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Top 236. Oct 4, 2001 7:40 PM

» JenL_2 - Re: Roth IRA for College Expenses

In response to message posted by SRP_TEX:

Steve - if I may add to Rande's comments - my two daughters are both in college now so we did our college saving prior to the new 529 rules. If I were starting now the 529 plans sure look like the way to go.

We set up UTMA accounts at Schwab to save for college. UTMA accounts give you a lot of flexibility also.

As for the Roth Ira - it does allow you to take out the principle tax-free and penalty-free for college expenses or for whatever - so it's nice to have that to fall back on if you ever need it. We have Roth IRAs but we consider them part of our retirement portfolio and have no intention of tapping into our Roth's for the kids' college education. We also wouldn't consider borrowing from our 401(k) plans to pay for college.

When our kids started working at ages 15 and 14 in 1997 we started IRAs for them, and then converted to Roth IRAs in 1998, plus helped them fund their Roth IRAs each year thereafter - so they've each got 5 years of fully funded Roth IRAs. Our original intention was for them to withdraw the principle from their Roth for their own college expenses as needed, but so far they haven't had to do that, so they've got a good start on their retirement fund at an early age.

We do use the government financial aid loans - the Stafford loan for the student and the Plus loan for the parents. The nice thing about these loans is that the Fed rate lowering directly effects the college loan interest rates so the rates are really low now. Having the loans on hand gives some extra liquidity allowing to pay for college without having to sell funds and stocks in the UTMA accounts until you want to - which is very helpful in times like this.

Also Steve - There's the Hope and Life Time Learning Tax credits to take advantage of if you qualify. And then the new tax laws have added a deduction for college expenses and, I believe, there's some changes in qualification for deductibility of interest paid on college loans.

Anyway - come and join in the discussion on our "How to Finance a College Education" thread:

.....Jen

-- posted by JenL_2

Top 237. Oct 5, 2001 5:49 AM

» Will_L - Re: Re: Re: Re: Re: IRA Contribution

In response to message posted by Rande:

"I'm not sure what the reasoning would be to apply a lower tax rate to regular taxable IRA withdrawals, since the original contributions would have been taxed at the ordinary rate had they not been deferred. "

Thanks for the table/flow chart Rande of retirement investment opportunities. I do however take issue with any idea that "reasoning" has much impact on our tax policy.

The reasoning for taxing funds from retirement accounts at a lower rate is the same reason that all retirement accounts are based on. It is a goal of the government to have people provide their own retirment funds and they give favorable tax considerations to do that.

For instance Roth IRAs using your idea that "reasoning has to be applied " make no sense. A person invests in something and no matter how much that investment grows, because it is in a particular structure it will never be taxed. That has as its goal dangling a carrot for a person setting aside funds for thier retirement--it is not based on logic. It's in large measure made to appeal to constituents who elect leaders to look after their interests.

I think the same reasoning of the roth could be used in other tax deferred programs. Instead of paying the tax and then having the money made on gains going untaxed when pulled from the plan, a 401k or keough or other such tax deferred plan could be taxed at say 20 percent, or whatever the capital gains rate is at retirement. There would be no need for any other record keeping. It would simply be the statue, like the artificial nature of Roth investments going untaxed.

My point is they make this stuff up anyway. With the graying of america, my idea will become much more popular by both republicans and democrats I think. Many find that the tax rates have increased as have their retirement accounts and the cost of living. With 80% of social security being taxable, many people are going to be surprised at their tax bite on retirement fund withdrawls. If the goal is to stimulate savings and increase security of geezers, why not take a page from the Roth book and decrease the tax rate on other retirement accounts? It would get my vote. smile

-- posted by Will_L

Top 238. Oct 5, 2001 7:13 AM

» Rande - Re: Re: Re: Re: Re: Re: IRA Contribution

In response to message posted by Will_L:

Will,

I agree that the Code doesn't always employ logic, tax law being more of matter of horse trading or sausage manufacture at times. On the one hand, you'd think that Congress would want to do everything it could to encourage folks to save for retirement as the baby boomers get ever closer to busting Soc Sec. On the other hand, it doesn't seem likely that those D.C. politicians who never met a tax they didn't like would walk away from such a bonanza as all that baby boomer retirement money. In fact, some (such as Hillary Clinton and her ilk) have floated the idea of even imputing tax on retirement balances along the way, even BEFORE they're withdrawn.

-- posted by Rande

Top 239. Oct 5, 2001 7:21 AM

» Will_L - Re: Re: Re: Re: Re: Re: Re: IRA Contribution

In response to message posted by Rande:

Well Komrad Hillary and her friends would of course be against anything that didn't bring more money to Washington for redistribution. I wonder if AARP or anyone has made such a proposal like I suggested? It seems that it would attract conservative types and a fair number of "moderate liberals"--boy is that an oxymoron.

-- posted by Will_L

Top 240. Oct 5, 2001 7:26 AM

» Kirk - Re: Hillary Clinton and her ilk

In response to message posted by Rande:

What a leach!

I think it really drives home how IMPORTANT it is for big and small business to EDUCATE their employees about 401K savings. We might even want to make it HARDER for people to get at that money early to do things like buy cars.

One guess i have is the Dems do not want the middle and lower income people to invest their monies in the stock market, even if just 2% of the 15% taken by SS, as these people would start to accumulate wealth and turn to the GOP party to protect that wealth. In my perverse way, it reminds me to the Catholic Church telling poor Mexicans not to use birth control so they stay poor and make large, uneducated families that stay members of the Church and continue the trend.

-- posted by Kirk

Top 241. Oct 5, 2001 7:47 AM

» mdorsey - Re: Re: Hillary Clinton and her ilk

In response to message posted by Kirk:

Kirk, you need to take that kind of talk over to the religion thread.

-- posted by mdorsey

Top 242. Oct 5, 2001 7:52 AM

» Rande - Re: Re: Re: Re: Re: Re: Re: Re: IRA Contribution

In response to message posted by Will_L:

Will,

There may be a view among some in D.C. that anyone with a significant IRA or 401k balance doesn't need any more help than they've already provided. As the demographics shift in the next couple of decades so that there are far fewer productive working stiffs relative to retirees, it just doesn't seem likely that those who have acquired any sort of significant assets are going to get any huge tax breaks. Just my opinion, but I wouldn't count on anything extra from the feds (just the opposite). Yes, they should make it easier to save, as they are finally doing with increased contribution limits, but I just wouldn't count on any largess when it comes to taxes at the other end. At least not for those who have managed to be very successful in doing the right thing. It may seem unfair that those who sacrifice to save for later years should have to pay the price for others who failed to do so, but the alternative is either a significant portion of elderly destitutes and/or a rebellious younger working class that won't sit still for confiscatory payroll taxes. We're already moving in that direction -- today's 70-year-old only paid in a fraction to Social Security of what today's 25-year-old will pay.

In any event, it's still better to be as self-reliant and self-sufficient as is humanly possible. Better to be comfortably self-sufficient and pay the darned tax than to be one of those in line for what will undoubtedly be meager government handouts by comparison.

-- posted by Rande

Top 243. Oct 5, 2001 8:01 PM

» Bernie777 - Re: Re: 457 rollover to IRA

In response to message posted by mdorsey:

Thanks Rande and M.Dorsey for your input. I am retired and have not started taking distributions although I did sign a contract with the City of New York to take distributions at 65. I hope all this is voided if I rollover to an IRA. I will check out the Stable Income paying 6 1/4% and let you know.

-- posted by Bernie777

Top 244. Oct 5, 2001 8:31 PM

» Bernie777 - 457 rollover to IRA

I checked my 457 plan and was very surprised to see the interest is down from 6 1/4% to 4 1/2 % and is invested in short to mid term insurance papers rated aaa and aa. As of this time I'm in the Ciizens Index which is 40% in technology and I think might be too aggressive for me. I have a ten year time frame before I will take distributions. I will probably rollover when this option becomes available some time next year.

-- posted by Bernie777