ALEX CHADWICK, host:
DAY TO DAY's personal finance contributor Michelle Singletary is back with us and with questions from you, our listeners. Here's the first one.
It's from an American expat living in Switzerland. Her name is Jenny Brulee(ph). She and her husband have lived abroad for many years. They have four young daughters and would like to save for their college education. Jenny writes: Michelle, help. Can we sink money into a 529 and can this money only be used at schools in the States? We don't know on which continent our kids are going to want to go to school. Michelle?
MICHELLE SINGLETARY: Well, the good news is they can still contribute to a 529 plan. They need to set up an account separately for each child, and they begin to save. For those who don't know what a 529 plan is, it's a savings vehicle. It's tax-deferred. But if you use the money when it comes out for qualified educational expense, you do not have to pay taxes on the money, so it's a great benefit. And the good news is that there are many foreign schools that you can use the money for. In other words, the schools are considered qualified by the federal government that you can use the money for, for you kids. So they shouldn't worry at all. They should put the money in the 529 plan. Now, you do have to check to make sure that the foreign school is qualified so that you're not taxed on this money.
CHADWICK: We'll put up a link at our Web site at npr.org at DAY TO DAY for these sites, where you can check if the schools that your kids want to go to are covered by a 529 plan.
Okay, next question here. This is about paying off credit card debt, which we know you always support. Here's a twist. Arlene McGregor(ph) and her husband are thinking about retirement. Arlene wonders, should they pay off their credit card debt by taking money out of their retirement accounts? There would be no penalty, just taxes. Arlene writes: The credit card balances have lower interest rates, but I think we should just take the money out of our funds so that we're debt free and we can use our incoming salaries for savings and monthly expenses and fun. We're both in great health, so why not enjoy ourselves? Michelle, what do you say? Fun?
SINGLETARY: I am an advocate for getting rid of debt, as you said. If taking the money out of their retirement isn't going to hurt their retirement savings, get that bondage gone. You know what I mean? When you're in debt, you're in bondage. However, you know, and I always add this caveat because people will hear that and they'll pull money out. There's a couple things with this couple. First of all, they are over 60, so that's why they are not being penalized. If you take money out of your 401K or tax-deferred plan before you're 59 and a half, you're going to get a 10 percent penalty in addition to having paying taxes on that. So I wouldn't do that to pay off credit card debt.
And then secondly, it sounds like they've got a lot of savings and so they - they've got room to pull the money out to pay off this credit card, to give them some peace of mind, and I'm all about some peace of mind. Now, they are working, they're still working, so they could leave the money there, and then because they're working, use their income to pay off their credit debt and still have some fun. I mean, they may not pay it off as quickly as they want to but they certainly could do that without touching their retirement savings, and it would give that money chance to grow and earn some more money on it while they're paying off their debt. So my answer is it depends.
CHADWICK: Thank you, Michelle. Michelle Singletary, our regular expert on personal finance. She writes the nationally syndicated column the Color of Money. And you can hear more from Michelle. She has an NPR podcast. Go online at npr.org\colorofmoney, and that is all one word.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.