Just a quick reminder -

If you want to make contributions to a Roth IRA, a Traditional IRA, or a Coverdell ESA for 2007, you need to make them before April 15th.

If you haven’t opened an account, and you want contributions to count for 2007, you have until April 15th to open the account AND fund the account.

Last year, my wife and I opened Roth IRAs in March, and fully-funded both of them for fiscal-year 2006. We even dug into our emergency fund so that we could ‘beat the deadline’. Why? Because, by design, these contributions are ‘use it or lose it’. If you miss a year, you miss a year, period.

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I recently opened a new checking account. I have a new debit card, associated with the checking account. I’ve been using the debit card for a couple of months, mainly for smaller purchases like gas and food. Well, I logged in to my Upromise account today - and I realized that I had forgotten to register my new debit card. I quickly grabbed my card and registered it. In 4 or 5 days, I’ll start earning rewards from Upromise, whenever I swipe the card.

I was reviewing my Upromise account - I’ve been a member since 2004 - and I have accumulated a decent amount of money. My parents and my wife’s parents have added their cards to our account - so our entire family is earning rewards for college.

So, if you have a Upromise account, and you have a new debit {or credit (boo!)} card, you might want to make sure that you have registered it with them.

By the way - I am a Upromise “affiliate” - so, if you don’t have an account with them and you would like to sign up for one, click this link - Upromise.  I’ll make a few bucks and you’ll start earning free rewards.

Oh yeah, I almost forgot.  If you don’t want to transfer your Upromise rewards to a 529 plan, you can get them to send you a regular old check.  Click here to read an article that I wrote about how to get Upromise to send you a check.

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I just downloaded the forms for opening a Coverdell Education Savings Account for my son.  I opened an ESA for my daughter a few years ago, when she was four.  My son will be four in a few days, and I am ready to begin funding an ESA for him.

Contributions to a Coverdell ESA grow tax-free.

Total contributions are limited to $2000 per year, per child.

Contributions can be made by parents, grandparents, friends, etc.

Our goal, in the next 14 months,  is to fully-fund my son’s ESA for 2007 (by April 15 of 2008) and for 2008 (by April 15 of 2009).

As is the case with most retirement or education savings accounts, there are contribution limits, income limits, and tax implications associated with the Coverdell Education Savings Account.

Contribution limits - $2000 per child, per year. (Information current as of December 30, 2007)

Income limits - $2000 can be contributed as long as modified adjusted gross income is less than ($190,000 filing joint or $95 filing single).

Tax Implications - Distributions are tax-free, as long as the money is used to pay for qualified education expense.

(Side note:  Unless Congress acts, certain benefits may expire in 2010.  I’m not really worried about this, because I expect that Congress will act.  But, it is worth noting.)

For more information about the Coverdell Education Savings Account, visit Savingforcollege and the IRS website.

Please note, I am NOT a financial planner or tax professional.  PLEASE, consult a qualified financial planner and / or tax professional if you have any questions about opening or funding an Education Savings Account.

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I have opened two ESAs, one for my daughter and one for my son. An ESA - Education Savings Account - is an account created as an incentive to help parents and students save for education expenses. (See IRS Pub 2007 -59)

Overview of the account -

The annual contribution limit per beneficiary (student) is $2000.

A beneficiary (student) is someone under the age of 18.

Contributions are not deductible - but deposits grow tax free.

Distributions from the account are tax free, as long as they are used for qualified education expenses - tuition, books, fees, and room and board. (See IRS Topic 310)

Contributions must be made made before the due date of the contributor’s tax return. If you open an ESA for 2007, you will have until April of 2008 to fully-fund the account.

All contributions must be distributed before the beneficiary reaches the age of 30. To avoid taxes the balance of the account can be rolled over into another ESA which has been established for a family member. (See IRS PDF PUB 970)

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My daughter is 8 and and my son is 3, so I have 11 more years to contribute to her account and 16 years to contribute to his account. I like the ESA because I can control the investments inside the account. I can purchase stocks, ETFs, mutual funds, or bonds. (If you are thinking about saving for college, may I suggest that you also look into 529 plans? My buddy Nickel recently wrote and excellent article about the best 529 plans.) I do not like the fact that contributions are limited to $2000. I recently ran the numbers, and if I average an 8% return for the next 11 years, the balance in my daughter’s account would be about $45,000 - probably not enough to pay for tuition and room and board for 4 years of college.

Contributions to an ESA can be used for qualified primary, secondary, and higher education expenses. While I like the ESA, I will also look into funding 529s for my daughter and my son - the low contribution limits bother me a bit.

Let me remind you that I am not a tax professional or financial adviser. Please consult a qualified tax professional before making any tax-related decisions.

How are you saving / planning to save for your children’s college expenses?

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My daughter is 7, my son is 3, and my wife and I, we are both 32. So, in the next 25 years, I need to be ready to fund two college educations and two retirements, while paying cash for all purchases, including major purchases like automobiles, furniture, appliances, and even a home! So, here’s my “current” plan to meet the future, with confidence, and without fear.

Education:

Daughter: My Daughter’s ESA currently has a balance of $4,742. I plan to contribute (at least) $2000 to her ESA for the next 12 years. At 6% APR, she’ll have almost $46,000 for college. At 8%, she’ll have almost %54,000. At 10%, she’ll have $65,000. Of course, once she begins college, there will be ongoing expenses. I’ll write more about that, below.

Son: I have just opened an ESA for my son, so his balance is $0. I plan to contribute (at least) $2000 to his ESA for the next 16 years. At 6%, he’ll have almost $68,000 for college. At 8%, he’ll have almost $84,500. At 10%, he’ll have $106,500. Again, once he begins college, he will have ongoing expenses.

Retirement:

My wife: My wife contributes 5% of her pretax income to her pension plan. She can retire in about 21 more years. Her pension plan will provide 60% of her final year’s annual salary. We also plan to fully-fund her Roth IRA every year for the next 25plus years.

Me: I contribute $12,000 annually to my 403b. I also plan to fully-fund my Roth IRA every year for the next 25plus years.

Major Purchases

Currently, we plan to save a minimum of $10,000, per year, in a non-retirement investment account. I realize that I will have to pay some taxes on the gains in this account, but living without borrowing money requires a pretty substantial amount of non-retirement savings.

Additionally, we plan to buy a house, at some time in the distant future. (Currently my employer provides a house for my family, as part of my compensation package.) I have yet to decide which type of account we should use to save for our future home purchase. Our next major purchases will be two “newer” automobiles which we plan to purchase in 2009-2010. After making those purchases I’ll reevaluate our situation and our plans.

So, NCN, why in the world would you go to the time to write about all of these different plans? How do you know how much interest you will earn? What if you have another child? What happens if one your automobiles “dies” and you have to replace your automobile sooner than you had planned?

Frankly, I mention these plans so that you can see how much I am thinking about the future. I realize that my plans may have to change, shift, and be modified over time, but I am THINKING about these things. How many people do you know who are just “floating” through life without THINKING about the future? I refuse to live without a plan and without a purpose!

Resource:

If you are new to personal finance blogs or personal finance planning, may i suggest the following resource?

Online Savings Account: I love my ING Direct Online Savings account. It is easy to setup, easy to use, and easy to access. Take a second to checkout this awesome No Credit Needed Sponsor: ING DIRECT - High Yield Savings with 4.50% annual percentage yield!

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