ER Costs Investment Hedges

[cute fuzzy bunny]

Re: Congratulations, th.

Geez, a spouse & a kid in the same year. You really know how to screw up a "good" ER.

Noooooo! She makes enough to pay all the bills, fully fund a 403b, a roth, and has full group insurance coverage that just got extended to cover me as well! I confirmed a full and long lasting ER, and when she gets tired of working she'll have her pension, a fairly substantial 403b, and we'll have a good sized Roth to go with my portfolio, my IRA, and perhaps even social security!

In other words, our financial stability and success are virtually insured.

The IRS has specific rqmts on ownership of bonds for tax-free educational purposes. IIRC you have to own the bonds in your name and your kid's name can't be on them except as an inheritor/beneficiary. No doubt you & spouse can enjoy debating this during your first married/honeymoon conversation about money management..

We had that conversation already. It was a short one. Five minutes into it she said "ok, my head hurts. You take care of all the money and just give me a credit card".

Normally that last bit would scare the pants off of me, but we're talking about a gal that found a wedding dress for $20 and told me she just wanted to go get married at the county clerks office and didnt want a big fiasco wedding.

My initial read was ibonds can be bought and held in the parents name, all the interest is deferred, and if they're used for education the distribution is tax free. I was thinking of waiting a little bit to see if I can get better than 1% on them. Its nice that I dont have to decide whether to use them or not on the kids education until I need to. I'm also considering other options like a traditional fund or specific education investment vehicles. Just havent had the time or inclination to read them though.

 

[MooreBonds]

Re: Congratulations, th.

My initial read was ibonds can be bought and held in the parents name, all the interest is deferred, and if they're used for education the distribution is tax free.  
I was thinking of waiting a little bit to see if I can get better than 1% on them.  Its nice that I dont have to decide whether to use them or not on the kids education until I need to.  I'm also considering other options like a traditional fund or specific education investment vehicles.  Just havent had the time or inclination to read them though.

Your initial read on I-bonds was correct-provided they're held in the parents name.

One other option is to use a Coverdell/Education Savings Account. I believe you can save up to $2,000 per year, and all earnings are tax free for qualified education expenses. You could also do a 529 plan (which has a much higher limit), but the 529s are only for college, while the Coverdell are for GRADE/HIGH SCHOOL (a much better deal, IMO).

 

[Nords]

Speaking of college savings plans...

Here's MSN Money's evaluation.

http://moneycentral.msn.com/content/CollegeandFamily/Savingforcollege/P84036.asp

If I had to do it all over again I might be more interested in a Coverdell.

If there's one thing I've learned from the last 12 years, it's that the rules will change at least once more per administration/Congress before the kid is launched from the nest.

 

[charlie]

I recently advised my daughter to buy I-bonds to fund
the grandkids college education . I am a little fuzzy on
the need for the bonds to be in the parent's name.
Why not the child's? Will this affect their eligibility
for loans in the future? Both kids already have SS
numbers and she plans to set up MM savings accounts
at Vanguard with herself as guardian. All cash contributions from loving grandparents, etc. will go into the MM accounts and she will buy the I-bonds over
time. Is this a good plan? Please comment if you have
a better idea.

Thanks,

Charlie

P.S. Please point me to a link or reference that states
that I-bonds must be held in parent's name to be
eligible for tax free use on college education.

 

[charlie]

Don't bother with the link I requested. I found it.

Thanks,

Charlie

 

[Nords]

"It's the rule".

There you go, Charlie, applying logical questions to a government-sponsored tax-savings program...

 

[Bob_Smith]

Charlie, if there is to be any hope of qualifying for need based financial aid, it's best that the kids not have anything in their names. The $ aid process assumes that anything in the kid's name is "available" to pay for college. Assets in the parents names are viewed more favorably.

Another wrinkle - if the parents have assets that trigger a Schedule D, they will be be required to do a 1040 long form. If they can structure their assets so that they can do a 1040A, the FAFSA (Free Application for Federal Student Aid) doesn't require that the parents list their assets. If they must do the long form they ARE required to list their assets (but only taxable accounts - not tax deferred accounts). So it may be worthwhile, especially for low income ERs with kids in college, to set things up so that a short form can be done in the year before the aid is applied for (2004 tax year applies to the 2005-2006 academic year).

 

[cute fuzzy bunny]

Charlie - if you put them in the parents name, they can still be used for education tax free, or for other purposes as determined by the named bond owner.

To put it in my usual short vernacular, if the kid turns out to be a real *******, you can keep the money

 

[charlie]

Thanks guys! I really appreciate your help.

TH, as for the kids turning out bad I put both of mine
though college on money invested in their names with
me as custodian. My ace in the hole was that I never
told them they had money in their names.

My daughter's husband is a fire chief in a small town
north of Dallas. They will never be rich unless Lyn and
I get lucky with our investments and leave them a
big estate. We will help with the grandkids education
as long as we are able. Bob, I think I will take your
advise and buy I-bonds in Kelly's name (my daughter).
The oldest grandkid is only 5 so we have a way to go
yet. Right now, I am helping finance kindergarten in a
private church based school because the public school
system really sucks in their small country town.

Cheers,

Charlie