Laying a sound fiscal foundation must be the goal in your 30s

my 403(b) plan instead of a bank,” says April, an elementary school teacher. “Now we pay back the 403(b) plan, which really means we are paying ourselves back.”

There’s a catch to such loans, though. If you don’t make timely repayments, your “loan” will be treated as a withdrawal and you’ll immediately owe income tax on the entire amount you took out, as well as a 10% early withdrawal penalty. Payroll withholding can help with this problem, but if you leave your job, you’ll have to repay the loan or face the tax consequences.

At first glance investing for your own retirement and your children’s education at the same time may seem like a daunting task. Putting your children through school may cost hundreds of thousands of dollars, especially if they attend a private university then go on to graduate school. At the same time, it will likely take a sum well into the six figures-perhaps even seven-to finance a comfortable retirement.

When you’re in your 30s, time is on your side. Investing even modest amounts over a long period of time can provide for a substantial accumulation. The Mosbys, for example, are investing $50 per month for each of their daughters, as well as for a nephew, to build up the children’s college funds. But investing for a child’s education poses a dilemma: should you invest in the child’s name or your own?

When investing in a child’s name, setting up a custodial account under the Uniform Gifts to Minors Act (UGMA) is simple and inexpensive. Money that is earned in this account generally will be taxed at the child’s lower tax rate (there are some exceptions for children under age 14) rather than the parents’ rate, so tax savings are likely. Moreover, there’s often a psychological benefit to putting money into a designated education account.

The downside is that the money in a custodial account belongs to the child when he or she comes of age, usually at 18 in most states. At that point, your youngster can spend the money however they choose-including on a new car or a designer wardrobe rather than on college tuition. Moreover, when children apply for college financial aid there is a formula that determines if and how much aid a student would qualify for. Under this formula, money in a child’s own name-including that in a custodial account-will usually result in a smaller amount of aid being granted. (For more on financial aid and funding your child’s education, read “College Climb” in this issue.)

If the disadvantages of using a custodial account seem to outweigh the advantages, you can incorporate education funding within your own investment account. “Many of my clients prefer to save in their own names,” says Haywood, “mainly for the control.”

Gregory Matthews, a financial planner in Dallas, points to another form of control over college funding: life insurance. While term insurance is the least expensive, if you’re looking to combine life insurance with an investment fund, a cash-value policy

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