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Subject:  Re: plan for the kids Date:  12/13/2000  2:01 PM
Author:  TMFPixy Number:  26589 of 98510

Greetings, Daveg40, and welcome. You wrote:

I have just changed jobs and I thinking about taking the my portable pension plan (about $38K) out of my old employer's account and re-distribute this to my children's custodial accounts at schwab. I am thinking that this would be considered a gift donation to them even though it will initially be taxed in the same manner that you described in the article. Does this make sense?

No, it doesn't make sense. Assuming you stay in the 38% tax bracket when you receive that $38K, then it will cost you that 28% plus the 10% early withdrawal penalty (assuming you were younger than 55 when you left the job at your old employer. That means you will net just 52% of those funds, or $23,560. That's a high price to pay to get that money into a custodial account.

Perhaps a better procedure would be to have that money transferred to an IRA, where the entire $38K may grow tax-deferred until the kids get to college. Then, assuming you still wish to use the money for that purpose, you may withdraw it free of penalty to pay college costs each year. You will have to pay income taxes, but not the penalty.

For details, see IRS Publication 590 (Individual Retirement Arrangements) available for download at

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