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Author: reyrey1332 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75787  
Subject: Roth account question Date: 11/19/2007 3:14 PM
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I currently have a taxable investment account and my own Roth IRA account with TD Ameritrade. The taxable account is a joint account with my wife and our intentions for it were to use on our kid’s college education if they needed help. Our oldest son is only 4, so we have 14 years or so for the money to grow in that account. I would say we invest 2/3 of our savings in that account which holds several solid mutual funds. I currently only allocate 1/3 of our savings into my Roth.

Here is my question: I learned that you can withdraw 100% of your Roth contributions at any time without a penalty. I did not know this when we first opened up the taxable account. Would it be more beneficial for us to liquidate the entire taxable account and transfer all the money into my Roth? Then, if we do need to use money for our kid’s college we can…

I guess I just want to do whatever will make me more money in the long run, and since a Roth grows tax free…why not move everything into it? Am I right?



And, I am aware of the $4000/yr max contribution…
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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 60213 of 75787
Subject: Re: Roth account question Date: 11/19/2007 3:34 PM
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I learned that you can withdraw 100% of your Roth contributions at any time without a penalty. I did not know this when we first opened up the taxable account. Would it be more beneficial for us to liquidate the entire taxable account and transfer all the money into my Roth? Then, if we do need to use money for our kid’s college we can…

I guess I just want to do whatever will make me more money in the long run, and since a Roth grows tax free…why not move everything into it? Am I right?

And, I am aware of the $4000/yr max contribution…


It's not clear whether you're aware that the $4,000 limit means that the most you can move into Roths per year is $8,000 ($4,000 each for you and your wife). Also, you can't just move appreciated investments into your Roths. You'd have to sell and contribute cash, meaning that gains would be taxed now.

You gain nothing with respect to tax on the earnings by doing this unless you'll be over 59 1/2 when you face college expenses or you never need to tap the earnings for college.

You haven't given enough information for anyone to tell whether this is something worth pursuing. Have you looked at what 529 plans are available? That might be a better route since the earnings can also be tax-free if used for qualified education expenses.

You also need to think about the fact that the Roth is a retirement savings vehicle by design. What's your overall plan for retirement and education savings?

You might want to check out the discussion board about paying for college.

Phil

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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 60217 of 75787
Subject: Re: Roth account question Date: 11/19/2007 9:57 PM
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There is a “Paying for College” board that might be able to give you better answers. Here is a link to an unrelated post.

http://boards.fool.com/Message.asp?mid=26062724&bid=100157

If you post over there you should let them know which state you are in because the 529 plans vary a lot by state.

I’m pretty sure that there are a lot better ways to handle the money if it is truly earmarked for college but I’m not up to speed on this. You might ask for references to good web resources about how to save for college.

Greg

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