IRA Rules

Archive for May, 2006

Question: When will USA slip over the edge with 50% unemployment and something like the IRA fighting back?

When will the soup kitchens, bread lines and the die off begin? Meanwhile they are ruled by a fat and sassy class in the U.S. Congress. They played ordinary people for suckers.

Answer: If this question is from outside the US, there is NO nation which remains unharmed by the Crunch, so no room for smugness anywhere;

What is undeniable is that the US economy is on the skids. Yanks may kid themselves all they want about their much vaunted ability to recover from setbacks. But this time, it’s for real.
The new President seems to be one of The Good Guys and he has said (oh, once or twice maybe) “Yes we can!”

But CAN they? And is any poitician to be believed?

American living standards for the average family, will certainly decline, probably without harm to an already pampered population.

Meanwhile the Sabre rattlers of the Pentagon and The White House are squaring-up to North Korea for yet another highly profitable war.

Profitable for some. Not for the majority.

IRA Glass on Storytelling #3

Question: Roth IRA – Save for education?

I read online that you can withdraw from a Roth IRA penalty free if the withdrawals are for education expenses for yourself or a valid dependent.
My question is: Why wouldnt I use a Roth IRA to save for my daughter’s education? This way, if she ends up not needing the money, it’s socked away for my retirement?
Am I missing something here? Is there any Roth IRA “fine print” that I’m not aware of?

Answer: It’s true that you can use your Roth IRA to fund your daughter’s college education.

Your original contributions can be withdrawn tax-free and penalty-free at any time for any purpose since you used after-tax dollars to fund your account. So those are always available for your daughter’s education.

It’s the investment gains (earnings) on your account which are subject to income taxes and a 10% early withdrawal penalty if distributed early. However, a higher education exemption helps you avoid the 10% penalty if you take out investment gains to pay for “qualified higher education expenses” at an “eligible educational institution” for yourself, your spouse, children, or grandchildren.

Keep in mind that any investment gains are still subject to income taxes.

However, it’s still a viable option to use your Roth as a college savings plan. It does give you the flexibility to keep those funds for retirement if your daughter never needs them. The obvious drawback here is that if she does need them, that’s less money in your account for retirement. So if you choose this option, make sure you have an alternative retirement savings plan.

This article tackles the advantages and disadvantages of using your Roth IRA as a college savings plan:

http://www.your-roth-IRA.com/roth-IRA-for-college-savings.html

And this article notes the benefits of a Roth IRA relative to a Coverdell ESA and/or state 529 plan:

http://www.fairmark.com/rothira/college.htm

Best wishes as you save for the future, and I hope this helps!