September 2000

What's New in Finances

To educate your family, start planning early

9/1/2000 -

It's back-to-school time. As you send your youngsters off to school, it's also time to give serious thought to their higher education.

Today's tax laws offer several breaks that can help parents pay for college. One such break is the education IRA.

Nondeductible annual contributions of up to $500 can be made to an education IRA for any child under 18. Funds can accumulate and be paid out tax-free for college expenses, including books, room, and board.

Funds in an education IRA must either be paid out before age 30 or rolled into an education account for another child, or the IRA will be subject to tax and penalties.

If you are considering education IRAs, here are some planning suggestions:

• If your income is too high to let you establish education IRAs for your children, make a $500 gift to each child and have the child establish the IRA with himself/herself as the beneficiary.
• Because the annual contribution limit is so low, the longer an education IRA can grow, the more useful it will be as a source of funds for college. Start as early in your child's life as you can. You may also find it beneficial to roll an older child's IRA into the IRA of a younger child to get a longer compounding period.
• Shop around for an education IRA with reasonable fees. If fees are too high, they may eat up the account's annual earnings.

For details or assistance in this area, contact our office.