<p>For working spouse and non-working spouse, no pension plan at work, bcuase I am looking for ways to reduce the baseline for 1st year. I have to check with my bank how much we can contribute.</p>
<p>Can 17/18 year old have an IRA or it will serve no purpse as far as financial adi is concerned?</p>
<p>The contributions to an IRA are still considered income for the year in which the money is deposited into the IRA. This means that IRA donations (and TSAs too) made in 2005 are considered as income for that year anyway. You just don't pay taxes on them for that year. When you fill out your finaid forms there is a spot for those amounts to be included. The interest and the principal in the IRA (in subsequent years) are not. I can't see what the finaid advantage would be, but I DO think having an IRA is a good thing for young students. You might want to look into a Roth IRA.</p>
<p>S has a Roth IRA into which he's put most of his earnings from summer jobs. While he still needs to report his income on FAFSA/Profile each year, the Roth IRA <em>savings</em> are not counted, which is a plus as student's own savings are "assessed" at 35% for financial aid purposes.</p>
<p>We like the Roth IRA idea so much that we've decided to encourage him to continue putting his summer earning there to the extent allowed. We are in a position to subsidize his college out-of-pocket expenses, at least at a baseline level (we're thinking $125/month), to allow him to start and continue that savings habit. Any discretionary expenses he has above that $125 will be on him from savings that didn't go into the Roth.</p>
<p>disclosure: not a tax professional, but this is what I have been advised</p>
<p>I'm not sure about the FAFSA, but I'm the CSS PROFILE does ask about the amount the student has in IRA's. Since students are allowed to use their IRA's to pay for college expenses, I'd bet that schools that use the institutional methodology (as opposed to the federal methodology) will count the IRA savings essentially as regular savings. It's only the parents' IRA accounts that will not be tapped.</p>
<p>Start young! For 2005, if your child makes up to $4000 (I believe that's the new limit), that can all be put into a Roth IRA.</p>
<p>Over the years, I've made this deal with my kids - they keep their summer and winter vacation earnings to pay for all expenses associated with college except tuition/room/board and we parents fund their IRA's for them. When they finish college, we expect them to continue the annual contributions. We started 24 yo S's IRA with $300 when he was 16 (he earned that teaching tennis to kids), and he has a hefty chunk of change socked away now.</p>
<p>TwoTimer - Good point. Looks like my D might suffer a double whammy under our plan if she works alot this summer. She's expected to contribute up to $1900 of summer earnings and then probably was dinged again due to the increased balance in her IRA that actually came from us. Time to reassess in her case, she just finished frosh year. Off to the calculator: gotta run the long term numbers of her losing 3 years of contributions vs. short term proportional loss in financial aid due to keeping $ in our name instead of hers. My gut still tells me that it's more important in the long run to keep funding her IRA.</p>
<p>Maize and Blue; What does the Maize and Blue stand for? My son is teaching tennis to kids this summer. I kind of worry about the kids invading their IRA 's if I help. It already happened once with D, she had a debt and cashed one in. Sad but true. We can help the kids all we want but they still have their own lessons to learn about life, responsibility, finances, etc.... and real estate! I told them and told them and she still sees a little Victorian as her little heaven. We can teach but they learn their own way!</p>
<p>Isn't there a 10% penalty for withdrawing money out of your IRA? Doesn't this mean that in addition to the required summer job contribution and higher EFC, you lose further money on the penalty.</p>
<p>I am quite new to this IRA stuff. (I'm 18. ^_^) I'm pondering starting a Roth IRA, but am wondering if the 2-3k I will have saved up after this summer is enough to tide me over in the next few years and how much of it I can afford to put into an IRA. And if a penalty does exist, then it doesn't really seem worth it.</p>
<p>There are some exceptions to the 10% penalty. One exception is if you use the money personally for college expenses.</p>
<p>bhg: As for Maize&Blue - where are my adopted UMich friends? I'm the proud parent of a UMich alum and as coincidence would have it, the UMich colors are also the same for Carleton where my D is a rising soph. One of last year's threads had us swapping screen name origins and someone thought I liked blue corn.</p>
<p>gphoenix - The penalty question is a very good one. TwoTimer may be right that you can withdraw for education with no penalty, but you should verify that with your tax adviser, or with a good investment co. (such as Fidelity etc., which handle IRA's). If you don't feel pretty certain that you can leave the money there, IRA's in general aren't a good idea. They are really meant for long-term savings.</p>