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Author: deschaip Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121146  
Subject: Spreading out iIncome To My Kids Date: 12/14/1998 8:21 AM
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I have 3 children, ages 13, 11, and 8. All will be going to college. My AGI will be around 95K this year. I have stocks invested that I inted to use for their college expenses. Are there significant tax benefits in setting up a college IRA or giving them each a set amount ($2,000) which is in turn invested in a mutual fund for them?

By the way, I am planning on converting a $90k traditional IRA to a Roth IRA in part because I know I can use some of this money for college expenses.
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Author: jessholl One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7134 of 121146
Subject: Re: Spreading out iIncome To My Kids Date: 12/14/1998 3:18 PM
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I have 3 children, ages 13, 11, and 8. All will be going to college. My AGI will be around 95K this
year. I have stocks invested that I inted to use for their college expenses. Are there significant tax
benefits in setting up a college IRA or giving them each a set amount ($2,000) which is in turn
invested in a mutual fund for them?

The main problem with the educational IRA in your case is the age of the kids. You are allowed to put away $500 a year it is not deductible, the gains from that money are the only tax savings. The downfall being you cannot take the lifetime learning credit or hope scholarship credit the same year you use and educational ira. These may be a much better benefit. It may pay to play with the numbers some, since I don't know the return you are expecting, and your projection AGI at that time.

You can give them each $2000 in a unified transfer to minors act account. Any capital gains and interest would be sheltered up to $700 per child and then it would be taxed at the childs lower rate until i believe $1300 (no books right now). The downfall would be financial aid counts a greater portion of the savings in the childs name to go for tuition than they would an adults. It would legally be the childs money when they came of age to spend as they wished.

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7204 of 121146
Subject: Re: Spreading out iIncome To My Kids Date: 12/15/1998 9:03 AM
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[[I have 3 children, ages 13, 11, and 8. All will be going to college. My AGI will be around 95K this
year. I have stocks invested that I inted to use for their college expenses. Are there significant tax
benefits in setting up a college IRA or giving them each a set amount ($2,000) which is in turn
invested in a mutual fund for them?]]

It certainly can't hurt. I have a number of posts regarding education deductions and credits in the Taxes FAQ area. You might want to check 'em out for some additional thoughts and details.

You can't open up a regular or Roth IRA in their names (they have to have earned income to have either IRA). But using the Ed IRA may be of benefit to you (if you qualify). You can certainly gift them $2k each year (or even more for that matter) to be invested and used (hopefully) for college expenses.

If you are using custodial accounts, read more about this issue in the Taxes FAQ area. In addition, the Fairmark tax site (http://www.fairmark.com) has a great discussion about the pros and cons of custodial accounts. Check it out.

The Taxes FAQ area will also give you information on gifts, trusts, kiddie taxes, and other issues that my be of interest to you. So there is a bunch of reading that you can do.

[[ By the way, I am planning on converting a $90k traditional IRA to a Roth IRA in part because I
know I can use some of this money for college expenses.]]

As the law is currently written, you can also use funds from your regular IRA account to pay for qualified education expenses without the 10% penalty. So don't jump the gun thinking that the Roth IRA is your only solution to this problem.

TMF Taxes
Roy

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