Newsletter for August 2001

Article Briefings
Retirement: Not a Destination, A Journey
Retiree Health Premiums Rise
AARP Finds Few for Best Workplace Competition
We, the People of Assisted Living
Tax Breaks Can Ease Your Parental Aid Costs

Featured Question
The Education IRA

Resource Links
Saving for College
Institute of Consumer Financial Education

Retirement: Not a Destination, A Journey
By Kent Jamison, LIMRA's marketFacts Quarterly: Vol. 20, No. 1, Pg.66, 07/01.

Retirement planning is a methodical process that requires knowledge of available options and thoughtful preparation. When planning, future retirees usually consider nursing home costs, and some even purchase long-term care (LTC) insurance to cover expenses for future illnesses. They also often consider account inflation, asset allocation, and risk tolerance. However, many retirees fail to factor in both the long-term effects of inflation and their life expectancy. Another area they often neglect is tax planning. In short, future retirees need an objective understanding of their economic outlook and a subjective understanding of what is important to them. Specifically, they must be aware of issues like increasing life expectancy, post-retirement planning, the benefits of annuitizing, and LTC products.

Retiree Health Premiums Rise
By Julie Appleby, Employee Benefit News, Vol 15, No. 9, Pg. 64, 07/01.

Employers have been reducing or eliminating retiree health benefits in order to cut back on expenses, even though coverage rates have remained primarily the same. However, co-pays, deductibles, and insurance premiums have been increasing faster than inflation. Because they are older and tend to be in poorer health than other employees, retirees who purchase alternative health coverage will find that they have less coverage and pay more for it. The trend of cutting retiree benefits may not stop if the economy continues to worsen.

AARP Finds Few for Best Workplace Competition
By Julie Appleby, Employee Benefit News, Vol. 15, No. 9, Pg. 54, 07/01.

The American Association of Retired Persons (AARP), while conducting a contest for the best workplaces for employees over age 50, has learned that employers have not given much thought to their aging workforce. Though employers are generally eager to be highlighted as having an exemplary workplace, many employers indicated that they had not thought about how their practices or environment affect older workers. The AARP mailed 10,000 invitations for the contest, but received only 14 applications in return.

We, the People of Assisted Living
By Diane Naughton, Washington Post-Health, Vol. 35, No. 27, Pg. 6, 07/17/01.

Residents of assisted living facilities use resident councils to get their voices heard. Catherine Scott-Aspen of the Assisted Living Federation of America (ALFA) says resident councils are useful tools to gauge the performance and services residents receive at assisted living communities. "Resident councils are a way to make sure our residents and their families are happy on an ongoing basis, [without waiting] until the annual satisfaction survey," says Scott-Aspen. Resident councils tackle issues such as parking, recreation, social outings, decor, and food.

Tax Breaks Can Ease Your Parental Aid Costs
By Donald Jay, Investor's Business Daily, Vol. 35, No. 27, Pg.B5, 07/13/01.

If you are caring for an older loved one and bearing the financial burden, you should know that tax breaks available. Taxpayers providing care for their elderly parents may be able to claim a parent as a dependent, which provides a $2,900 deduction for 2001. Care providers can also list a nonparent as a dependent if he or she lives with them. However, this exemption may not be used if the elderly person files a joint tax return.

Q. What is an education IRA? Is it related to retirement planning?

A. Despite its name, an education IRA is not related to retirement savings. An education IRA is a purely a savings vehicle for the qualified educational expenses of a named beneficiary. You contribute to an education IRA using after-tax dollars and direct those funds into various investment vehicles. Even though your contributions to an education IRA are not tax deductible, the earnings accumulate tax-free. Eventually, the original investments and their earnings are distributed to the beneficiary to pay for qualified educational expenses. As long as the funds are used for qualified expenses, the earnings portion of the distribution remains tax-free. However, any portion of the earnings not used for qualified expenses is added to the beneficiary's gross income. It is then subject to taxes and generally a 10-percent penalty. The funds must be used by the time the beneficiary reaches age 30, but unused balances can be rolled over tax-free to fund an education IRA for another family member.

The 2001 tax relief act recently expanded and clarified the use of the education IRA. Among these changes are higher contribution limits and broader qualified uses of the funds. Beginning in 2002, you can contribute up to $2,000 per year to an education IRA. The contribution limit is phased out for joint filers with an adjusted gross income (AGI) between $190,000 and $220,000. For single filers, the phase out takes place with an AGI between $95,000 and $110,000. This restriction is imposed on the person making the contributions into the IRA, not the beneficiary. However, many astute financial planners can assist you in circumventing this restriction. The 2001 tax relief act also specifies that entities such as companies, churches, or foundations can contribute to your education IRA account.

The education IRA was originally established for higher education expenses only. Recent changes now allow the funds to pay for elementary and secondary expenses at private, public, or religious schools. This includes academic tutoring, computer technology or equipment (such as internet services), room and board, uniforms, and other supplies. The less restrictive provisions of the new law may encourage grandparents or other relatives to fund education IRAs starting at the birth of the child in order to assist with early childhood education expenses. The original terms of the education IRAs also specified that contributions end when the beneficiary reached age 18; now, contributions can continue beyond age 18 if the beneficiary has special needs due to a physical, mental or emotion condition (including learning disability).

State-sponsored college savings plans (often referred to as Section 529 plans) still allow you to contribute considerably more than education IRAs - with a $150,000 annual limit for state plans, versus the $2,000 annual limit on education IRAs. However, the advantage to education IRAs is that you have control over the investment of those funds. The investment of state-plan contributions take place, more or less, behind closed doors. As always, the best investment strategies usually combine several approaches and should be suited to your specific investment goals and abilities. Work with your financial planner to decide if an education IRA is right for your family.
Joe Hurley, CEO of, has developed a national reputation for his knowledge of state-sponsored college savings plans, also known as 529 plans. This web site promotes the existence of 529 plans and explains how to best take advantage of them. It offers information and services to anyone saving for college, as well as financial planners who are helping clients evaluate the plans.
This web site from the Institute of Consumer Financial Education is dedicated to spending wisely and saving wisely. Lots of online, reader-friendly tips and information are available here on topics such as creating a budget, teaching children about money, curbing the use of credit, and correcting your credit file. A number of books and videos are also available for purchase.


(c) 2001 Copyright Claimed, Internet Retirement Alliance.

Abstracts (c) Information, Inc., Bethesda, Maryland 301-215-4688. Redistribution is prohibited.

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The Internet Retirement Alliance ( does not provide legal, accounting, investment, or other professional services. If the reader requires legal, accounting, investment, or other expert assistance, the services of a competent professional person should be sought.

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