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Jewish World Review August 25, 1999 /13 Elul, 5759

Bruce Williams

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Educational IRAs must be spent on education -- DEAR BRUCE: My wife and I currently invest $2,400 a year in mutual funds for the kids' educations. I am thinking about putting $500 into an educational Roth IRA and keeping another $1,400 in a mutual fund. I am concerned about the prospect of losing this money in another 20 years when my daughters decide they may not want to go to college. It is my understanding that this money must be used for college or we lose it. What do you suggest? -- M.M., Sheboygan, Wis.

DEAR M.M.: You almost have it right. If the money is not used for college, then the appropriate taxes have to be paid on the distributions. When the child reaches 30, the fund must be spent on education or taxes will be paid. In no case do you lose your principal.

DEAR BRUCE: I have been told by many people (and your column) that I can give $10,000 to my daughter without any tax implications. I called the IRS and the bank, and they both confirmed this. When my taxes were filled out by professionals, I found that I have to pay taxes on the gift. The money had to be taken from my savings, and I had to cash an IRA. I think that I have been used. -- E.C., via e-mail

DEAR E.C.: The taxes were not on the gift but rather from cashing in an IRA. When you take money out of an IRA, the taxes become due that have been deferred for however many years the account has existed. Your information on the gift is correct, but the gift had to come from after-tax dollars rather than pre-tax dollars.

DEAR BRUCE: How much is enough? I have been working hard at a regular job, plus manning a small part-time business at a decent profit. I have been diligent in paying my bills, paying off a mortgage, and carry very little personal debt. Our net worth has substantially increased and will continue to do so as long as our investments do as well as they have been doing. I would like to spend some of this money. I have always wanted to take a cruise, yet my wife is constantly reminding me that we have to prepare for our retirement. I think that I have enough stashed away now to give us a comfortable retirement, but according to my wife, there is never enough. She refuses to spend money on anything that she considers frivolous -- whether it is to go to the theater or take a decent, albeit very expensive, vacation. I am starting to become unraveled about this. Can you suggest something that I might say to her to let her know that tomorrow may never come? -- T.P., San Diego, Calif.

DEAR T.P.: You said a mouthful when you said, "tomorrow may never come." While we certainly don't want to encourage people to act as the grasshopper in Aesop's Fables, you can go overboard in the other direction if you become so cheap you don't allow yourself to enjoy life. Ask your wife what would her position be if either of you were suddenly diagnosed with a fatal disease. Would she still think it's foolish to buy things or go on vacations that are not totally practical? I think not.

Send your questions to JWR contributor Bruce Williams by clicking here. (Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.) Interested in buying or selling a house? Let Bruce Williams' "House Smart" be your guide. (Sales of the book help fund JWR).


08/23/99: Finding out the value of old stocks
08/20/99: How to get an FHA refund
08/19/99: 100 percent financing is a scam
08/16/99: Will I have to pay a capital gains tax?
08/16/99: Thinking about PMI
08/13/99: Short-term mutual funds a-OK
08/11/99: It's your job to shop around
08/10/99: Sometimes, roots need to be uprooted
08/09/99: 'Pre-approved' doesn't mean a thing
08/06/99: Only you can determine your investments
08/04/99: Bank IRA the lowest-risk option
08/03/99: Reverse mortgages good for the elderly
08/02/99: Get the survey BEFORE you buy the house!
07/28/99: Get a lawyer -- it's worth it!
07/27/99: If it ain't broke...

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