Living a LearningLife

College, technical or professional training are tools you may use to launch your children or grandchildren into a future life of independence. After all, in a knowledge-based economy like ours, what your children know and can contribute can be of substantial value to different employers and therefore generate higher pay for them.

There are three ways to pay for the training - beforehand, during and afterwards.

1. Beforehand means putting money aside from income or assets into an account that will be available to pay tuition, books, room and board, and other expenses when the time comes to pay the bills. This approach has time working for you; the money you have contributed into your account may earn interest and dividends and even grow.

2. During means using your income to pay the bills directly while your (grand)children are in school. This approach can work great, but with current high educational expenses you need to have substantial discretionary income to find enough money.

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When you die, your will (or trust or the state's will) will spell out what you want to happen to your investments and personal property. Would you like to share anything more than that with your family?

What ideas or information or values or personal history has been important for you? What are your stories? What do you want to be remembered for, besides your money?

Do you have instructions, thoughts, feelings for your spouse/partner or other family members?
What are you grateful for? If you could do it over again, what would you do differently?

Is there anything really, really important to share with children or grandchildren, even the ones that are too young to understand now or may not even be alive yet? What do you want them to remember or to do?

What insights or special wisdom do you have? Are there blessings that you have for them? Are there things unsaid that are worth saying now?

The document you write that answers these questions is called an ethical will. It is a gift to those you love whenever they read it.

There are considerable advantages for you, too. It gives you an opportunity to be thoughtful and reflective and possibly provide spiritual meaning for yourself. What you learn can be useful to you in future ventures. In some senses it can provide immortality. Your legacy will live on if you leave behind people who understand what you stood for and will carry on what you believed in.

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2010 is the year of the Roth conversion! What is a Roth IRA? It is a retirement plan containing after-tax money / investments. Investments in the Roth and withdrawals from it will never be taxed, as long as money has been there for at least 5 years and you satisfy one of the following: attainment of 59 ½, death, disability, or first-time home purchase. You can fund a Roth IRA with a variety of investments, and therefore defer any combination of interest, dividends, or capital gains from taxes.

Doing a conversion from a traditional IRA to a Roth IRA requires paying taxes on the amount converted. So why would you want to pay tax now rather than later? You can save tax money - in the long run - three different ways:

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Effective guarantees on income have been disappearing. People used to frequently buy immediate annuities - investments managed by insurance companies - to generate a lifetime of guaranteed payments to supplement their work retirement plans. Retirement plans through work also generally paid income guaranteed to last for the rest of an employee's (and their spouse's) lifetime.

Immediate annuities and lifetime retirement income plans are much less common now, partly because of their high cost to employers and their inflexibility:

You could not turn them on or off when you wanted or needed to. You had no access to your money if you needed it for healthcare or another major expenditure.

You had no control over the investment pool, so your work plan or annuity typically invested your money in lower paying bonds. Your lifetime income was smaller than it could have been if invested in other alternatives that grew at a faster rate.

Your children were out of luck - there was nothing left from these plans at the end for them to inherit.

Now you are more likely to save for retirement through a plan at work - 401(k), 403(b), et al.

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Most people evaluate money managers from their past returns, but it is easy to get into trouble doing this. Here are some of the potential problems:

1. Future returns. If you and many other investors buy a mutual fund that has recently experienced exceptional returns, that fund will be flooded with cash. In a rising stock market that low-paying cash will drag down future investment returns.

2. Taxes. Furthermore, you will potentially be liable for taxes on past gains if your fund is not in a tax-sheltered retirement account. As your fund sells its holdings (and stock funds on average sell 80-95% of their investments each year), you become liable for your share of capital gains from those sales.

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