A Taxing Choice: Condo Living or Saving for College
Q At the end of this year, I will no longer need to pay alimony to my ex-wife. I also have a four-year old daughter. With the resulting loss of the tax write-off that came with alimony payments, I'm trying to decide between buying a condo or putting money down on my daughter's college education. Any suggestions?
- R.E. via e-mail
A"Only buy the condo for the right reasons, such as it being a good investment that will appreciate in value and can be sold or borrowed against if you need cash when your daughter goes to college," says Ed Slott, a financial planner in Rockville Centre, N.Y.
Otherwise, he recommends blue-chip stocks with low dividend payouts. That way, you won't have to pay much in the way of taxes on your gains until you sell the stocks, years down the road.
You might even consider putting some of the stock shares in an account for your daughter, as a "gift to minors." She would probably pay taxes at a lower rate than yours when she sells the stocks. Caution: If you open an account for her, make certain it isn't so large as to preclude possible college-aid, Mr. Slott says.
Q I'm 77. As a result of the recent bull market, my portfolio has become heavily tilted toward equities. What is your opinion of balanced mutual funds, which are made up of stocks and bonds? I would like to reposition my asset allocation.
- D.H., Oxford, Ohio
A "A balanced fund wouldn't provide the reallocation you need, since you will still be tilted more to stocks than bonds," says Lewis Altfest, president of Lewis J. Altfest & Co., New York.
"If it's bonds you want, buy a good bond fund, such as the Vanguard Bond Total Index Fund, which gives you a mix of all types of bonds," Mr. Altfest says. The fund is up about 4 percent year-to-date. (Minimum investment: $3,000. Call 800-662-7447.)