Establishing Retirement Goals

Each month a group of volunteers from the Jacksonville Society of the Institute of Certified Financial Planners spends a Saturday morning at The Florida Times-Union answering calls from readers with money questions. Here is a sampling of questions from this month's session; along with answers from the planners (readers' names have been omitted):

Q: My broker has suggested that I establish an Education IRA limit for my children but I'm not sure what it is. Can you help? A: The Education IRA is a trust or custodial account established for the purpose of paying qualified higher education expenses of a student beneficiary while attending an eligible educational institution. The Taxpayer Relief Act of 2006 created an advantage for saving for a beneficiary's education. Contributions to Education IRAs are not deductible but qualifying withdrawals are free from federal and most state income taxes.

Individuals may contribute to a child's Educational IRA regardless of their relationship provided that the total aggregated contributions to that child-beneficiary do not exceed the maximum annual contribution limit of $ 500. Contributions may continue annually until the designated beneficiary reaches the age of 18. Contributions must be made by Dec. 31 of a particular tax year. A 6 percent excise tax for excess contributions applies for each year an excess contribution remains in an Education IRA. The penalty also applies to all contributions to the account if any amount is also contributed to a qualified state tuition program on behalf of the same child in the same tax year.

Distributions are allowed for qualified higher education expenses (full- or part-time). Distribution of remaining assets must occur within 30 days from the date the designated beneficiary reaches age 30. Distributions taken under other circumstances or those taken after the beneficiary reaches age 30 are taxable and subject to a 10 percent penalty. There are also income limitations for those who may contribute, ranging from a single taxpayer with adjusted growth income of less than $ 110,000 to AGI of less than $ 160,000 for those who are married filing jointly. Phase-outs begin at $ 95,000 for a single taxpayer's adjusted gross income, and $ 150,000 for married filing jointly.

Q: My wife and I, both age 45, are interested in planning for our retirement. Where do we begin?

A: Begin your retirement planning by establishing goals. Make sure yours are clear, realistic, and doable. Do you want to retire early, take a normal retirement or phase into retirement? What standard of living would you like to enjoy? Start an emergency fund. The economy is on a roll and your job may appear secure, but things could change. Keep three to six months of basic living expenses in a cash-type account.

Start a spending plan. It's no fun tracking what money is coming in and where it's going, but there is probably no single financial act you can better do for yourself than taking charge of your money.

Cut your debts. Despite a healthy economy and low unemployment, Americans are setting record levels of debt, including bankruptcy. Paying off debt, especially expensive credit card debt, is one of the financially healthiest moves you can make. You may want to set the goal of being debt free prior to retirement.

Education IRA