Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev | Next
Author: Kilmarnoch Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Re: college savings Date: 1/25/1998 3:39 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
TMFTaxes writes:
[[Taxpayers who make qualified rollovers from non-Roth IRAs (or convert the accounts to Roth IRAs) before Jan. 1, '99, can spread out the taxable income of the distribution (but NOT the tax) over 4 tax years beginning with the year that the distribution takes place.]]

It might clear up some confusion if you use "must spread" instead of "can spread"... "can" is an option... "must" is a law. =)

Also, I understood all along that the income would be distributed, some is taxed in future years. When I read the phrase "not the tax" that seems to imply that you figured out what the total tax would be, then pay it in *now* based on your current tax bracket (...cause you can't distibute it, ya'know), but then include 1/4th of the amount in your AGI over the next four years. (this was making *no* sense... and is pretty darn "far from the truth" :)
... now I understand what you mean by "not the tax" but I think things would be clearer if you just didn't write that at all, simply state that 1/4th of the distribution is added into your AGI over each of the next four years (maybe point out that 3/4th of the rollover will be taxed at your future tax rates, which is a bad thing for me (being in the 15% bracket now)).

[[Limitations: Contributions to an education investment account may be made only in cash and may not be made after the beneficiary reaches age 18. And annual contributions are limited to $500 per beneficiary. So this provision really impacts younger children, but certainly can impact your older children also.]]

First, your overview of the e.IRA is helpful, but there are still way too many questions that don't have answers...

Have they figured out how the coordination of that 500 limit is going to work? What happens when five uncles decide to each donate 500 a year to separate accounts for the same niece? Who pays the penalties, which acounts are withdrawn, and how?

Who controls the account? If I've been putting $500 a year into brother1's account and he is a real loser come college time, I want like to switch the account to brother2 or cousin16 (someone who shows some interest/motivation in school).
I also want control over the account for investment decisions, because brother1 and 2's parents have *no* money sense. *=)


[[And the best part: If the funds are used for qualified education purposes, the entire amount is tax free. No taxes on the principal, and no taxes on the earnings.]]

Haven't you already paid taxes on the principal, the money going *in* is after-tax money? :P

now just a few numbers to play with...
Investing $500 on Jan 1 each year for 18 years...
saved $9000.00... 8% interest $11223.13... total $18725.12
saved $9000.00... 10% interest $16079.55... total $22799.59
saved $9000.00... 12% interest $22219.84... total $27874.86
saved $9000.00... 14% interest $29984.62... total $34197.03
saved $9000.00... 16% interest $39801.61... total $42070.36

At 12% interest, 20K is enough money to scrape through an in-state college today, you can burn up the whole account in ONE year out of state *today*. With the rate tuition is increasing these education IRA's are never going to be enough to pay for school 20 years from now... they might help with the first two years but that's it.
I realise that the whole amount isn't just withdrawn in the first year, so you still make tax-free interest on the amount for the 5 years it takes junior to get through school, but you wouldn't have it in high risk investments earning 12% either. :}
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev | Next

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement