is 15 percent, you’ve still got some work to do. You’ve got 3 percent of your own money already tied up for retirement, so then you could look at a Roth IRA. If the Roth plus what you invested previously to get the match doesn’t equal 15 percent, you could then look at a 403(b) or go back to your 401(k) to hit the 15 percent mark.
Whatever your company matches, whatever its pension may be or even military retirement does not enter into the equation. I want your money in your name. If your company goes broke and you have a company pension, you get nothing. But if you have a 401(k) and your company dies, it’s in your name and you don’t lose it. You put it there, you own it. And that includes the match.
Are you getting the picture, Brian? I want you to control your destiny!
— Dave
Teaching teenagers about giving
Dear Dave, What are some good ways to teach a 13-year-old kid about giving versus getting during the holiday season? - Phillip
Dear Phillip,
One of the best things you can do is simply talk about it — a lot. Kids are bombarded with messages about how important they are, and how they should always have what they want. It’s OK to have some stuff, but advertising and other marketing messages in today’s culture can make them think it’s all about them. It can lead kids to believe the axis of the world runs through the tops of their little heads.
Think about this. In 1971, the average person saw 564 advertising impressions a day. Now, that number is about 4,000. The purpose of advertising is to disturb and influence you to the point that you’ll buy something. Advertisers want you to believe that you’re not complete without their product, or that you’ll be a happier, cooler, better person with their product. And in most cases, advertising and marketing people are more aggressive in their teaching than parents are in theirs.
Dear Brian, Employer contributions do not count toward the 15 percent I recommend setting aside for retirement. It’s nice if you work for a company that offers perks like that, but I want you putting 15 percent of your money into retirement. Baby Step 4 of my plan says to put 15 percent of your income into retirement accounts. The first thing you should put money into is a matching retirement account. If you’ve got a 401(k), a Roth 401(k) or a 403(b) and your employer offers a match, you should do that up to the match before anything else. Let’s say your employer will match 3 percent. Since the goal is 15 percent, you’ve still got some work to do. You’ve got 3 percent of your own money already tied up for retirement, so then you could look at a Roth IRA. If the Roth plus what you invested previously to get the match doesn’t equal 15 percent, you could then look at a 403(b) or go back to your 401(k) to hit the 15 percent mark.
Whatever your company matches, whatever its pension may be or even military retirement does not enter into the equation. I want your money in your name. If your company goes broke and you have a company pension, you get nothing. But if you have a 401(k) and your company dies, it’s in your name and you don’t lose it. You put it there, you own it. And that includes the match.
Are you getting the picture, Brian? I want you to control your destiny!
— Dave
Teaching teenagers about giving
Dear Dave, What are some good ways to teach a 13-year-old kid about giving versus getting during the holiday season? - Phillip
Dear Phillip,
One of the best things you can do is simply talk about it — a lot. Kids are bombarded with messages about how important they are, and how they should always have what they want. It’s OK to have some stuff, but advertising and other marketing messages in today’s culture can make them think it’s all about them. It can lead kids to believe the axis of the world runs through the tops of their little heads.
Think about this. In 1971, the average person saw 564 advertising impressions a day. Now, that number is about 4,000. The purpose of advertising is to disturb and influence you to the point that you’ll buy something. Advertisers want you to believe that you’re not complete without their product, or that you’ll be a happier, cooler, better person with their product. And in most cases, advertising and marketing people are more aggressive in their teaching than parents are in theirs.
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