Comments on: Day 11 – Saving for College http://allfinancialmatters.com/2006/02/23/day-11-saving-for-college/ A personal finance blog dedicated to discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance. Wed, 23 May 2012 00:42:00 +0000 hourly 1 http://wordpress.org/?v= By: All Things Financial - Personal Finances Primer at the Money & Investing Dogberry Patch http://allfinancialmatters.com/2006/02/23/day-11-saving-for-college/comment-page-1/#comment-2753 All Things Financial - Personal Finances Primer at the Money & Investing Dogberry Patch Fri, 07 Apr 2006 09:10:11 +0000 http://www.allthingsfinancialblog.com/?p=411#comment-2753 [...] Saving for College [...] [...] Saving for College [...]

]]> By: Foobarista http://allfinancialmatters.com/2006/02/23/day-11-saving-for-college/comment-page-1/#comment-1905 Foobarista Thu, 23 Feb 2006 18:09:15 +0000 http://www.allthingsfinancialblog.com/?p=411#comment-1905 I'm going to be annoying and selfish and say that college savings should come only after saving for one's own retirement, particularly if you're having kids later in life (ie, after 35, so the kids are in college as you're nearing retirement). Your kids are far better able to deal with student loans than you are at getting someone else to pay for your retirement. By "come after", I mean that annual goals should be set up for retirement savings, and if you can't meet those, you should defer saving for college - not try to "do for others first than yourself". This sounds great, selfless, etc - but it does neither you nor your kids any good. Not that student loans are a good thing, but they're better than an unfunded "retirement". I’m going to be annoying and selfish and say that college savings should come only after saving for one’s own retirement, particularly if you’re having kids later in life (ie, after 35, so the kids are in college as you’re nearing retirement). Your kids are far better able to deal with student loans than you are at getting someone else to pay for your retirement. By “come after”, I mean that annual goals should be set up for retirement savings, and if you can’t meet those, you should defer saving for college – not try to “do for others first than yourself”. This sounds great, selfless, etc – but it does neither you nor your kids any good.

Not that student loans are a good thing, but they’re better than an unfunded “retirement”.

]]> By: JLP http://allfinancialmatters.com/2006/02/23/day-11-saving-for-college/comment-page-1/#comment-1901 JLP Thu, 23 Feb 2006 14:16:52 +0000 http://www.allthingsfinancialblog.com/?p=411#comment-1901 <i>In addition (and this needs to be verified), I believe you can withdrawal earnings from a Roth IRA, without penalty, if they are used for educational expenses.</i> If the Roth IRA owner is under 59 1/2, they would have to pay taxes on the earnings that were withdrawn. If the earnings are withdrawn to pay for qualified education expenses, there would be no 10% penalty on the earnings. In addition (and this needs to be verified), I believe you can withdrawal earnings from a Roth IRA, without penalty, if they are used for educational expenses.

If the Roth IRA owner is under 59 1/2, they would have to pay taxes on the earnings that were withdrawn. If the earnings are withdrawn to pay for qualified education expenses, there would be no 10% penalty on the earnings.

]]> By: Dus10 http://allfinancialmatters.com/2006/02/23/day-11-saving-for-college/comment-page-1/#comment-1899 Dus10 Thu, 23 Feb 2006 13:31:59 +0000 http://www.allthingsfinancialblog.com/?p=411#comment-1899 One of the things that I am starting in April is to hire my oldest daughter (who turns 8 in April). It will actually be my wife who hires her, but my wife is starting a sole-proprietorship, and her first client is my LLC. Since she works in a family business, and is under 18, she does not require and FICA or FUTA, which makes her dirt cheap as an employee. Beyond that, any income up to $5150 (the standard deduction) is tax free! We are planning on paying her about $7000 for a years work (or about $11/hr for 12 hours a week). She will be funding a Roth IRA and a Coverdell ESA. I got to thinking about the financial aid implications of this (for others, because I plan on being well enough off that my daughter does not qualify for financial aid). Coverdell ESA distributions are counted towards income, and and weigh against financial aid eligibility. However, what about a Roth IRA? The answer is no. The value of Roth IRAs are not counted toward financial aid eligibility. Plus, you can take out your contributions from the Roth IRA. These can be used to pay for anything, including education. In addition (and this needs to be verified), I believe you can withdrawal earnings from a Roth IRA, without penalty, if they are used for educational expenses. The only caveat to the Roth IRA is that the contributions have to be made from earned income, so you child would have to be working. I do not plan on my daughter using her Roth IRA to fund college, but it is an option. Hopefully, my daughter won't touch the contributions at all, but it would be okay if she used them as a down payment on a home when she gets done with school. One of the things that I am starting in April is to hire my oldest daughter (who turns 8 in April). It will actually be my wife who hires her, but my wife is starting a sole-proprietorship, and her first client is my LLC. Since she works in a family business, and is under 18, she does not require and FICA or FUTA, which makes her dirt cheap as an employee. Beyond that, any income up to $5150 (the standard deduction) is tax free! We are planning on paying her about $7000 for a years work (or about $11/hr for 12 hours a week). She will be funding a Roth IRA and a Coverdell ESA.

I got to thinking about the financial aid implications of this (for others, because I plan on being well enough off that my daughter does not qualify for financial aid). Coverdell ESA distributions are counted towards income, and and weigh against financial aid eligibility. However, what about a Roth IRA? The answer is no. The value of Roth IRAs are not counted toward financial aid eligibility. Plus, you can take out your contributions from the Roth IRA. These can be used to pay for anything, including education. In addition (and this needs to be verified), I believe you can withdrawal earnings from a Roth IRA, without penalty, if they are used for educational expenses. The only caveat to the Roth IRA is that the contributions have to be made from earned income, so you child would have to be working.

I do not plan on my daughter using her Roth IRA to fund college, but it is an option. Hopefully, my daughter won’t touch the contributions at all, but it would be okay if she used them as a down payment on a home when she gets done with school.

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