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(MCT)—Paying off the mortgage early. Saving for college. Those are two major personal finance areas addressed this week by Walt Romatowski, a certified financial planner in Roseville, Calif., and one of our “Ask the Experts” writers.

QUESTION: I bought a house in 2006 for $1.1 million. I put down $850,000 and now have a mortgage of $230,000. My house is worth about $750,000. Should I work on paying it off, or just make the payments on this 30-year loan? I am retired and plan to be here about 10-15 years.

ANSWER: The decision to pay off your mortgage early should be based on a number of factors, including:

—Your ability to sustain your desired lifestyle during retirement. If using your savings to pay off the mortgage, don’t forget to give yourself a financial cushion for life’s inevitable surprises.
—The interest rate you are paying on your mortgage. If your current interest rate is high (i.e., greater than 5 percent or variable) and you are unable to refinance, it might make sense to pay off the mortgage earlier.
—Your tax bracket (i.e., how beneficial the mortgage interest deduction is to you).
—Psychologically, the importance of not having a mortgage. Some folks derive significant satisfaction in having no debt; for others, it’s not a big concern.

Since you plan to live in your home for the next 10-15 years, the current market value is not that important in this decision. By the time you are ready to sell, your home value should have recovered.

Q: I’m 69 and have two young grandchildren for whom I would like to set aside about $10,000 each. I would like to keep this money in my name, in case I need it for some unforeseen event. Where would be the best place to park this money? If used for college, it would not be needed for 12 years.

I’m not a good investor; it makes me too nervous. Savings and CDs don’t pay much, so I’ve been thinking of an annuity, or maybe even savings bonds. Savings bonds do not pay much interest, but I believe they’re better than CDs. I understand that if I use the savings for tuition, the withdrawals can be federal tax free. What do you think?

A: I think it’s great that you wish to help pay for your grandchildren’s education.

The fact that you want to access the funds, if needed, narrows down your savings options.

You could contribute to a 529 college savings plan or a Coverdell Education Savings Account, but the growth would be subject to taxes and a 10 percent penalty if the money was pulled out for anything other than qualified educational expenses.

The savings bond education tax exclusion is available if: you meet modified adjusted gross income limits; your tax filing status is not “married filing separately”; and you pay qualified education expenses for yourself, your spouse or a dependent, whom you claim as an exemption on your tax return.

If you don’t claim your grandkids as dependents, you can’t take advantage of this tax exclusion.

With an annuity, make sure that you understand all the costs, such as annual expenses, and restrictions — e.g., surrender charges. Take time to read the fine print.

Your remaining options include:
—After-tax investing, in which you pay “capital gains” tax on the growth;
—Using your traditional IRA and paying “ordinary income” tax on the amount distributed;
—Using your Roth IRA, with no taxes due on distributions.

A 529 college savings plan is your best bet if you don’t think you’ll need to tap into the funds.

©2012 The Sacramento Bee (Sacramento, Calif.)
Distributed by MCT Information Services