Forum Mailbag: 529s and Marriage, HELOC to Maximize Retirement Contributions, Dave Ramsey and Credit Cards, and More!

There is so much great information on personal finance forums. I regularly participate on several message boards, including Bogleheads, White Coat Investor, and Rockstar Finance. Here are some of the discussions happening around the internet.

1. White Coat Investor: 529s and Marriage

Question: NJDoc’s daughter finished college and has some leftover 529 funds, which she will likely use for graduate school. However, she may get married before or during graduate school. He was wondering what the implications of a marriage would be on the 529.

WSP’s Take: Remember that the 529 is your money; your daughter is just the beneficiary. You can change the beneficiary at any time. Obviously, the list of possible beneficiaries increases with a marriage, so people like your future son-in-law and grandchildren could now become beneficiaries of the 529.

2. Bogleheads: HELOC to Maximize Retirement Contributions

Question: Shikoku has a $200k mortgage and a $100k HELOC ($0 balance) on a house currently worth $500k. He has $49k/year of retirement space through a 403(b) and 457(b). However, for the next 9 years, he will be paying college tuition for his children, meaning that he won’t be able to max-out his retirement accounts. He was thinking about transferring money from the HELOC to maximize his retirement accounts. He and his wife are 51 and 43 and plan to retire in 16 years.

WSP’s Take: This is an interesting strategy to maximize the value of his retirement accounts. The primary question is how much leverage he wants to take in his portfolio. By moving 100k from his HELOC into the stock market through retirement account contribution, he now has an additional 100k in stock market exposure, financed at HELOC interest rates, but with the tax benefits of a retirement account. Mathematically, he will likely end up with more money with this method, but with increased volatility because of the leverage.

Another implication that is brought up by some of the commenters is whether he should be limiting his retirement contributions to pay for his children’s college tuitions. If he is on track for retirement without the HELOC and sub-maximal retirement contributions, then this is fine. However, if he is not on track for retirement, then he should allow his children to take loans or attend less expensive schools in order to ensure he is contributing appropriately to his retirement accounts.

3. Bogleheads: Dave Ramsey and Credit Cards

Question: Dave Ramsey is a well-known opponent of the use of credit cards. Of course, he is against holding credit card debt. However, he also is against the use of credit cards even for those who pay off their credit card statement in full each month. This is because people tend to spend more when they use credit cards than when they use cash. Bogleheads user hightower asks whether he should re-evaluate his spending habits.

WSP’s Take: It is true that people tend to spend more when they pay with credit cards rather than cash. However, there are significant inconveniences with using cash. You need to drive to the ATM to withdraw additional cash, you spend more time at the cash register, and you are restricted to purchasing items at brick and mortar stores rather than online.

I think it’s about where you are at in your financial life. If you’re deep in consumer debt and in “rice and beans, beans and rice” mode, then yes, you should pay for everything in cash.

But for the typical physician who is doing well to save 20-25% of their gross income and on track to meet their retirement goals, then the convenience of credit cards outweighs the potential benefits of lower spending with cash.

4. White Coat Investor: Paying Down College Debt Prior to Medical School

Question: Gregslobos is 24, married, and starting medical school next year. He has 21k in college loans to pay off, and has been aggressively trying to save in order to pay off his college debt prior to medical school. He and his wife have had a lot of marital stress over spending in a quest to save as much as possible. He is looking for advice on how to seek more balance between spending and saving.

WSP’s Take: Congratulations on getting into medical school, and on thinking about your finances so early in your life. However, as you are aware by asking your question, you are being too hard on yourself.

Having student loans from medical school is unavoidable. The average medical student debt is now around $192,000. As you frame how much you should be spending or savings, it’s worth remembering that the majority of your medical school classmates will be single and have no income during medical school.

Your family, on the other hand, will continue to have income coming in during medical school if your wife continues to work. You shouldn’t feel that the start of medical school is a deadline to pay off your college loans.

If you segregate your medical school loans from your college loans, then you can continue to pay down your college loans during medical school. Even without being overly frugal, you’ll be ahead of your medical school classmates when you complete medical school and then residency.

Wall Street Shares: 7 Articles To Read This Week

1. White Coat Investor: Intern Financial Survival Guide – From One Intern to Another — A great guide written for interns by an intern.
2. Actuary on FIRE: College Investing – Reader Case Study, Beginner MD — An interesting analysis on a common question — how much money do you need to save for college?
3. Dads, Dollars, and Debts: Congrats! You’re a parent…now what? — DDD summarizes the main financial items on your new parent to-do list.
4. Millionaire Doc: My $20k PeerStreet Experiment — This doctor shares his early experience with real-estate crowdfunding
5. DocWife: Who’s The Real Boss In The House? — Hint: it’s not the husband or the wife.
6. Life Zemplified: How To Avoid Overeating And Overspending During The Holidays — Amy offers some tips on how to avoid having a wider belly and thinner wallet at the end of the holiday season.
7. Another Second Opinion: Beer and A Movie — This doctor forays into the world of crowdfunding with an investment in a brewery and a movie.

What do you think? Do you agree or disagree with any of my responses? What’s your take on the topics in this week’s forum mailbag?