Use IRAs for college ... but only as a last resort

Spring is in the air. Many families are preparing to send a child or grandchild off to college. But the average cost for tuition and fees can easily run $35,000 or more. And the cost is rising faster than medical care and as much as three times consumer prices. Therefore, students borrow because they see no other way. The problem is Americans now owe close to $1 trillion on their student loans — more than on their credit cards! When they leave college, the majority of student loan borrowers struggle to repay their debts. So it’s no wonder parents and grandparents often raid their IRAs instead of letting the kids take out student loans. But that helping hand can be a huge blunder. You would be correct in saying that money you take from a traditional IRA to pay college expenses won’t get hit with the under 59½, 10% penalty. You’ll still owe income tax though. See IRS Publication 590, page 53 for the details. However, there is a pitfall … you can’t put the money back. That means the only way to replace the funds is with your ongoing contributions. Plus every dollar you take out of your IRA is one less dollar you have building up tax-deferred to fund your retirement. So by all means, only use your IRAs to help with college expenses as a last resort. And if your loved one is years away from heading off to college, there are other alternatives, such as 529 savings plans that are meant for college savings. 529 plans offer a lot of flexibility in the amount of money you put away, it builds up tax-deferred and you maintain control over the account. Many of the major mutual fund companies offer good information on their 529 plans. Or you could check out what the IRS has to say, just click here. Learn the ins and outs of the loans and saving programs available to help college-bound kids. You’ll stand a much better chance of having they finish their education with as little debt as possible, without jeopardizing your retirement nest egg. Best wishes, George

Workers losing confidence

According to the Employee Benefit Research Institute's annual survey on retirement, 27% of respondents said they are “not at all” confident about having enough to retire comfortably, up from 22% last year. Workers are bumping up the age at which they plan to retire and continuing to work during retirement. The percentage who expect to work past 65: 36% this year, from 11% in 1991. There are many reasons why workers are delaying retirement, including:

Poor economy

Lack of faith in Social Security

Change in employment situation

Can’t afford to retire

Cost of living in retirement will be higher than expected

Want to be sure they have enough money to retire comfortably

Click here to read the complete survey. So what can you do to give yourself a better chance of retiring when you had hoped? You might consider a tax-deferred annuity … A report by The Insured Retirement Institute found that the tax deferral of annuity earnings is of greatest benefit to middle income Americans, who comprise the largest segment of annuity owners. Also with 80 percent of annuity buyers having incomes less than $100,000 and 64 percent earning less than $75,000, insured retirement strategies clearly play a significant role in the retirement income planning of middle class Americans. To learn more about annuities and The Insured Retirement Institute, click here. Best wishes, George

IRS real estate listings

Looking to get a deal on real estate, cars … even income from a litigation case? Well, those are just a small sampling of stuff that the IRS has seized and is looking to sell. Go to the IRS Auction home page to see the full list what is coming up for auction around the country. And you can also subscribe to e-mail updates. Happy shopping! George

You get three extra days!

This year, your tax return is due Monday, April 18 rather than the regular April 15.

But don’t thank Tim Geithner and his IRS posse for the extra time. It’s because the District of Columbia observes Emancipation Day on Friday, April 15, even though it falls on Saturday, April 16. And filing deadlines can't fall on Saturdays, Sundays or holidays.

Never heard of Emancipation Day? Let me enlighten you …

According to Wikipedia, on April 16, 1862, President Abraham Lincoln signed the Compensated Emancipation Act for the release of certain persons held to service or labor in the District of Columbia. The Act freed about 3,100 enslaved persons in the District of Columbia nine months before President Lincoln issued his famous Emancipation Proclamation. The District of Columbia Compensated Emancipation Act represents the only example of compensation by the federal government to former owners of emancipated slaves.

So go ahead and use those three extra days to procrastinate a bit longer. And come next Monday, if you still haven’t found the ambition to get that pesky 1040 filled out,

you can always opt for a 6-month extension.

Happy Returns!

George