Solo Parenting

A financial lesson plan for single moms and dads on funding education and retirement

is about $9,000 gross a month.

This may not necessarily be a bad thing. “At $10,000 a year, which is about $800 a month, a single parent might be able to pay for a child’s education out of earned income,” says Mark A. Mitchell, registered advisor with AXA Financial Advisors in San Juan Capistrano, California. The typical African American student is not paying an Ivy League price tag for a college education, he adds.

According to the New York-based College Board, 41% of all students attend four-year state universities where annual tuition averages $8,470 including room and board. There are several ways for students to finance their college education, including scholarships, grants, loans, work-study programs, summer jobs, and part-time jobs.

Although you want to save as much as you can for your child, you don’t necessarily want the money tied up in an irrevocable account in your child’s name. “If you started saving when your child was a year-old and you set aside $166 a month or $2,000 a year until age 18, that principal amount of $34,000 would turn out to be worth a little more than $60,000 (at an average rate of return of 6%),” explains Mitchell. “But say your kid ends up needing $40,000 for college. You can’t ask for the other $20,000 back.”

A benefit of investing funds in a child’s name is the money is taxed at the child’s lower rate. But Mitchell says this could count against your child when applying for financial aid. Students can be required to contribute as much as 35% of their total assets toward college costs each year compared to 5%-6% of parents’ total assets.

A better alternative: Section 529 college savings plans. You can put up to $50,000 in one year and $247,000 over the course of the plan. The money grows tax-free (as of 2001). You can name your child as the plan’s beneficiary, and if he or she doesn’t go to college or you change your mind, you can alter the plan’s beneficiary.

Education IRAs are still viable options. The maximum contributions allowed will increase from $500 to $2,000 effective next year. Also, these plans will allow for tax-free withdrawals for educational costs from kindergarten to grade 12. Moreover, tax deductions for college tuition and related expenses increases to $3,000 for the 2002-2003 school years and $4,000 for 2004-2005. To qualify, single parents must have an adjusted gross income below $65,000.

SAVING FOR RAINY DAYS AND GOLDEN YEARS
Today, Roberts earns six figures in salary including commission as a sales manager for RCN Telecommunications. She has amassed more than $50,000 in investments, including employer-sponsored retirement accounts, mutual funds, and individual stocks. Her goals are to set aside money in another tax-efficient retirement plan (she currently contributes the maximum allowed to her 401(k) at $10,500 a year) and to get an early start earmarking money for her son.

According to the 2000 investors survey conducted by Charles Schwab & Co. Inc. and the Ariel Mutual Funds, African Americans are saving as much as or more

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