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Saving for Retirement

With Ten Years to Go

Fewer day-care expenses and rising salaries may make saving easier than you think.

With an 8-year-old, your strategy isn't much different from what it is with a newborn. Though if you're starting from zero, the amount you need to save each month is considerably higher. But it might be easier to find the money now, especially if your income has risen while your day-care expenses have decreased.

Invest aggressively. If you're starting from scratch, set your sights on the full amount for a public-college education, and step up the amount if you can. Whatever the size of your portfolio, you can keep it mostly in stocks for now but shift about 20% into bonds or moderately aggressive bond funds.

Trim the tax bill. Saving in a Roth IRA still makes sense: the annual contribution limit has increased to $4,000 from $3,000. If you and your spouse fund a Roth to the max, your $8,000 a year will grow to more than $342,095 (if you earn 8%) by the time your child starts college. You can take out your entire $72,000 in contributions tax- and penalty-free. If you tap earnings, too, you'll pay taxes, but no penalty applies.

Let your state help. A state savings plan can be a good way to impose discipline on your savings plan and get a tax break to boot. If your state doesn't have a savings plan but has a prepaid-tuition plan, consider using it as part of the bond allocation. You may get better returns from a five-year CD, but the prepaid plan can provide peace of mind. Also find out what happens if your child chooses an out-of-state school. Some states let you use the full value anywhere. Others, such as Florida, limit your return.

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