Just like so many, I’m starting to feel the squeeze. In general, we’re in good shape financially at age 50 with a solid 401, almost 2 worth of expenses in an emergency and no debts outside of the house payment (which has 25 years left on the loan at 3%).
Overall, I know I could tighten up my budget a bit on food and a few smaller odds and ends. However, since I hit 50, I really want to start putting the 8K/year into the catch up Roth (my company will match that at 50%). My son is 8, and weve got about 40K in his 529, which would cover almost 4 years of tuition at a state school in today’s rates.
So my question is.. do I not worry as much about the 529 now and let that grow originally and use the $$ towards the 401k catch up which is a guaranteed 50%return? Plus I could literally draw that Roth in 10 years when he’s at college age if I need to. But my main goal of that Roth is to build up enough in 10 years to pay the house off at age 60.
With the trajectory of AI, it’s even more concerning for me in several areas. One is how long I’ll be employed and may just be facing “forced retirement” by age 60. That and how actually useful a college degree will be in 10 years as AI eats all the non-trades.
Thoughts?
Feeling the squeeze, should I stop the 529?
byu/Resident-Wind-853 inpersonalfinance
Posted by Resident-Wind-853
6 Comments
Getting your full company match should be a much higher priority than adding more to the 529.
Also, I would recommend NOT paying off the 3% mortgage when you turn 60. That’s basically an interest-free loan (since inflation is usually around 3%).
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Honestly I’d try and find the extra savings from your spending. Nothing is showing that any relief is coming soon, so we might as well get used to cheap meals for a while. That’s the strategy I’m taking right now
At your age you should NOT be contributing anything to a 529 before maxing out your backdoor Roth IRA and catchup Roth for the reason you stated- you can draw on that already without penalty before he is college age (this would be true even if there was not match.)
Best case scenario the 529 is equivalent to a Roth in terms of tax advantage.
But if he doesn’t attend college or has scholarships then the 529 could actually become tax disadvantaged.
Are you familiar with The Money Guys?? They have a great “[financial order of operations](https://moneyguy.com/guide/foo/#8-prepay-expenses)” framework to help prioritize financial decisions like this. Prepaying for your children’s expenses falls pretty low on their ladder if you have other pressing needs
40k in a 529 at 8 years old is great, IMO.
Fund the retirement. If you are 50 now, by the time the kid goes to college, you’ll be able to withdraw from the 401k/Roth if needed to pay tuition.