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following the standard disclaimer, Chadwell got to the meat of his advice. First, for anyone trying to save for college the new $500 education IRA is a great start, Chadwell said. These nondeductible contributions can be made each year until the child reaches 18.
Any appreciation realized or income received is tax free so long as the account proceeds are ultimately used to pay for higher education expenses. A second funding vehicle for Kenton has been established by the Uniform Gift to Minors Act and is commonly called a custodial account.
Generally, this account helps to reduce taxes by shifting that burden to the child’s lower tax bracket. Any person can give up to $10,000 annually to the child before triggering any tax issues.
In terms of retirement savings the new Roth IRA is a very attractive choice. Johnny and Irene could invest $2,000 each into this plan. This nondeductible contribution is allowed to grow tax deferred, and, unlike the traditional IRA, withdrawals are not taxed as long as they are held past age 59 1/2.
“Where Johnny Ray and Irene have excess funds to invest after taking care of Kenton and their IRA’s, they should start to build an investment portfolio. Because they are moderately conservative by nature, I suggest we use equity mutual funds for long term growth and
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