new roth limits and college planning

[Guest chrisstreet]

Hi all,

This is my first posting here. I have two quick questions.

1. Are Roth contribution limits going up to 5K in 2002?

2. My wife and I have a two year ols son and we are considering alternatives for college planning. We are 34 and 31 respectively and will be able to contribute to Roths for the foreseeable future.

Is using our Roth money for his college needs (in 16 years) the best way to go? Are there any tax problems if we withdraw money for his college education?

Hope someone can help.

cheers,

chris

[Michael Devault]

1. The contribution limit will be $3,000 in 2002 thru 2004. It will increase to $4,000 for 2005 thru 2007. Then, in 2008 and after, it will become $5,000. (There are some catch-up provisions for those over age 50, but you're a long way from that!)

2. The distributions you describe would not be "qualified distributions" as defined in the Internal Revenue Code. Thus, after you withdraw your contributions (which would not be taxed), further withdrawals would be included in your gross income and possibly subjected to a 10% premature distribution penalty. However, an exception to the penalty exists of the distributions are not more than "qualifed higher education expenses."

You should look at IRS Publication 590 for more information. It can be downloaded from the IRS' website.

Hope this is of some benefit to you. Good luck!

[Guest gopela]

Hi Chris,

The Roth Contributions for 2002 are being increased to $3000 per person.

There will be adverse tax consequenses for taking this distributions as it is not qualified and neither of you will yet be 59 1/2.

You should consider looking into a 529 plan for investing for college education. The advantages are similar to the Roth and the contribution limits are generally higher.

Good Luck,

Glenn