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<<My question is this. If I make a profit on the sale, do I pay taxes on them for the year of the profit/gain? Or do I only pay taxes once I actually have the proceeds? For instance, if I immediately purchase another stock, am I liable for the taxes this year, regardless (I told you, I am ignorant!).>>

One the shares are sold, they can't be "rolled over" to another stock investment and avoid the tax. Once the shares are sold at a profit, you'll owe tax on the gain. There are no "rollover" provisions for stock sales. And this is true regardless of if you actually receive the funds or not. So if you sell at a profit, expect a tax bill from Uncle Sammy.

<<The purpose of this investment if for a college fund for my 7 and 8 year old children. I understand their might be some strategies to defer taxes, at least until I pull them out to pay tuition.>>

Yup. There sure are. You should go and read the posts in the "Inheritance Strategies" area regarding gifts to minors and Crummey Trusts. You'll get a pretty good backround of what tax issues may be impacted. Additionally, with the new Educational IRA accounts that will come into play in 1998, there may be better ways to accomplish your goals rather than a taxable account in your own name. So take the time to check out the "Inheritance Strategies" folder.

<<Any ideas on alternatives? Is the new education IRA an alternative? Are we able to make the deposits and manage the balances ourselves, or do we have to apply them to a mutual fund and basically leave them there.>>

If you DO decide to go the education IRA route, you can certainly manage your own investments, assuming the IRA administrator will allow you to do so.

For additional information on tax issues relative to the sale of stocks, you should read AT A MINIMUM IRS Publication 550. You can get Pub 550 by calling IRS at 1-800-TAX FORM. Or you can visit the IRS web site at: and read/download the Pub from that site.

But I would really suggest that you visit your local bookstore (or on line) and get an investment book or tax guide that will give you the premilimary view of stock sales and taxes. And don't forget about the "Taxes Frequently Asked Questions" area. You'll find it by going back to the main screen "homepage", and checking out the Fools School area.

TMF Taxes

Also, for the amount exceeding any annual maximum deposits, what might I do to defer the taxes for the additional funds?
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