Personal finance chat with Cheryl Costa

Investment adviser Cheryl Costa of Family Financial Architects in Natick answered readers' personal finance questions. Here's a transcript of the discussion.

home_newbie__Guest_: Hi Cheryl -- my wife and I are thinking of starting to look for homes. How should we go about finding a lender ... and do we both need to go to inquire about rates and preapproval?

Cheryl_Costa: I would start with the Sunday Boston Globe, which usually has a number of lenders advertising. You can do a lot of your preliminary scouting on rates and fees over the phone and just one of you should be able to provide all the necessary information.

Cheryl_Costa: You might also want to check out www.bankrate.com

Mister_B__Roke__Guest_: Should I max out my 401k now while I'm still young and without much financial responsibilities (aka mortgage, kids, car payments)

Cheryl_Costa: Absolutely. If you can save the max permitted now, that would be fabulous. Starting early gives you a great head start. If you have any extra money available, you might also want to consider fully funding your IRA or Roth IRA as well.

rateseeker__Guest_: how is countrywide as an online bank? they're rates seem good, but i have heard a lot of bad things about them as a lender. can i trust the savings bank part of them even if i don't trust the lending side?

Cheryl_Costa: Countrywide does have some very good rates and I would not be concerned about the safety of your deposits as long as you stay under the FDIC insurance coverage limits. For more information on the limits, visit www.fdic.gov and click on "deposit insurance".

invest98__Guest_: My father has about 20k in bonds in my name that he wants to hand over to me. The bonds are matured and getting about 4-5%. What should I do with the money, is it good to just keep them while they're getting interest or should i open an IRA? p.s. i'm late twenties

Cheryl_Costa: I am guessing that you are talking about savings bonds of some kind. If you think you will need this money in the next few years, you might want to keep the bonds, because that is a decent rate for short term money. If you are certain that you won't need this money any time soon, it might be better to cash in the bonds and invest the proceeds in an equity mutual fund that would have a higher long term return. It is hard to answer this question without knowing more about your personal circumstances.

Cheryl_Costa: You might find it useful to visit www.treasurydirect.gov If you enter your bond ID number, you can find out what the bond is worth and whether or not it is still earning interest.

D__Guest_: My oil company wants me to lock in at $4.39/gallon. They say they will give the lower price if it goes down. Should I lock in?

Cheryl_Costa: Wow. That sounds like a great deal. Is there a fee associated with the price lock?

gr8__Guest_: I'd like to know how my income and savings stack up with my peers. Can you point me to a resource where I can see how my income ($200k) and savings ($1.1M) stacks up against other married 50 year olds with 2 children in Mass?

Cheryl_Costa: A very, very rough estimate of what your Net Worth "should" be is:

Cheryl_Costa: (Annual Income x Age)/10

Mister_B__Roke__Guest_: Speaking of roths, if my company doesn't match is it better to do a Roth IRA or 401k plan?

Cheryl_Costa: Its hard to answer this question without more information, but if reducing your taxable income is extremely important, I would consider the 401(k). As you may know, contributions to Roths do not reduce your taxable income. Also, the amount you can contribute to your Roth IRA is $5,000 if you are under age 50 and $6,000 if you are age 50 or older. In comparison, you can contribute $15,500 to your 401(k) if you are under age 50 and $20,500 if you are 50 or older. There are a lot of factors to consider when making this decision.

in_the_poorhouse__Guest_: As the parent of a new baby, what do you recommend for college savings?

Cheryl_Costa: I really like 529 plans. My favorites are the Massachusetts UFund plan offered by Fidelity and the College Savings Plan of Nebraska. If you can start saving now, while your baby is very young, you will be way ahead by the time college arrives.

Chrisinmaine__Guest_: To pay for my kids' college, can I withdraw from my regular IRA with no penalty? e.g. is it considered a hardship? I understand I would pay income tax on the amount

Cheryl_Costa: Distributions taken to pay for qualified higher education expenses for a taxpayer, a spouse, a child or a grandchild are exempt from the 10% early withdrawal penalty but, as you noted, will be subject to income tax.

in_the_poorhouse__Guest_: As a spin off to the college savings question, without knowing my income, what amount of money per month would you like people to try and save for college purposes?

Cheryl_Costa: There are some very good internet calculators that can help you decide how much you should be saving. I like www.savingforcollege.com and www.collegeboard.com

pka__Guest_: My husband and I are going to be 30 this year. We have been diligent about retirement contributions for several years, and have amassed about 100K combined in these accounts (403bs, and Roths) on very moderate salaries. We also have a sizable downpayment for a home, but are working on increasing this so we can buy in a better location. We wonder if it is worthwhile to cut back on our retirement contributions (not entirely, but maybe reduce contributions to 8% from the current 15%) in order to save more aggressively for a home, and purchase while the housing market is still low?

Cheryl_Costa: Congratulations on your diligent savings. Although I don't typically advise people to cut back on retirement savings, you are in a good situation and I think it would be OK to reduce your contributions for a limited number of years. Generally speaking, if you can save 10% of your salary for retirement from the time you start working, you should be in decent shape. You have been saving more than that amount for a while so a reduction for a few years should be OK.

finances__Guest_: what is the max you can contribute yearly to a 401(k), 403(b), and Roth IRA? Thanks for your help!

Cheryl_Costa: For the 401(k) and 403(b)s, the contribution limits are $15,500 if you are younger than 50 and $20,500 if you are 50 and older. For traditional and Roth IRAs, the limits are $5,000 if you are under age 50 and $6,000 if you are age 50 or older.

mertz__Guest_: Is there any requirement for financial companies (Fidelity, TIAA-CREF) to do a Required Minimum Distribution calculation for clients after one turns 70.5?

Cheryl_Costa: I'm not sure that these companies are required to do an RMD calculation for their retail account holders, but if you called an investor center or a customer service representative, they are generally very happy to do the calculation for you.

bostonsaver__Guest_: I have always been a big saver and my wife is more of a spender although she does see the value in saving 401k, college etc.. I would like to know what you recommend us doing with a very large summ of cash we have built up from my work commissions over the last 5 years. We have paid our 150k mortgage off and we are 39 years old.

Cheryl_Costa: Having your mortgage paid off by age 39 is a great accomplishment. Now, what should you do with your "spare" $150K?

Cheryl_Costa: Unfortunately, the answer is "it depends". Even though you have been saving for your retirement, you might still be behind if you have not been saving at least 10% of your salary every year that you have been working. Also, you have started saving for college, but do you have enough? You might want to meet with an advisor to help you map out your financial future a little more clearly.

Chloe__Guest_: If you have a great amount of debt (credit card). Should you continue splitting your income between bills and savings...or focus all your efforts into getting rid of the debt?

Cheryl_Costa: Even when you are paying down credit card debt, you should still have some cash available for emergencies so I wouldn't recommend clearing out all your savings to reduce your debt. However, if your interest rates are quite high, you might want to consider "turning off" future savings in order to tackle the debt, but don't leave yourself too strapped for cash.

Cheryl_Costa: Thanks everyone for writing in today. We are now out of time. If you have questions that didn't get answered, please check out my personal finance blog at boston.com and consider asking your questions there.