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Hi Fools,

Any advice is greatly appreciated. I know, Roy, you are the expert and you are very knowledgable on this, I would appreciate your input. Please bear with me and the length of the message. I checked the Tax FAQ and I tried to look up and understand the information given as best as possible. My brother has 2 kids and he is saving for their college education. He is wondering if it is better to just put money in a Roth IRA, in his and his wife's name, to save for his children's EDU instead of a separate EDU IRA for each of his kids. I know in a EDU IRA there is no penalty or income tax as long as the amount withdrawn is not more than the higher education expense. But, college financial aid's will give less money because they will count this as money towards their income or assets. Also, the kids are not eligible for the Hope or Lifetime Learning Scholarships. To my understanding, in a Roth, they can withdraw the money for higher education purposes with no penalty, but I do believe they are taxed on any gains. However, I think that college financial aid's will not count the Roth against my brother regarding financial aid. Am I correct on these analyses? Saying all of that which would be better to save for my brother's kids' education? I know because he can put more principal $2,000(Roth) vs. $500(EDU) in the account, he can accumulate mote gains. Correct? I know the ultimate decision is my brother's. However, any thoughts are helpful to show any options he has not considered. Thanks for the time and help.

Tag
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<<Any advice is greatly appreciated.>>

I'll try...

<< I know, Roy, you are the expert and you are very knowledgable on this, I would appreciate your input.>>

Sure...

<< Please bear with me and the length of the message. I checked the Tax FAQ and I tried to look up and understand the information given as best as possible.>>

Fine...

<< My brother has 2 kids and he is saving for their college education. He is wondering if it is better to just put money in a Roth IRA, in his and his wife's name, to save for his children's EDU instead of a separate EDU IRA for each of his kids.>>

Better? That's a subjective term. But it's certainly one way to do things.

<<I know in a EDU IRA there is no penalty or income tax as long as the amount withdrawn is not more than the higher education expense.>>

Basically correct.

<< But, college financial aid's will give less money because they will count this as money towards their income or assets.>>

Right. But my personal opinion is to try as much as possible NOT to rely on financial aid. Pay for the kid's education yourself. Plan. Save. Don't hitch your wagon to some federal sponsored agency. But again, that's just my feelings.

<< Also, the kids are not eligible for the Hope or Lifetime Learning Scholarships.>>

Just not for the same year. If planned correctly, they could get the benefit of all of them.

<< To my understanding, in a Roth, they can withdraw the money for higher education purposes with no penalty, but I do believe they are taxed on any gains.>>

Basically correct.

<< However, I think that college financial aid's will not count the Roth against my brother regarding financial aid. Am I correct on these analyses? >>

I'm not a specialist in financial aid. Nor do I want to be. So you'll really want to get additional information on the financial aid issues. Your understanding is the same as mine, but I don't know if mine are absolutely correct. You might check out the "Paying for College" message folders for more information and resources.

<<Saying all of that which would be better to save for my brother's kids' education? I know because he can put more principal $2,000(Roth) vs. $500(EDU) in the account, he can accumulate mote gains. Correct? I know the ultimate decision is my brother's. However, any thoughts are helpful to show any options he has not considered. Thanks for the time and help.>>

Again, without knowing much more about your brothers issues, it's just impossible to say one way or the other. If the only choices that you're giving me is a Roth OR Ed IRA...with no other information, then I would elect the Roth IRA. But nothing is done in a vaccum.

Sorry for the limited response. But it's just very difficult to deal with these issues with limited (or no) information.

TMF Taxes
Roy
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Roy,

Thanks a lot for your reply! It is greatly appreciated. I did not intend to imply in my original post that you were the only one that could reply. The only reply I got was from you. Any and all thoughts from any Fool were and are welcome. Anyway, can you explain a little more what you meant from your response to, << Also, the kids are not eligible for the Hope or Lifetime Learning Scholarships.> and your reply was, <<Just not for the same year. If planned correctly, they could get the benefit of all of them.>> Could you explain that for me? Also, my brother feels (as do I) that he definitely does not want his kids or him to use financial aid to finance college, if at all possible. However, if he is not able to meet their college expenses. He might have to. You said, <<Again, without knowing much more about your brothers issues, it's just impossible to say one way or the other. If the only choices that you're giving me is a Roth OR Ed IRA...with no other information, then I would elect the Roth IRA. But nothing is done in a vaccum.>> If I may ask, what else do you need to know about him to give a little more specific response? I know he told me he did not think he could do the Roth and the EDU IRAs at the same time. I am willing to provide the information necessary for you to get more specific. Again, thanks for your time and help. It is very much appreciated. I hope to hear a reply back.

Thanks,

Tag
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<<Anyway, can you explain a little more what you meant from your response to, << Also, the kids are not eligible for the Hope or Lifetime Learning Scholarships.> and your reply was, <<Just not for the same year. If planned correctly, they could get the benefit of all of them.>> Could you explain that for me?>>

Sure...but first you need to go to the Taxes FAQ area and read ALL of the posts regarding the Ed IRA, the HOPE, the Lifetime credit, and how they all interact. There is a LOT of reading that you (and, more especially, your brother) should do.

But, say the blow through their Ed IRA in the first year of school. Then in the 2-4 years, the Lifetime and Hope credits may be available. These credits are not available ONLY in the years that tax free benefits from the Ed IRA have been taken. But there is nothing that requires WHEN you take the Ed IRA benefits. Could be the first year...or the last year...or some year in between. YOU make that decision.

<< Also, my brother feels (as do I) that he definitely does not want his kids or him to use financial aid to finance college, if at all possible. However, if he is not able to meet their college expenses. He might have to.>>

Certainly understandable...

<< You said, <<Again, without knowing much more about your brothers issues, it's just impossible to say one way or the other. If the only choices that you're giving me is a Roth OR Ed IRA...with no other information, then I would elect the Roth IRA. But nothing is done in a vaccum.>> If I may ask, what else do you need to know about him to give a little more specific response?>>

About an hour or so sitting in front of me, reviewing his tax returns and his estate planning issues, other children. Potential income and loan sources. It just can't be done in a "message folder" forum...at least not in any specific detail.

<< I know he told me he did not think he could do the Roth and the EDU IRAs at the same time.>>

When you say "do"...do you mean contribute? That's just not true. If you qualify to do so, you CAN make a Roth IRA AND an Ed IRA contribution in the same year. Again, read more about that in my post on Roth IRAs and Ed IRAs in the Taxes FAQ area.

<< I am willing to provide the information necessary for you to get more specific. Again, thanks for your time and help. It is very much appreciated. I hope to hear a reply back.>>

No way possible...at least not to my satisfaction. I can't plan your finances via a message folder. All I can do is give you issues to think about, and point you in the right direction regarding additional resources and reading. I'm not trying to be difficult, but what your asking for (the "best" result) is simply impossible to provide in this forum.

TMF Taxes
Roy

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Roy,

Again, many thanks for resourceful and immediate response. It definitely has given me and my brother some food for thought. Please, don't misunderstand my inquiries to give you more information about my brother's financial affairs to receive free-loader advice from you. I misinterpreted or misunderstood what you were saying. I thought just a few items about my brother's situation would be sufficient. My mistake. I understand what you are saying, now. I may have misstated what I really was trying to say when I stated,

<< I know he told me he did not think he could do the Roth and the EDU IRAs at the same time.>>

I meant to say is that, I know he told me he did not think he could do the Roth and the EDU IRAs at the same time, (financially).

I did take a look at the "Paying For College" Message Board. It is very informative. I think I will be able to use some information there to help.

I will also take your advice and look up the items you said on the Tax FAQ and the messages on this board. I am sure it will shed more light on the subject and the decisions that need to be made.

Keep up the good work. Your advice is appreciated and invaluable to me and other Fools alike.

Tag
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<<Again, many thanks for resourceful and immediate response. It definitely has given me and my brother some food for thought.>>

My pleasure. And thanks for your understanding...

<< Please, don't misunderstand my inquiries to give you more information about my brother's financial affairs to receive free-loader advice from you. I misinterpreted or misunderstood what you were saying. I thought just a few items about my brother's situation would be sufficient. My mistake. I understand what you are saying, now. >>

Not a problem. It's just impossible to try to determine the "best" way to do anything...without reviewing ALL of the facts and circumstances...and even looking into the crystal ball. It's just impossible to do in this type of forum.

<<I may have misstated what I really was trying to say when I stated,

<< I know he told me he did not think he could do the Roth and the EDU IRAs at the same time.>>

I meant to say is that, I know he told me he did not think he could do the Roth and the EDU IRAs at the same time, (financially).>>

Got it...now I understand.

<<I did take a look at the "Paying For College" Message Board. It is very informative. I think I will be able to use some information there to help. >>

I think that it will be beneficial for you. There is a lot of general discussion there that will apply to you and your brother...information far beyond the scope of purely tax issues (which is really what we try to focus on here).

<<I will also take your advice and look up the items you said on the Tax FAQ and the messages on this board. I am sure it will shed more light on the subject and the decisions that need to be made.>>

You'll be AMAZED what you learn. If you like that kind of stuff, you might also be interested in The Motley Fool Investment Tax Guide. We do have a brief discussion in there regarding financial aid, custodial accounts, kiddie taxes, and other ways to deal with education expenses and credits. Check it out.

<<Keep up the good work. Your advice is appreciated and invaluable to me and other Fools alike.>>

Thanks for the kind words.

TMF Taxes
Roy
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