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Financial Planning / Paying For College


Subject:  Re: Can't parents have the best of both worlds Date:  10/6/1999  7:31 PM
Author:  JCKelly Number:  1357 of 8592

Jimson_1 asks:
I set up a Roth IRA for my child and contribute the $2000 a year. I set it up so that she gains control of it when she turns 21. At 18, she decides to do something with her life and go to college and some of the funds are used to pay for her first years. At age 19, she decides to drop out of college. Can I transfer that account to one in my name?

Besides the interesting notion that "doing something with her life" equals going to college...

The issue boils down to "whose money is it". If it is her money (which it is if you give it to her), then she is able to use it how she sees fit, especially once she reaches the age of majority, which differs by state. On the other hand, if it is your money, then you get to use it as YOU see fit, including giving it to your daughter or using it for her benefit.

Have you thought about investing the money yourself, in your own name, then making the decision at ages 18, 19, 20, and 21 whether or not go give your daughter any support? This means it is in your control, but the flip side of the coin is that it is not her money. If it becomes her money (that is, you give it to her), then the flip side of THAT coin is that she gets to do anything she wants with her own money. Including not doing something with her life.

I like the point of view I have seen on this board that an IRA is not the best vehicle for college savings. The reason is that you only get to deposit $2000 a year into an IRA (or, call it $4000 if you count both spouses' IRAs together). You get the maximum benefit by keeping the money in the IRA for as long as you can. If you intend to use the money 5, 10, or 15 years from now, you would be better off putting $2000 (or $4000) of your RETIREMENT money into the IRA, and putting the college money somewhere else, so that you don't "use up" the IRA with shorter term money.

Of course, as always, this will all depend on your own personal circumstances and you will have to make specific calculations tailored to you. But the general idea is quite sound.

Hope that helps a little.
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