ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, May 6, 1996 TAG: 9605070079
SECTION: MONEY PAGE: 6 EDITION: METRO
COLUMN: Money Matters
SOURCE: MAG POFF
Q: I want to know about investments for grandchildren for college education. I have four grandchildren; two are age 3, and two are age 1. How should I invest for grandchildren? Should it be put in the child's name? I would like to do something to help with their education.
A: The money should be held in your name or the parents' names for two reasons.
One is that money placed in the child's name belongs to that child under the law on custodial accounts. The money must be turned over to the child outright when he or she reaches the age of 18, no matter how immature the child may be at that age. The 18-year-old can squander the money on a stereo or a car or even on drugs, and there's nothing the parents can do about it. The money may, or may not, be spent on a college education.
Secondly, under present rules, more of the money held in the name of a child must be spent before the child can qualify for financial aid from the college. Colleges figure today that 35 percent of the money in a child's name must be devoted to college costs before financial aid is given. Parents, on the other hand, must devote only 6 percent of their assets toward college costs before financial aid kicks in.
Grandparents are not expected to contribute to college expenses. Money held in your name, therefore, would not exclude financial aid.
These rules could change before your grandchildren reach college, of course, but they are in effect today.
Mutual funds invested in stocks have historically provided the best return on investments, but you must have time to ride out downturns in the market. Your grandchildren are young enough so that you can afford to risk these periodic drops in the market. You can become more conservative in your investment approach within a few years of their enrollment in college.
Rehabilitating credit
Q: I messed up my credit pretty badly. I owed $2,500 and had some collections on it, but I paid all of it off. My credit is still bad, and I'm wondering how to re-establish my credit and how long it will take.
A: Slow collections will stay on your records at credit reporting bureaus for seven years, but you may be able to overcome your history before that.
To start, you should pay all of your utility and other routine bills on time.
The second step is to apply for a store credit card when you make a purchase. Or you can arrange for installment payments on an appliance or other large purchase. Do not go into debt for something you do not need, however.
Stores are usually more willing than unsecured creditors are to extend credit. This is because the sale may depend on granting credit. The store also has power to approve or deny credit on each purchase, unlike a bank card provider.
You might also apply for a secured credit card. In this type of arrangement, you must deposit a specific amount in the bank, and this amount becomes your credit limit. The deposit securing your card earns interest, and the card you receive looks just like any other credit card.
The key to rewriting your credit history is to pay all of your bills on time. You should prepare a budget and learn to live with it so that you do not get into financial trouble again.
Pros, cons of U.S. Savings Bonds
Q: I am getting ready to take my company profit-sharing plan and roll it over into an Individual Retirement Account. About $100,000 is involved. I have been buying U.S. Savings Bonds in my account. Is there another kind of bond I can buy? I want to invest about half into something safe.
A: One of the most attractive features of U.S. Savings Bonds is that the earnings are tax-deferred until maturity. But this feature makes them less suitable for IRA and retirement accounts, which also are tax-deferred. You do not need a double tax shelter for the same dollars.
If you want something absolutely safe for half of your money, you can invest in bank certificates of deposit or in U.S. Treasury bills and notes. A money market mutual fund at a brokerage house is also considered to be a reasonably safe investment even though it is not insured.
If you are at normal retirement age, 35 percent to 40 percent of your money should be invested for growth into stock mutual funds. You can gradually reduce this ratio, becoming more conservative, as you grow older.
LENGTH: Medium: 81 linesby CNB