Get With The Plan: August 24, 2008

Luke, 51, and Nora, 49, are facing some harsh financial realities. They have one child starting a pricey university in a few weeks, with their second child heading to college in a few years.

‘‘My biggest financial concern is my children’s educa- tion,’’ Luke says. ‘‘The cost of college continues to rise, and I want to ensure that I will be able to send them to the college of their choice.’’

The couple also would like to retire in the next 10 to 12 years.

The couple, whose names have been changed, have so far saved $415,350 in 401(k) plans, $1,500 in IRAs, $22,000 in a brokerage account, $12,000 in savings bonds, $13,500 in a credit union, $3,000 in savings and $13,000 in checking. They’ve also saved $81,500 for college in Uniform Gift to Minors accounts, and they own an investment home.

The Star-Ledger asked Jack Oujo, a certified financial planner and certified public accountant in Wall Township, to help the couple find a way to pay for college and their other goals.

‘‘Having a second home is very questionable at this point, considering they are looking at over $300,000 in college costs,’’ Oujo says.

If Luke and Nora want to take full financial responsibility for sending their children to college, Oujo says they may want to consider selling this asset, even in this market, which isn’t great for sellers.

‘‘We all have choices to make in life, and the second home could be getting in the way of other financial goals. I advise them to sell it,’’ he says.

Selling the home would give them a lot of cash to put toward college expenses, which would then lower the amount of college debt they’d be taking on in the years to come. Or, Oujo says, because Luke and Nora are so conservative with their investments, they could use their spare cash for either tuition payments or to pay down their mortgage.

If they use the money for college, or even for paying down their mortgage, they’d have enough available cash to make maximum contributions to their 401(k) plans.

‘‘This will build up the money they need to retire and eliminate most interest payments they would have for school,’’ he says. ‘‘They would also be significantly reducing their tax payments. They can always rent a place if they want to go on vacation.’’

Even the sale of their investment property won’t eliminate the need for money to pay for college. So, Oujo says the couple should consider moving their tuition savings from Uniform Transfer to Minors accounts, where the money is, to a 529 plan. They should choose a 529 with a conservative allocation, because they’ll need the money for college so soon. Additionally, they should check with the financial aid office at their child’s college for recommendations on college loan sources if they don’t sell the second home.

The retirement outlook for Luke and Nora will im- prove significantly if they boost their 401(k) plan contributions. Oujo says if they contribute $30,000 per year into the plans and earn 6 percent on the money, they would have $1,238,841 when Luke turns 62. He says they could draw income from this portfolio of about $5,000 per month, plus Social Security and pension benefits, and they should do just fine.

Still, they’re way too conservative with their 401(k) plans, Oujo says, and they should switch to at a least a 60/40 mix between stocks and bonds. If they don’t make some changes, their current investments will not keep up with inflation, he says.