Besides, IRAs can’t be tapped for extra personal gain, Elinsky says. The IRA could own vacant land, but not if you build a house on it. It could buy a vacation home (for cash) and rent it out, but not if you or your family will use the house. If you did–even for a single night, and even paying fair-market rent–the entire IRA can lose its tax exemption. Maybe you wouldn’t get caught, but it’s a heck of a risk.
A: Wow, what a saver. Every kid should be so lucky. Best advice: use your retirement plans. You save the money pretax, tax-defer the earnings and get a match from your company for the contributions you make. Because you’ll be over 59i when they start college, you’ll be able to take money without paying the 10 percent early-withdrawal tax. If you’re saving more than your company will match, add a Roth IRA, too.
Walter Guertin of First Financial Trust in Winchester, Mass., ran your actual financial data. He concluded that at the level of monthly savings you propose (about 10 percent of earnings), you’ll have more than enough to send your kids to state schools and still cover your personal retirement. Not bad, for 43.
A: Grandparents are duly warned. There are risks with UGMAs. You can’t be 100 percent sure that the money will be used as you intended. The kids might blow it, or the state might intrude.
But the state has a point. Before granting welfare, Utah looks at the assets of the entire household. These UGMA accounts belong to the children, says Virginia Smith, Workforce Services’ legal counsel. Your husband can access the money on their behalf. Utah isn’t saying he has to. It says only that money belonging to the household should be used before the taxpayers kick in.
That seems harsh to you, but perhaps not to the taxpayers. Says Utah’s Barbara Darling, “Welfare is for the really needy, so we have to research every asset.”
Certain types of irrevocable trusts could be put beyond Utah’s welfare law, but not UGMAs.
A: It’s too early for you to know to the penny, because your plan hasn’t yet gone bust. If it does, here are the rules.
(1) For those currently retired: you continue getting your current benefit, up to a cutoff point. Each year the cutoff point rises for plans that terminate that year. The maximum this year is $3,051.14 a month for people who retired at 65 with a pension covering their lifetime only. If you retired earlier, you’re guaranteed less. Someone who left work at 60, for example, can’t get any more than $1,983.24 a month. At any age, the maximum drops if the pension also covers the lifetime of your spouse.
(2) For those not yet retired: you’ll get your benefits when they’re due, up to whatever ceiling applies at the time.
(3) For those with benefits other than retirement pensions: the PBGC covers disability pensions and certain survivor’s benefits. But you don’t get the full value of benefits added in the past five years. The government doesn’t want companies to give people last-minute pension windfalls, knowing that the PBGC will have to pay. There’s also no coverage for lost vacation pay, severance pay or health care. For more information, try pbgc.gov, or call 202-326-4000.
(4) For people with 401(k)s: you’re not covered. The PBGC insures only traditional pensions. If your stocks go down and your retirement income suffers, you’re on your own.
