Mortgage insurance guarantees that the lender will get all (or most) of its money back if the borrower quits paying and the house is foreclosed. The refund question is complicated because the FHA rules have changed over the years. But here goes.
Two groups of people might qualify for FHA refunds: (1) Those who borrowed after Sept. 1, 1983, and paid off the mortgage within the first seven years. They paid for part or all of their mortgage insurance upfront and will get a portion of their payment back. (2) Those who borrowed before Sept. 1, 1983, made payments for more than seven years and paid off the loan before Nov. 5, 1990. Their mortgages went into an FHA investment pool. They might or might not get a refund, depending on whether their pool made money. Your parents fall into this second group.
Nowadays, refunds (or applications for refunds) should come automatically, soon after you pay off the loan. If you think you could be entitled to get some money back, and haven’t heard from the FHA, check the Web (www.hud.gov/cgi-bin/refund2) or call the Department of Housing and Urban Development at 800-697-6967.
God bless the Granny Bank. It’s helping to fund tens of thousands of college educations. Here are some ways to make your money grow, for both parents and grandparents. My favorite is first.
(1) The new college investment plans. Sixteen states offer them so far. You make contributions for the child, the state arranges for your money to be invested (usually in stocks and bonds) and your gains grow tax-deferred. On withdrawal, the Feds tax the profits in the child’s bracket, not yours, provided that the money is used for higher education. You might get a break on state taxes, too.
In your state, the New Jersey Better Educational Savings Trust requires at least $25 a month or $300 a year until you’ve put in $1,200. After that, you can contribute whatever you want. There’s a $15 annual maintenance fee. Call NJBEST toll-free at 877-465-2378. The state doesn’t tax the gains if the child attends a New Jersey school.
Readers interested in other states’ plans should check www.collegesavings.org or call 877-277-6496. If you don’t like the plan in your own state, you can invest somewhere else. Two possibilities: the New York plan, run by the teachers’ pension fund, TIAA-CREF (minimum: $250, or $25 for periodic electronic payments; 877-697-2837); or the New Hampshire plan, run by Fidelity ($50 a month or $150 a quarter, paid electronically; 800-544-1722).
(2) First Start (800-531-0553), a mutual fund for kids. Your grandchildren will know many of its stocks–Gap, Hershey Foods, Walt Disney and Microsoft, among others. A monthly newsletter answers kids’ mail and explains investment concepts. You can start a custodial account for a child for as little as $250.
One problem: the dividends and capital gains are taxable every year. You don’t get the tax breaks offered by the college investment plans.
(3) Education IRAs. You can invest up to $500 a year for every child under 18. You get no tax deduction, but the gains are tax-free if spent on higher education. To make the full contribution, your adjusted gross income has to be under $95,000, if single, or $150,000, if married and filing jointly. IRAs are available from banks, mutual funds and brokerage houses.
One problem: in the year the child takes the money out of the Education IRA, he or she won’t qualify for the new education tax credit. So ask yourself: will the IRA really be a plus?
(4) Series EE Savings Bonds. On EE bonds bought since Jan. 1, 1990, the interest can be partly or entirely tax-free if used for college tuition. But there are conditions. For example, the bonds have to be owned by the child’s parent (grandparents can give the parent the money to buy); the parent’s income can’t exceed certain moderate limits, and the child can’t use tax-free EE bond income and an education tax credit in the same year. All this, for a rate that changes every six months and is now just 4.6 percent?
Technically, yes. Effectively, no. Roth IRAs are for lovers only.
Married couples filing jointly can take the full, $4,000 Roth contribution ($2,000 for each) on adjusted gross incomes up to $150,000. If you file separately, you’re entitled to a $2,000 deduction–but only if your income is zero! To Congress, the couple that pays together stays together.
Correction: SIMPLE IRAs aren’t simple. When I wrote about them last month, I should have said the following: When employers match the money employees put in, the match could be as low as 1 percent, but can’t exceed 3 percent, of the employee’s compensation.
Send your questions to Jane Bryant Quinn, NEWSWEEK Focus: On Your Money, 251 West 57th Street, New York, NY 10019. Letters can be answered only in the column.
