Extreme makeover: Live-in couple tying the knot financially

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Katie, 27, and her boyfriend, Cal, 28, live together in Brooklyn, N.Y. They recently decided to open a joint checking account for household expenses. Katie just started graduate school, and for the first time she will take out student loans. Cal is strapped with credit-card debt. Katie contributes the maximum amount to her 401(k) and contributes to her individual retirement account. The couple is having a hard time figuring out solid financial strategies.

Because they are not married, Bradley H. Bofford of Financial Principles suggests that they open a Joint Account with Tenants in Common (JT-TIC) so if one dies, his/her share would go to heirs as opposed to the survivor.

Because people tend to underestimate their expenses by 15 percent to 20 percent, Carla Morelli of FreyerMartin suggests that Katie and Cal use a software program to track expenses. She adds that Cal should get a part-time job to pay off his debt and consolidate his debt to one credit card with a low interest rate or request rate reductions from his card-issuers.

James H. White of J.H. White Financial Services recommends that Katie start a Roth IRA rather than contribute to her existing IRA. She is in a low tax bracket; her future income or combined income with a spouse will place her into a higher tax bracket, which makes the Roth contribution more valuable in the future.

Because up to $2,500 in interest payments on student loans is deductible for those who have incomes of less than $55,000, Katie could “redirect a portion of her monthly savings and begin making the interest payments on her loans rather than letting the interest accrue,” offers DeLynn Zell of Bridgeworth Financial. If the two marry, “their joint incomes would preclude them from deducting the interest in the future,” Zell points out.

White says Katie should consider building a CD ladder or putting savings away in a short-term government bond fund for the time that her student loans will come due.

S. Berg