Devoted to understanding the basics and fundamentals of investing

If you were planning on taking gains in the account this year, and your child is between 14 and 18 years old, it would be worth speaking to your child about the desirability of his helping to pay for his own education, by working his way (at least part time) through school, and (if his high school transcript grades support that goal) by applying for scholarship assistance.

There are always options to the problem of funding a college education for your children, regardless of whether or not your college savings plan has suffered a shortfall, beyond that of feeling forced to provide the whole solution, on your own, without any help.

We have told our children we can afford to pay tuition or housing at a local community college but not both. They can finance the rest with a part-time job or with a scholarship. We showed them how a scholarship payed more (academic scholarships are available at local univeristies). They could go to any college they could afford. So far we have four college graduates and our next child has a full tuition and books scholarship. I agree with having the child help pay for the education, it means more and they are more serious and dedicated to their studies.

One of those unspoken benefits of a college education is the fact that it helps teach a child some self-discipline in fiscal and social matters, which should ultimately serve him well to better assume the myriad responsibilities of adult life. That experience also teaches many students how to handle failure, as well as success. These are principles of conduct and traits of character which are just as important as absorbing a superior academic education, in my view.

Working one's way through school is an extremely admirable goal. It demonstrates a tenacity of focus toward achievement, and a keen desire to better one's self, on the same order as that of a college applicant who bothers to apply to Harvard and Yale: Whether that applicant is actually accepted at Harvard or Yale is far less important than what JUST TRYING IN THE FIRST PLACE (to achieve scholastic acceptance at two of the finest universities in the world) says about the motivational drive and intrinsic values of that applicant.

Then too, the college experience offers countless opportunities to develop a broad social education: how to party, how to pick up girls, how to postpone academic suspension, how to avoid arrest for disorderly behavior, how to extricate one's self and/or fraternity buddies from jail -- all that really good stuff which makes a parent proud to have helped underwrite the cost of a real education.

Is this the voice of experience? I was the quintesential "Boy Scout". The worst thing I ever did was explore the steam tunnels under campus.

I worked part time as a garbage man. We has a 1932 Chevy dump truck with no compressor. They would throw the gargage cans up to me, I would empty them and then jump on the gargage. I got paid $1.45 an hour and had first salvage rights. I also roofed, installed swamp coolers and sold men's clothing. I paid for the first semester of grad school working swing shift pulling dry chain at a lumber mill in CA.

Why am I not surprised? You are still working just as hard as ever; the nature of the work is just considerably different, and you probably smell a lot better now. You've still got the "garbage detail," but now its with junk bond salesmen!

Yes, I admit, it was the sad voice of experience. I cleaned tables in the school cafeteria, worked for a tool steel company cutting milled rods of metal, sold answers to pop quizes which were repeated at later-period classes by my professors, and was one of those unidentified young rebels who helped burn down the R.O.T.C. building on campus at Columbia. I was very lucky never to have been caught doing either of the two latter, or I would have surely been expelled from school (if not incarcerated in "The Tombs" on a felony charge.)

Later, after my first wife and I had moved to Michigan and I had transferred to Oakland University in Rochester, one late moonless night a group of delinquent students (including me) filled the shallow reflecting pool located outside the dean's office with something like a hundred boxes full of strawberry jello. The fountain in the middle of the reflecting pool did a superb job of recycling that jellatin powder through the circulating water, until it finally clogged up and stopped functioning altogether. Then the jello in the reflecting pool got a really good chance to harden overnight. Those college experiences help explain why I turned out to be the way I am now, in spite of myself.

My current wife Becky spent her undergraduate years assembling audio speakers in a factory, serving as a clerk in the Navy, being a waitress in an upscale restaurant, and helping applicants prepare their claims at the State of Illinois Unemployment Commission's office in Chicago. She kept her knees together and remained a model of academic excellence at all times while attending school. (You could safely say that we didn't run in the same circles back then).

I had to walk to school barefoot in the snow all year long and it was uphill both ways. Kids have it easy now don't ya know.

A House Divided
---------------
Looking for a really great gift for your child or grandchild? How about a house? Of course, that's a bit of an exaggeration. But the idea isn't as far-fetched as you might think. You may be able to HELP your favorite young adult buy a home through an equity-sharing arrangement -- and give yourself some extra tax breaks, at the same time.

Utilities Not Included
----------------------
With an equity-sharing arrangement, you provide money for a down payment (or a portion of the down payment) and contribute toward the mortgage payments every month. Your child then pays you to rent your portion of the home.

The amount of rent your child pays you should be based on your percentage of ownership and fair market rental rates. You and your child would split the property taxes, homeowners insurance premiums, and maintenance expenses proportionately.

Tax Results
-----------
For tax purposes, the rent you receive is passive income -- and it's taxable in the year you receive it. However, your out-of-pocket rental expenses are tax deductible. You can also claim depreciation deductions for your portion of the home.

If your expenses are greater than your rental income, your deduction for the loss will be limited by the tax law's "passive activity" rules. Under those rules, losses are deductible only up to the amount of any other passive income you might have, plus another $25,000 if your adjusted gross income is $100,000 or less, and you "actively participate" in management decisions regarding the home's upkeep, etc. (The $25,000 loss allowance is phased out as income rises from $100,000 to $150,000. It's $12,500 for a married person filing separately, subject to phaseout as income rises from $50,000 to $75,000). Any losses that aren't deductible because of these rules can be carried over and applied to passive income in future years -- or deducted in full when you sell your interest in the home (perhaps eventually to your child).

To Market, To Market, To Sell ...
---------------------------------
When the time comes to sell, whether you sell your interest to your child, or the home is sold on the real estate market, your profit (if any) will be taxable as a capital gain. If you've owned your interest for more than a year, the profit will be taxed at the long-term capital gains rate (no more than 15% through 2010).

Tax rules are always complicated. So, before setting up an equity-sharing arrangement, talk to a competent tax advisor who specializes in tax law.