Early Withdrawal

Archive for January, 2008

Question: Long term Savings Gift to child?

I would like to give a savings gift to my Goddaughter for first birthday and subsequent birthdays. The goal is to save money to apply towards college, but I am not her parent so I can not force her/guarantee that monies will be applied towards college expenses. Reading has revealed that EE and I-government savings bonds are low yield and may not reach face value. Whole Life Insurance was another suggestion but fees could be high. Stock certificates, mutual fund investments will yield high returns over the 18 years. Certificate of deposit was also suggested but what if i-rates increase over 18 years and I am locked in? Education IRA would require withdrawals to be towards education expenses to qualify as tax free.

WHAT IS YOUR RECOMMENDED SAVINGS GIFT TO MAXIMIZE INTEREST?

Answer: None of the examples you given are good. The best way to save for a child’s education is a 529 Plan. In my opinion, these are the best plans. You should check for your state’s 529 Plan and then check with other states.

If you want to read more info about 529 Plans, check this link: http://obe231.blogspot.com/2006/12/529-plan.html

To review each state’s 529 plan, go here:

http://www.savingforcollege.com/

Under any circumstances, never use life insurance as an investment for the future. Life insurance soul purpose is to protect your family from income loss in case you die. If no one is dependent on your income, then you shouldn’t need life insuance.

Question: Roth IRA – Early Withdrawal – Penalty?

Hi,

I have question about Early Withdrawal of Roth-IRA.

Last year 2007 I was planning to buy house and taking that in consideration I withdrew my Roth IRA prematurely (Before 5 yrs of opening it). About $4100. But after housing market meltdown I didn’t buy house. Now I have this money sitting in my saving account.

I have couple of questions based on this:

1. Do I have to pay penalty or tax in 2007 taxes for Early Withdrawal?
2. Can I invest this amount back into Roth-IRA in 2008 before Apr-15-2008 to save on 2007 taxes or penalty?

Thanks for your help,

Lee

Answer: Yes
Yes

Retirement Plans & Investments : How to Cash Out an IRA