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Should clients use a Roth IRA for college expenses?

Our daily roundup of retirement news your clients may be thinking about.

Should clients use a Roth IRA for college expenses?
Clients who use a Roth IRA will face no tax liability or penalty when withdrawing the original principal contributions ahead of retirement to cover education costs, according to an article in The Wall Street Journal. However, unlike a 529 savings plan, investment gains will still be subject to income taxes, even if they’re withdrawn to pay for qualified higher-education expenses.

Clients should consider taking advantage of various tax credits to reduce the burden of college tuition.
Pedestrians walk through arches of the East Pyne building on the Princeton University campus in Princeton, New Jersey, U.S., on Monday, June 21, 2010. Princeton University, the fourth-richest institution of higher education in the U.S., paid more than $10 million last year to its prosperous New Jersey community. Municipal officials and residents say the college, whose land holdings are mostly tax-exempt, should do more as they look to close budget shortfalls. Photographer: Emile Wamsteker/Bloomberg

Mistakes clients should avoid when naming beneficiaries
Clients may not want to name minors and individuals with special needs as beneficiaries, according to a Kiplinger article. Children under 18 will need a court-appointed person to claim and manage assets until they come of age, which can be costly. Individuals with special needs may become disqualified from valuable government benefits if they receive too many assets form inheritance. In such instances, advisors may want to recommend that clients instead create a trust to be named as the beneficiary.

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Why clients shouldn’t plan to work past their retirement age
Many people think working past their retirement age will improve financial prospects, but seniors may be forced to leave the work place ahead of time, according to this Forbes article. Clients who are planning to work longer should understand the reason they want to stay longer in the labor force and explore creative ways to remain employed and stay skillful, writes an expert. "The fact is, if you don’t take critical steps to improve the odds of extending your earning years, you don’t have a plan — all you have is hope."

Medicare mistakes 44% of clients make
About 44% of clients think Medicare will cover most of their medical expenses after they retire, according to this Motley Fool article. However, the program doesn’t cover considerable medical costs, including dental services, hearing aid and long-term care. Clients should consider saving for these healthcare services by getting a Medigap policy and saving in 401(k)s, IRAs and HSAs.

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