■ Investing for kids
■ Living trusts
A student of finance
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By Suze Orman
finance questions to:
“Suze Orman Q&A”
in the subject line; or fax to
(425) 313-6718; or mail to
Q&A with Suze Orman
The Costco Connection
P.O. Box 34088
Seattle, WA 98124-1088.
I am 30, employed, and have saved $130,000.
My only debt is the cost of grad school,
which is $45,000 in loans. I’m thinking of
making a lump payment to avoid the interest rate of 6 percent. My goal is to someday
own my own home.
New York, New York
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I THINK it is smart to pay off your student debt.
When you do eventually apply for a mortgage,
having the student loan debt paid off can be a double win. When mortgage lenders are sizing up your
application, they assess what other debts you already
have. And when your credit report shows you have
paid off a loan that was never late or in default, that’s
going to help you land a strong FICO score, which
will help you to get the best mortgage deal.
If you decide to pay off the loan in full, you’d still
have $85,000 in savings. You need to keep some of
that money safe and sound at the bank for emergencies—it should cover up to eight months of living
expenses. So tuck that amount away; what’s left is
what you can use for your down payment. Aim to
make a 20 percent down payment. That will make
lenders all the more eager to work with you, and it’s
a sign you are serious about homeownership.
tax. But if you want to withdraw earnings, you need
to be careful.
To be eligible to invest the max in a Roth, married couples filing a joint return must have modified
adjusted gross income of less than $169,000 in 2011.
Couples with an income between $169,000 and
$179,000 can still make a reduced contribution. For
individuals, the 2011 limit to make a full $5,000
contribution is $107,000. An individual who earns
between $107,000 and $122,000 can make a reduced
contribution. If your income is above those limits,
you can still get money into a Roth IRA, but you
first must open a traditional IRA with a nondeductible contribution. Then you can convert it to a Roth
IRA. Consult with a trusted tax adviser before you
make any move.
I need to set up a living revocable trust. One
attorney wanted $5,000, another wanted
$6,000 and the third said I didn’t need one because my will spells everything out. Also, how
do you find an executor to handle the trust?
BRIAN BOWEN SMI TH
I am looking for investment options for
my children, other than 529 plans. In addition to putting a little away for college, I
want to help them get started investing
for future non-education expenses, such as a
home down payment or a car.
San Diego, California
ONE OPTION is a Roth IRA. While the person
who has the Roth must also have earned income,
the money that is invested in the Roth doesn’t have
to come out of that person’s earned income.
For example, if your 17-year-old has a job
that provides $5,000 of earned income this year,
FOR A VERY complicated estate, the cost will obvi-
ously be higher. But if your finances and plans are
fairly straightforward, there’s no reason you
shouldn’t be able to find an attorney who charges
half as much, or less.
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