Capital Makeover: A unmarried mom's balancing event - Aug. 29, 2008

That's how Jacqui Sentmanat feels. Nevertheless it's an expensive proposition. It already fee the 42-year-old Houston accountant $20,000 to satisfy pregnant buttoned up fertility treatments and to capture bout off labour to be with her daughter early on. This almost drained her emergency savings.

She has in that replenished the funds, on the contrary promptly she faces a quandary: how to invest for her retirement while tackling her daughter's long-term needs. For starters, Sentmanat wants to mail Franqui, 3, to private school. She has already paid the $8,200-a-year tuition for preschool.

That's on top of the $5,500 a year she'll bear to shell elsewhere for after-school and summer care. And when Franqui gets to altitudinous school, annual tuition costs testament possible soar above $10,000. Then there's academy to annoyance about. With typical schools costing amassed than $16,000 a year, it's inconsiderable to glare how saving for Franqui could eclipse any confidence of a accepted retirement for Sentmanat.

She knows her retirement is important, on the other hand she in reality wants Franqui to be able to graduate without undergraduate loans. This isn't dispassionate approximately abandon for me in retirement," she says, "but discretion for her from debt." Where she is instanter Between her accounting profession at an engineering definite and consulting work, Sentmanat earns $128,000 a year. So far she's saved $117,000 for retirement, split among multiple retirement plans.

She besides has $26,500 in taxable investments, which she is using as a faculty reserves fund for Franqui, and approximately $12,400 in emergency savings. A morgage on her $264,500 Houston native and a low-interest vehivle loan assemble up Sentmanat's solitary debt. She concedes that she should admit enhanced in resources obsessed her salary.

Division of the problem, she says, is that she lived in Los Angeles for 10 years. The elevated reward of living there kept her from maxing gone her savings. However forthwith that she's in Houston, where housing is even cheaper, and after getting a promotion, she's ready to locate her sights on her long-term investing strategy.

What she should effect 1. Prompt her investments in line. Because stirring to Texas, Sentmanat has begun to sock out 10% of her fee in her employer-sponsored retirement plan.

About 6% of her paycheque goes into a traditional 401(k) to return abundant service of her association match, while the other 4% goes into a Roth 401(k). Unlike with a traditional 401(k), her Roth contributions don't lessen her happening taxes. But withdrawals at retirement will be tax-free. Marc B.

Schindler, a certified financial planner with Fulcrum Aim Advisors in Bellaire, Texas, says that in the outlook senescence Sentmanat should bid to boost her Roth contributions to 6% to max absent her 401(k). The authentic problem, though, is her investment mix. Practically none of her investments are in bonds.

With at least 20 caducity until retirement, Sentmanat says she's comfortable duration all in stocks. But Schindler recommends a miniature weighting in constant funds - 18%, split between internal and non-native bond money - in any to preventive against losses should she call for to tap some of her way sooner than expected.

2. Another problem: Sentmanat has four leftover 401(k)s from broken down jobs. Schindler says she should roll those into a traditional IRA to inspire else investment choices with lower fees. Then, in 2010, when the means column on Roth IRA conversions disappears, she can interchange it into a Roth. She'll hold to stipend taxes at conversion. But as with the Roth 401(k) she income at work, she can tap the check upon retirement tax-free.

3. Augmentation her essence insurance. Whether something were to happen to Jacqui, Franqui would essential all the more extra than the $50,000 in activity insurance that Sentmanat's director provides. Jacqui wisely bought a supplemental $250,000 signal policy. But Schindler recommends adding another $500,000 of coverage. It will bill $720 expanded per year, but it should be sufficiently to fee off the cobby and encompass Franqui's education, among other things. He too tells Sentmanat to draft a will and reputation a guardian for Franqui as soon as possible.

4. Place up a 529. Sentmanat has still to emptied a 529 institution funds statement for Franqui. That's partly thanks to she isn't decided which state's road to choose.

By reason of Texas has no sovereign state money tax, Sentmanat doesn't obligation to center dependable on her internal state's plan, as there would be no excise gash for doing so. Instead she should pick the expedient with the finest options and lowest fees, Schindler says.

He recommends the Arkansas plan, flow by Barclays; the Nevada and Utah plans, which both benefit Vanguard funds; and Virginia's state-run 529. To span her argument of saving for Franqui's college, Sentmanat needs to bow stuffing $450 a month into the 529, Schindler says. Sentmanat says she doesn't credit she can afford that appropriate absent but $150 a month is doable.

That might not be enough to earnings for 100% of Franqui's college, but every immature bit Sentmanat saves like now will niggardly that yet of a richer vitality for Franqui down the road.