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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76095  
Subject: Re: Strategies for an Edu IRA Date: 1/5/1998 7:19 PM
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Greetings, Paul, and welcome.

<<I posted this meesage in the Tom Gardner's Place folder. He passed on aswering question #1 since he wasn't familiar with the Education IRA and suggested posting it here. Hopefully, someone here can give me some help. Thanks.

I don't know if any of you have given any thought regarding strategies for the new Education IRA. I have considering the impending arrival of my first child. I am running into questions that I can't answer.

For the uninitiated, the Edu IRA allows you to set aside up to $500 per year per child in an account that grows tax free. The contributions are after tax. This money then can be withdrawn for college costs, like tuition and lab fees.

1. Is this sort of account worth while, considering the limited amount of money that can be contributed? Would I be better off investing the money in my own name in a non-IRA account or even a Roth IRA (or, even better, a Roth IRA in my child's name)?

2. Assuming that the Edu IRA is a worthwhile vehicle, what sort of investment strategy would you recommend?

The question is actually a two parter - how often to invest (every year invest the $500 or wait for $1k in assets, investing every other year) and what types of assets to purchase. For assets, I was considering (at least until the account gets into the $4-5k range, which would occur in 6 to 10 years) either spiders or 1 cash king stock. The reason that I've come to these two points is that I would like the money in the market, but I don't want it burned away by commisions. I'm not married to this idea, but I'm skeptical of diversification in this instance. Once in the $4-5k range, I'd like to switch over to a FF strategy.

Other notes:
I ruled out the Vanguard S&P 500 fund since it requires $1k for IRAs and I want to have the money in the market.

It appears as of this writing that the lowest commisions that I can find are $12 at Waterhouse's web service. They would be the only ones without a minimum and an IRA maintenance fee.

Any thoughts would be appreciated by me and my baby scholar.>>

I don't like the Education IRA for a number of reasons, the first of which is it's name. It's a tax deferred investment for college, not an IRA per se. It has a laughable $500 per year limit, can't be used after the child turns age 18, and has some crazy "transfer to another eligible child" rules if unused . I personally prefer investing in a plain ole vanilla taxable account. I can mass my money, don't have to worry about assets in my child's name, and don't have to be concerned with using funds in the same year I wish to take advantage of the Hope cax credit. But that's me, and I'm just an old curmudgeon. For other views, you may want to visit the Fools and Their Money folder where the Education IRA has received a lot of discussion of late.

Regards......Pixy
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