
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, February 21, 1994                   TAG: 9402210329
SECTION: MONEY                    PAGE: A-8   EDITION: METRO 
SOURCE: By MAG POFF STAFF WRITER
DATELINE:                                 LENGTH: Medium

TIMING WILL ALLOW GROWTH INVESTMENT

Q: Between June 1988 and February 1991, my wife at the time and I purchased EE Savings Bonds to help finance our son's college education. College is still 12 years away, and I am wondering if we should cash in the bonds in favor of an investment that potentially would earn more interest in the long run. His mother and I are now divorced. Does that cloud the issue of whether to hold those bonds, purchased after January 1990, from a tax-advantage standpoint?o

A: Most people would advise you to invest for growth if you have as long as 12 years to go before college. That means an investment in stock mutual funds. With a 12-year time frame, you have time to ride out any intervening downturn in the stock market.

Of course, you can keep the bonds and put your future college savings in a bond mutual fund.

In the case of divorce, it is customary to have U.S. Savings Bonds reissued in separate names during the settlement. They can be reissued with the original maturity dates. The parent with legal custody of the child should take those bonds issued after January 1990. They can be cashed tax-free by income-eligible parents if they are spent for certain college costs.

IRA versus cash investment

Q: If you wish to give money to your children, would it not be best to set up an Individual Retirement Account for them and give them $2,000 each year for the IRA rather than give them the money outright for investment? This would defer taxes until they started getting distributions.o

A: Individual Retirement Accounts are good investments for people who have emergency cash on hand and their insurance needs met. Younger people must also think of saving for homes and for their children's college education along with planning for retirement.

IRAs, however, must be set up by the owners and, in theory at least, must be funded with earned income. Retired people, for instance, are not eligible to contribute to an IRA.

If you think an IRA is right for your children, you could give them $2,000 with the stipulation that they fully fund an IRA each year.

Clarification

An answer in last Monday's column said that a reader's Social Security benefit would be reduced according to retirement income received from Civil Service. James Harris, assistant manager of the Social Security office in Roanoke, said that is true for people who retired after 1985. But it is not true for people who, like the writer of the question, retired before 1985. Such people, Harris said, would receive their Social Security benefit if they qualified by working under Social Security for the required 40 quarters.

by CNB