Child’s First House

Loaning a down payment on a house?

For a lot of young people today, it’s difficult to purchase a home without at least some financial assistance. As a result, many young adults turn to their parents or other family members for help with a down payment.

If you plan on lending your child money for a down payment on a house, you should try to assume the role of a commercial lender. Setting the terms of the loan in writing will demonstrate to your child that you take both your responsibility as lender and your child’s responsibility as borrower seriously.

While having an actual loan contract may seem too businesslike to some parents, doing so can help set expectations between you and your child. The loan contract should spell out the exact loan amount, the interest rate and a repayment schedule. To avoid the uncomfortable situation of having to remind your … Read More

Withdrawals: Traditional IRA’s vs Roth IRA’s

If you have been growing a nest egg in an IRA account, it is best to never withdraw for reasons other than retirement. However, it is possible that you will be faced with unforeseen expenses and a withdrawal will be unavoidable.

If you withdraw from your traditional IRA before age 59½, the IRS normally labels your withdrawal “premature”. This means that you will face a 10% penalty on the amount which you take out of the account. Furthermore, you will be taxed on the money that you withdraw. However, there are two common situations in which the IRS allows you to use your retirement savings early without facing penalties.

The first exemption from IRS penalties is for school expenses. You can use your IRA dollars to cover the cost of tuition, books or supplies for you, your spouse, your children or your grandchildren. If the student enrolls more than half time, … Read More

5 Reasons to Convert to a Roth IRA

Why might you wish to convert all or some of your Traditional IRA to a Roth IRA?

1.  The ability to recharacterize allows you 20/20 “hindsight”, effectively allowing you to “undo” conversions that were not advantageous.  This allows you to protect against adverse market swings.  At a later date recharacterized funds can be converted.

2. The 70 1/2 minimum distribution rule is suspended for Roth IRAs.  This will allow additional tax free deferral.

3.  Tax rates are expected to increase in the future.  Higher future tax rates means that more tax will be paid on taxable IRA distributions than the tax that would be paid on  a conversion at a lower rate.

4.  Distributions to beneficiaries after your death are tax-free.  The might be one of the better reasons for a Roth IRA conversion.

5.  If you can afford to pay the income tax on the IRA with non IRA funds, … Read More