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Author: GiganteFool One star, 50 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Re: Finding Balance Date: 2/18/2008 3:41 PM
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IMHO - the burden for your education is now yours! If your parents are taking out loans - I hope that YOU expect to pay them back! that being said - I would take out loans IFF- you make more on the money than you are spending. Investing 101 borrow cheap, invest and make a little income on the spread.

I expect to pay back the $22,000 we took out Freshman year eventually, even though it is in their name. I am limited to only accepting $5,000 per year in loan under my name from the government, the rest has to be under my parents name, so officially I have $5,000 in my name Freshman year and my parents the rest.

If your parents are borrowing the money at 6% and you are making 8% borrow away.

How do you determine what you are "making" when invested in the stock market to compare in this way? My returns are obviously not guaranteed to be higher, although expected to be higher than 6% over time, but that doesn't mean the time is now (with a down market). If I believe though that investing now will yield double digit returns in the future with this money though, how do you figure out what to do?

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?

Sorry, I should have explained this better. Last year we took out $22k. This year I am no longer living in the expensive dorms, which drops my cost to about $17k. I now have $7,000 in scholarships which I can depend on yearly. I did not have these last year. My schooling is now costing ~ $10k out of pocket (me and parents combined).

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.

This shouldn't be a problem since I have already earned $5k for 2008.

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.

Could you explain this one a little more? I contributed $4k for 2006, $4k for 2007 and $5k for 2008. Earned income for 2006 was ~$15k and 2007 was ~$50k. If I am doing something wrong please let me know.

I appreciate your help tremendously. You guys obviously have much more experience than I do with money concerns and much of it is new to me.

Will
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