Need advice from tax and money experts

<p>Hi to all the money and tax experts. Here's the situation: We have some mutual funds in a taxable account and have been hesitant to cash any portion in for college. Our retirement accounts are maxed now (401 and 403 not IRA) but for a long time weren't so this taxable money is also headed to retirement. As a result we do a very fine juggling act each day/week/month to make ends meet with daily expenses and monthly college bill. In addition we have a home equity line of credit that was used for a car and a month or 2 of tuition. Next fall we will have 2 in college so those baseline financial forms are on the horizon.</p>

<p>Would it be wise to pay off the home equity with a mutual fund account proceeds? We would reduce our assessts by doing that but also increase the amount of home equity available. Would another plan be to take the taxable money and put that in ROTH IRA's. I know the logical answer is to seek the advice of tax accountant but I'm just making a general inquiry here.</p>

<p>Thanks!</p>

<p>Trying a new title to maybe get some responses!</p>

<p>hi blue</p>

<p>I am not a tax or money expert....</p>

<p>I don't think it would hurt to use that money and put it in a Roth IRA. For us, this is the only retirement account that we have, so it made a lot of sense. It doesn't have a huge impact as the limit is $8K per year (per couple).</p>

<p>1) When you sell the stocks , there may be some capital gains ( the market is doing very well now ) that you will have to report on your tax forms - depending on your bracket , it may be counted as income by FA . </p>

<p>2) If you are 50 or over , you are allowed up to $5000 for contribution to a ROTH in 2006 .</p>

<p>3) Wonder if you can contribute to two years of ROTH - 2006 & 2007 - before April 15th to put away from retirement ?</p>

<p>Solve your cashflow problem by reducing your debt load. Interest costs buy you nothing except time. There may be a time that you will not have time or income.
Use the interest savings to further improve your asset and near cash situation. Sounds like you also do not have much of an emergency fund.</p>

<p>There are some good Financial people and companies that help you do an analysis, often for gratis. I find that tax accountants are historical in nature and make poor prognosticators. I also find that financial advisors are just the opposite, too optimistic and ignore history. Other financial people also have their own agenda, Banks have handsome college grads with brains between their legs, insurance people with insurance in mind. etc. </p>

<p>Happy research.</p>

<p>My husband is an enrolled agent and composed this response: </p>

<p>"Congratulations for thinking about retirement and college expenses. Too often, we fall into the either/or trap. The simple truth is that it is a balancing act. I agree with the information already posted, especially from "itstoomuch". </p>

<p>Now here are my thoughts: Sell the mutual funds in your taxable account and pay down your home equity loan. Hopefully, you are selling at a profit and will pay taxes at the captial gain rate (which is the lowest tax rate). This accomplishs two things: First, it reduces your interest expenses, and frees up money for others items. Second, it reduces your investments that are reported on the FAFSA. </p>

<p>Putting money in the ROTH may not have been a good idea. Your age and how soon you plan on retiring determine if a ROTH is a good choice over a traditional retirement account (IRA, 401K or 403(b)). Also, you must remember that you may not be eligible to contribute to a ROTH. That depends on filing status, income and participation in traditional plans. These are all issues that do require personal professional advice."</p>

<p>I'm not a tax or money expert, just a parent.</p>

<p>I'm not sure there is an easy answer to this question.</p>

<p>One thing to consider is, if you sell the mutual funds, how much will be recorded as capital gains income? The reason this is important is during the period you are filing FAFSAs is not the time to record significant one-time income events such as the sale of stocks, bonuses from work, etc. You should try to defer these as much as possible to the post-FAFSA years, because if it is recorded as income, colleges will assume a certain amount of that income is available to pay for college, so the act of selling the mutual funds could increase your EFC.</p>

<p>On the other hand, reducing your assets available to pay for college by paying down your home equity loan with available savings could have the affect of reducing your EFC.</p>

<p>So the thing for you to try to figure out is how much capital gains income the sale of your mutual funds would generate and the net effect on your EFC. If it is a large number, it may not make sense right now to sell the funds. If it is a small number, it may make sense to sell and pay down your home equity loan.</p>

<p>we had to state how much equity we had in the house
the more equity- the more that was available to use for tuition
so in our case, reducing the loan didn't decrease EFC</p>