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Paying for College

Roth IRAs and College Aid

Will your child's investment affect his or her financial aid package? Plus, learn how to help kids discern between wants and needs.

Regarding your column on Roth IRAs for kids: Could opening a Roth or other IRA hurt my son's chances for college financial aid?

Opening a Roth for your child probably won't hurt his chances for financial aid. The federal formula for calculating how much a family can pay doesn't assess retirement accounts -- and that goes for your child's account as well as your own.

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Some colleges do include retirement assets in their financial-aid calculations. If that's the case (you can find out by checking with the schools to which your child applies), your child might be expected to kick in 20% to 25% of the value of his IRA toward college expenses.

But even then the impact would probably be small because a teenager is unlikely to have much money in his IRA. If the account held, say, $1,500, your child might be expected to contribute $300 to $375 toward his education.

On balance, I'd say that giving your child a head start on saving and the power of compounding outweighs any impact on financial aid.

Wants versus needs

Your column on paying the kids' cell-phone bill was very timely. I have a 14½-year-old son who is asking if he can get a cell phone. Many of his friends have one, and he says he needs one, too.

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He and I had a long conversation in which I tried to rationalize his "need" and actually showed him it was more of a "want." I believe that until he can pay for a phone he doesn't "need" a phone." What say you?

I say, good for you, Dad. Kids struggle with the idea of wants versus needs. In their world, they need everything, and the sooner the better. Using a cell phone or some other coveted purchase -- a Wii, an iPod or even a car -- is a good way to illustrate the difference.

A Beverly Hills mother once told me that when her eldest son approached driving age, he assumed he'd get a new car. "I'm from Cleveland," said Mom. "I told him he needed transportation, but whether he got a new car, a used car or a skateboard depended on how much he saved, which his father and I would match."

An allowance system that works

Regarding your column on allowance and chores: In our family, the children are expected to keep their rooms neat, clean their bathroom, take out the trash, etc. But we have an additional list of duties for which they can make money: vacuuming additional rooms, dusting, washing windows, etc. You can have the best of both worlds.

That's exactly the system I would recommend. I'm glad it works for you and for other readers who wrote to say that they use a similar arrangement.

Have a child headed for college? Janet will tell you how to send him or her off with money smarts. Hear Janet speak on Wednesday, July 25, at 7:30 p.m. at the Parent Encouragement Program, 10100 Connecticut Avenue, Kensington, MD 20895. Phone 301-929-8824; www.PEPparent.org.

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