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Choose a smart option to save for college costs

TODAY Financial editor Jean Chatzky is receiving more e-mail than ever from readers concerned about the economy. She takes time to answer questions about saving for college, property taxes and credit scores.
/ Source: TODAY contributor

Q: My fiancé works over 80 hours a week. We have three children and I have not been able to find work that would be worth the child care expenses and gas prices. We are hardly able to pay our bills. We even traded in my car and bought a motorcycle to cut the gas expense. We are in dire need of resources, something like work from home to help us. What do we do? — Wendy, Florence, Ariz.

A: Wendy, you’re thinking along the right lines. You need to do one of two things: Either find a part-time job that you can handle while your children are in school (this will also mean finding an inexpensive program for them during the summer) or find a way to earn money while working from home and taking care of your children. Since one of the issues is your children, you may want to consider becoming a licensed child care provider. To do this in Arizona, you’ll need to get in touch with the Arizona Department of Health Services in Phoenix. But for other people with the same question, every state has different licensing requirements; you can find them online.

If that doesn’t appeal, then I’d look at other options for working at home. Here’s a list of 10 work-at-home jobs we pulled together to answer a question a few weeks ago. We’ve gotten so many requests to rerun it, we thought we’d show it again. And we’ll put it up on the TODAY show Web site for others who are looking for help.

At-Home Jobs

  • Virtual Assistant
  • Home-Based Call Center Jobs
  • Medical Transcriber
  • Start a Web-based Business
  • Online Auctions
  • Mystery Shopping
  • Survey Taking
  • Proofreader for People’s Resumes, etc.
  • Bookkeeper
  • Real Estate Assistant

Q: My husband and I had our first son a year ago. We are stumped on what to do to start saving for his college. My husband and I both make the maximum contribution to our Roth IRA accounts and save $1,000 a month in a money market account. Although we know we can’t foot the entire bill for his college education, we would like to be able to help some. Which products would be best for us? —  Rebecca, Gales Ferry, Conn.

A: Rebecca, what many people don’t understand about the Roth IRA is that it is an excellent college-saving fund as well as a retirement fund. One of the things I like so much about the Roth — besides the fact that your contributions grow tax-free forever and you don’t have to pay taxes on them when you pull the money out — is that you can make withdrawals, without penalty, for things like education and buying your first home. So when your child gets to college 18 years from now, you can look at the balance in that Roth and decide if you want to use some of the money for education rather than retirement.

As far as other options, I’d look at the Coverdell Education Savings Account and the 529 College Savings Plan. The Coverdell works like an IRA. You can contribute up to $2,000 annually if your modified adjusted gross is less than $95,000 as a single tax filer (or married filing separate), or $190,000 to $220,000 as a married couple filing jointly. You can open a Coverdell at pretty much any brokerage firm (I’d use the same one that houses your Roth for sanity’s sake). Then you invest the money as you choose. You can contribute substantially more to a 529 College Savings Plan. Connecticut has a very well regarded plan run by TIAA-CREF. You get a deduction for contributions of up to $5,000 (single) or $10,000 (married) on your state tax return, which is a nice plus. If you want to read more about the plans in your state, I’d go to, a terrific Web site that rates plans kind of like Morningstar rates mutual funds.

Q: I have a 2-year-old son and my husband and I have put $6,000 in his savings account by contributing to it monthly and asking family to contribute. When we have saved $10,000, we want to put it in something that is long-term and would give a high interest rate, but would not have high penalties for taking money out. I do not know much about IRA or CD accounts, so we do not know the best option to get the most for our investment. Please help. — Kim, Bunnlevel, N.C.

A: Actually, Kim, I have a question for you: Why are you waiting until it reaches $10,000 to do something long-term when you could do something long-term now? I’d start a 529 College Savings Plan. (The Web site can help you find a good one.) This is a good choice for many reasons. First, control of that money stays with you rather than with him. Putting too much money in a child’s name can hurt when it comes to receiving financial aid; you can get hit with the kiddie tax, and when your child reaches the age of majority he could use it for whatever he wants — not college. You want to be sure that the money is used for education.

Q: We purchased our home in 2006 with a subprime loan. Our mortgage was $4,500/month. We were not able to pay our property taxes. Our new lender refinanced us at a lower rate so we were able to keep our home. But, we owe thousands of dollars in property taxes. When we originally bought the house, the “shark lender” told us that we could refinance and add our taxes into our loan. We are not able to do this. Are we going to lose our home because we haven’t paid our property taxes? — Lisa, San Jose, Calif.

A: Lisa, you should be able to work out a payment plan with the local tax collectors, just like you might work one out with the IRS. The one hitch is that they usually want this year’s taxes paid before next year’s come due. That may mean that you’ll have to find the money somewhere — by working part time, borrowing from a relative or selling other assets (like that second or third car). As burdensome as that may sound, remember anything you do for a short while is nowhere near as bad as losing your home.

For everyone else out there, this is a cautionary tale. You shouldn’t buy anything — a house, a car, a pet — without asking yourself to look beyond the price tag and consider the cost of not just purchasing it, but owning it. With the house: What does it cost to live there in taxes, insurance, utilities, lawn care and upkeep? Harvard’s Joint Center of Housing Studies estimates you should bank on putting 1 to 2 percent of the value of your home into maintenance each year.

Q: I see a lot of questions about credit score and debt, but none on judgments from medical bills. I have a judgment on my credit that’s one year old. I want to get this paid off, but I am unable to at this time. I have no credit cards by choice and don’t want to try to take out a loan to cover this. How can I repair my credit score? — Jennifer, Greenville, S.C.

A: Jennifer, I know we all talk so much about credit scores that they seem to be the most important thing. In your case, it is not. The most important thing is figuring out a way to pay that bill so that you can get medical care in the future if you need it. Call that doctor or hospital and try to work out a payment plan that you can actually stick to. But do this knowing that once a judgment is on your credit report, paying it off will not necessarily translate to a higher score. That’s true not only of judgments, but of collections as well.

Now, back to your score — if you’re concerned about it, it’s probably because you want to take out a mortgage or a car loan in the future. To bring it up, it would be a positive to have at least one credit score — it will help you establish a better-rounded credit file. But because you don’t have a good score right now, don’t look at a traditional credit card, look at a secured card. You’ll be asked to deposit enough money into a bank account to cover the credit limit (you can keep it low). but if you pay on time for 18 or 24 months, many secured cards will convert to traditional cards. Twenty-four months from now, that judgment will have paled; if you can do this as well, your score should be significantly higher.

Jean Chatzky is an editor-at-large at Money Magazine and serves as AOL’s official Money Coach. She is the personal finance editor for NBC’s “Today Show” and is also a columnist for Life Magazine. She is the author of four books, including 2004’s “Pay it Down! From Debt to Wealth on $10 a Day” (Portfolio). To find out more, visit her Web site,