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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75839  
Subject: Re: Finding Balance Date: 2/18/2008 8:58 AM
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I am a 19 year old student @ UC Berkeley. I have a small business I run in my spare time that makes me a little money. It costs me about $17,000 per year for school with tuition, housing, food and entertainment. I have $7,000/year in scholarships and then me and my parents split the remaining costs, which is about $5,000 per year. They are currently taking out student loans to pay for their half while I am paying mine as we go. We took out $22,000 in loans for my Freshman year.

Something about your numbers doesn't add up. If you and your parents each have to pay $5k a year (total of $10k) for your schooling, and you collectively took out $22k for your freshman year, where is the other $12k? Your savings account? Your Roth? Your business? Somewhere into your parents' finances?

I know you say you are paying your own way for your portion of the schooling, but if you are taking out any loans at all, I would submit that you are not.

If your parents are having to take out $22k in loans to pay $5k toward your schooling, I would suggest that there are some larger problems there that you cannot solve. However, what you can do is to quit accepting their help in paying for your schooling and start using your savings account money toward your schooling.

I currently have $12,300 in my Roth IRA (already maxed up to 2008) and $8,000 in a normal investment account. I also have $20,000 in an online savings account with Citibank. My business is very volatile and could go for 10 more years or could stop tomorrow, so I cannot depend on future income, although I made about $50,000 in 2007.

Assuming that you are declaring your business income on your taxes, you should be eligible to contribute to a Roth, as the business income is earned income. However, if your business is volatile enough that it could stop tomorrow, you probably should have waited to fund your 2008 Roth until you were sure you would have at least $5k in earned income this year.

If you are not declaring your business income on your taxes, do you have other earned income that would allow you to contribute to a Roth? Because scholarships and grants are not income that can be contributed to a Roth. In that case, you have overcontributed for both 2007 and 2008, which will result in penalties unless you fix the issue by pulling out both the 2007 and 2008 contributions and earnings, and declaring the earnings as 'other income' on your tax return. Assuming you don't ask for an extension, you have until April 15, 2008 to fix the 2007 contribution, and April 15, 2009 to fix the 2008 contribution.

AJ
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