Money Coach with HLN's Money Expert Clark Howard

Having trouble managing money? Do your money goals seem impossible? Clark Howard wants to help you!

We’re looking for individuals or families who are willing to be profiled on HLN .

Those chosen will get money advice and information from Clark Howard.
This week’s question comes from Dan and Heather Sostrom of Gainesville, Florida.

Clark:
Wow you’ve got a lot of mouths to feed in that household, now another one on the way. Three children that you’re going to have to raise and pay for college for.

But the thing is, do you know what? You paid for your own college you said that set you back. But the truth is there are so many ways to pay for college, but you know what? There’s only one way to pay for your own retirement.

So you love your children, you want the best for the them but key thing, your primary focus and goal should be to beef up your savings for retirement. You need to contribute more each and every month to that and then if there’s money left over, put it toward your kids’ college in a prepaid plan or the 529 plan.

This conflict I’ve just talked about, I hear this over and over and over again. And when I talk with older couples whose kids are now grown and then I ask 'What did you save for retirement?' They kind of can’t look at me because they’ve taken all the money and put it toward their kids’ college.

Remember what I just said. Your primary goal with your long term savings is not your kids’ college. There’s work, there’s loans, there’s grants, there’s scholarships but for retirement you’ve got one thing and that’s you.

HELP ME CLARK!
From HLN's Money Expert Clark Howard

KRIS:

I've fallen into severe debt and am trying to cash out my 401k to satisfy my debts. When I told my investment company I wanted to do so, they told me that since I'm still repaying a loan from my 401k, I can't cash it out. When I asked if I could use the available funds to satisfy the existing loan and have the remainder cashed out and sent to me, they balked. Is there any recourse I have and what steps do I need to take in order to have the funds ASAP?

CLARK:

Well first, everybody's telling you can't do this and I'm telling you not to do it, even if they say you can.

You don't solve a problem by wiping out your retirement funds to deal with the debt.

The real thing that eats you up with that is the tax burden.

A typical person who does a withdrawal from a 401k pays, with taxes and penalties, 40% of that amount of money in taxes.

So if you take out $10,000 you actually only have $6,000 that you can use for debt, you're going to have to have that other $4,000 to pay tax next April.

Instead, attack debt one step at a time.

If you need help negotiating, you need help working out a plan, go to your NFCC affiliate, check them out at nfcc.org, that's the National Foundation for Credit Counseling.

HELP ME CLARK!
From HLN's Money Expert Clark Howard

SALLY:

My husband and I are expecting our first child later this year. We are both in our early 40s now, so we'll be 60 before our son goes to college. Would it be better to save in a 529 plan now, or save more in our current retirement plans which may have better tax consequences when we are retirement age and using the money for his education?

CLARK:

That is a very interesting question.

If you were to put money in a Roth account or instead put money in a 529 account - a 529 is used for college, tax-free, a Roth can be used for any purpose once you reach retirement age, tax-free – you do the Roth.

The reason you do the Roth is that if your child ends up getting a scholarship or, heaven forbid, ends up not going to college, the money in the 529 becomes taxable and is subject to penalty.

The Roth can be used for any purpose.

That's why it's a much higher priority to save the max each of you can in a Roth before you would do one penny in a 529.

HELP ME CLARK!
From HLN's Money Expert Clark Howard

NISHITA:

My husband's work offers a Roth 401k and a traditional 401k, but we can only choose one. Which one is best? The company matches the traditional but not the Roth. Are there other investments that we can do, because we're not qualified for a Roth IRA due to income.

CLARK:

I think there may be a misunderstanding in how the company has communicated this.

What happens with a Roth 401k is the company would match it just as they would a regular 401k, but the match goes into the pre-tax side of the 401k rather than the after-tax Roth portion of the 401k.

Unless there's some kind of odd exception that the company's not doing that, you would go in to the regular 401k.

Otherwise, I want you in the Roth 401k because tax rates are very likely headed higher over the next generation and you want to have the tax bill already paid as you would have with the Roth 401k.

Plus, you'll love this: you're effectively saving about 30% more in your retirement account if you max out a Roth 401k vs. maxing out a regular 401k, because with one you're putting in pre-tax dollars, the other you're putting after-tax dollars.

Having trouble managing money? Do your money goals seem impossible? Clark Howard wants to help you! We're looking for individuals or families who are willing to be profiled on HLN. Those chosen will get money advice and information from Clark Howard.

This week's question comes from Carmen and Ray Zych in Des Plaines, IL.

One of the things that I'm concerned about is that we don't have enough money to put aside.

I currently have a Roth IRA through my employer, and my husband and I each have one through our bank. What we are trying to do is sort of play catch-up. So I work part-time at a second job, and most of that money I'm putting into a retirement fund.

My husband thinks that putting everything away is foolish because if you are saving and saving and saving, you are not enjoying your life now and he has a good point. We would like to get a small little house, live in a small little town and just quietly spend the rest of our life relaxing.

We need a Money Coach!

Hear Clark’s advice for Carmen and Ray this weekend at noon on HLN

Do you need a Money Coach? Send us an iReport video with your money questions and tell us why you need the Money Coach.

HELP ME CLARK!
From HLN's Money Expert Clark Howard

DIANE:

I am planning an early retirement in the next five years. I was advised that perhaps I should roll my 401k into a Roth IRA and take the next three years to pay off the tax. Is this a good idea? We are planning to pay our house off in the next two years, we have a mutual fund, we have 401ks, and I have a pension retirement account with my company.

CLARK:

If you're approaching retirement, the argument to be made for converting a regular IRA to a Roth is that you're not likely to need that money for a long, long time or even in your lifetime.

Because a Roth is a fantastic asset to inherit, much better to inherit than a regular IRA which has all kinds of bear traps of tax. So if that's your situation, that it's money you may not ever need, dealing with all the tax burden now is a good idea. But now is not now, now is January.

The reason you want to wait until January 2010 is that there's a special deal in 2010 for conversions of IRAs to Roths that allow anyone of any income to convert a regular IRA to a Roth and spread the tax over 2011 and 2012.

Money Coach Diaries with HLN's Money Expert Clark Howard

Having trouble managing money? Do your money goals seem impossible? Clark Howard wants to help you! We're looking for individuals or families who are willing to be profiled on HLN. Those chosen will get money advice and information from Clark Howard.

This week's question comes from Michael and Holly Hima of Loganville, GA.

Holly: We're approaching our 40's. We have two kids and we're looking toward making sure we have enough money to retire on.

Michael: I don’t think we ever had a time where, you know, we were looking at a heavy debt. Even if the car breaks, we still find the money somewhere. After a while you live comfortably and you accept that this is how much you make and this is how much you can spend. We have 401ks. We have savings. We have an IRA. We just don’t know how to put all that together and then manage it… I understand that the market goes up and down and I have faith that it will progress up in the future, but where I'm putting the money, is that the right place to put it?

Holly: We want to own a bed and breakfast one day. That’s sort of where we want to live, in the mountains, would be our dream retirement. I just want to live somewhere to enjoy the outside and nature and just not have to worry about if I have enough money for that month. That would be my dream. We already have some money for retirement. How much more do we need to save so that we can live comfortably when we retire? Money Coach, can you help us?

Money Coach Diaries with HLN's Money Expert Clark Howard
This week's question comes from Dan and Heather Sostrom of Gainesville, Florida.

Heather:

I think we have pretty good financial instincts but we're not always sure if we are making the right decisions. Some of our goals are to retire early and to save for college for our son.

Dan:

I'm 33 right now and ideally, I'd love to retire at age 50. But right now, I'm not sure if that would be possible… we're maxing out our Roth IRAs and have additional IRAs on top of that… but would it make better sense to save in some mutual funds outside of an IRA so we could access that money before we retire? What other avenues of investing are going to be smarter for us to be able access that money?

Heather:

We just need the advice of someone seasoned, who's in the know. Because right now, I feel like we are a pretty young and naive with investing and we're just putting all of our eggs in these various baskets, not really sure if we are making the right decisions…I honestly don't know if we are doing enough.

Having trouble managing money? Do your money goals seem impossible? Clark Howard wants to help you! We're looking for individuals or families who are willing to be profiled on HLN . Those chosen will get money advice and information from Clark Howard.

Money Coach Diaries with HLN's Money Expert Clark Howard

Having trouble managing money? Do your money goals seem impossible? Clark Howard wants to help you! We're looking for individuals or families who are willing to be profiled on HLN. Those chosen will get money advice and information from Clark Howard.

This week's question comes from Sona Chambers in Atlanta, GA.

Sona Chambers:

"My personal goals are to be financially fit by the time I'm 60 and to not have to be worried about where my next dollar is coming from or my next meal. I just want to be able to live comfortably. I have a 401(k) and a very small IRA from a previous employer.

What I'm really concerned about is that my 401(k) in the last year has lost $60,000 of its value. I think I should take that money and put it into a house or something in Florida instead of just watching it disappear. What I would like to do is make that my primary residence, take the money out of my 401(k) to pay for the house in Florida. And then when I sell my house in Atlanta, I would use the proceeds from that to pay back the 401(k).

All my friends always tell me not to take money out of my 401(k), that it’s not a good idea, but I just watched my 401(k) go down $60,000... I hope that Clark confirms what I want to do instead of what my friends are saying."

Tune in to Clark Howard Saturdays and Sundays at noon and 4 p.m. ET on HLN

HELP ME CLARK!

TAMI:

I have a pension plan with a former employer. What is the best rollover option in this economy? I'm 40 and not planning on retiring any time soon. but I am worried about losing all or most of it.

CLARK:

If you're in your 40s, you shouldn't focus so much on your worry that you're going to lose it all. Because if you went into a well-diversified portfolio of mostly stock choices - which is most of what you should be in in your 40's - and you lost it all, it would mean that capitalism as we know it is over, and we have much bigger problems than what happens with your pension evaporating.

You should feel confident that with another 20 years or so before retirement, putting your money into a variety of stock-type choices in what would likely be an IRA would be what would work the best for you longer-term.

If you're absolutely freaked out by it, my compromise for you would be going into a balanced fund, which is roughly half stocks and half bonds.