Seeking alternatives to education IRAs

Q I'm a senior citizen concerned about my grandchildren's education. The law allows $500 a year for a child's education through an IRA. Are there alternatives to set aside more for children?

J.C., Peoria, Ariz.

A Under recent tax-law changes, parents, grandparents, and others can now set aside an aggregate of $2,000 annually in an education IRA, up from $500 in tax year 2001. A popular alternative is a 529 plan, which allows much higher contributions. In Arizona, for example, one can set aside as much as $177,000 in a 529 plan. Go to www.savingforcollege.com, or call the Arizona Commission for Postsecondary Education at 602-258-2435.

Q I am retired and would like to engage the services of an investment adviser. How do you go about finding a person with whom you can entrust your savings?

G.A., via e-mail

A Seek referrals from friends and associates, or call the main financial advisory groups in the US: The Financial Planning Association, 888-806-7526; the American Institute of Certified Public Accountants, 800-862-4272; and the National Association of Personal Financial Advisors, 800-FEE-ONLY. Once you get a name or two of planners in your community, check with the local Better Business Bureau to see if there are any unusual complaints.

Q I am a young investor with limited resources for investing. Financial writers hate investing in penny stocks. Yet shares for smaller firms are very inexpensive and, in some cases, these companies become quite successful. How should I go about investing in penny-stock firms?

M.B., Seattle

A First, differentiate between "smaller firms" and "penny stock" companies. Small firms tend to be listed on established stock markets, such as the Nasdaq. Over time, their returns tend to be better than large companies.

But penny-stock companies are often unlisted, with share prices under $5. The SEC has information on all registered corporations (800-SEC-0330). Ask for form 10K, the annual financial statement for a public corporation. Rating services such as Moody's and Standard & Poor's may also have information on specific penny stocks.

Penny stocks can be purchased through brokers or, in some cases, directly from the companies. But consumer advocates caution against buying penny stocks because so many have severe financial difficulties.

Questions about finances? Write:

Guy Halverson

The Christian Science Monitor

500 Fifth Ave., Suite 1845

New York, NY 10110

E-mail: halversong@csps.com

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