Retirement Planning for more than one future
(MONEY Magazine) – Kathy Gaberty, Ortonville, Mich.
In five years, Kathy Gaberty plans to retire from her job with the Oakland County, Mich. government, where she has worked for 21 years. But retirement is not her only goal. The 50-year-old human-resources adviser also hopes to help her grandchildren with college. "In 17 years, my first grandchild, Katelyn, will be ready," says Gaberty, "and I'd like to be able to help, especially because my own kids struggled to pay for their college." Thanks to a new workplace retirement plan, she can aim for both goals with one investment.
For several years, Gaberty has been investing the maximum in her employer-sponsored 457 savings plan. In October, when her employer began offering workers a sidecar IRA--a new type of traditional or Roth IRA that is funded through paycheck withdrawals--Gaberty cut her 457 contributions and put $3,500 in a Roth IRA instead. The appeal: If, as she expects, her pension, Social Security and 457 income more than cover her expenses, she can tap her Roth to pay for college costs.
The withdrawals from her 457 are taxable, but those from a Roth are not. Plus, with a Roth she won't be required to take distributions at age 70 1/2. "If a grandchild begins college when I'm 75 or 80," Gaberty notes, "I can wait until then to take the distributions."
When granddaughter Katelyn was born, Gaberty opened a 529 plan with $1,000. But 529 withdrawals are usually taxable if the money isn't used for educational purposes. Now she'll invest funds earmarked for education in the more flexible IRA. "I like the Roth better," she says. "If my grandchildren never do attend college, the money is mine to do with as I please." --JUDY FELDMAN