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46

DECEMBER 2014

|

THE FOREIGN SERVICE JOURNAL

RETIREE VP VOICE

| BY LARRY COHEN

AFSA NEWS

It’s That Gift-Giving Time of Year Again

Views and opinions expressed in this column are solely those of the AFSA Retiree VP.

Contact:

lawrencecohenassociates@hotmail.com

or (703) 437-7881

Like most parents and grand-

parents, I am concerned

about the financial security of

my kids. The challenge they

face is no secret. A smaller

and smaller share of govern-

ment budgets goes to the

younger generation as spend-

ing on the elderly, especially

on healthcare, crowds out

other expenditures.

As Catherine Rampell

noted in the

Washington Post

,

an increase in the share of

elderly in any jurisdiction cor-

relates to a significant reduc-

tion in education spending

per child. And thanks to the

baby boomers, we are seeing

more elderly around.

Meanwhile, millennials

are increasingly saddled with

unsustainable student loan

debt. Their wages, if they

receive any, are often stag-

nant. Ever-increasing housing

costs may make any kind of

home ownership out of reach

for many. Pension plans are

almost extinct in the private

sector.

Meanwhile, retirement

plans for new federal employ-

ees are significantly less

generous than the plans we

currently enjoy. Without help,

our children and grandchil-

dren confront steeper climbs

than we faced to a comfort-

able retirement.

I o’er a suggestion for

parents and grandparents.

Take a step back from ordi-

nary holiday consumption

and make a real investment

in their future. In a calen-

dar year you can give up to

$14,000 to any person and

not be subject to the gift tax.

My mother recently gifted

each of her 10 grandchildren

$5,000. But there was a

stipulation: the money could

be used for either paying

down student loan debt

and/or placement in an IRA,

preferably a Roth IRA. (Note:

to be eligible to contribute

to an IRA, the person must

receive earned income/com-

pensation equal to or greater

than the amount of the IRA

contribution.)

Think about it. With a Roth

IRA, a child of 25 will accrue

four-plus decades of tax-free

earnings on the account by

the time he or she retires. An

investment of $10,000 in year

zero yields $217,200 after

40 years at just an 8 percent

return rate.

Suppose you are about

to have a grandchild. Set-

ting aside just $1,000 in

an investment returning 12

percent—an ambitious target,

certainly—would accrue $1.6

million when the child turns

65. Talk about a gift that

keeps on giving!

If the child has no earned

income, consider contribut-

ing to his or her 529 Educa-

tion Savings Plan. The cost

of a college education will no

doubt continue its inexorable

climb. For those who are

reluctant, remember 529

plans have a unique advan-

tage. While the value of the

account is removed from your

taxable estate, you retain

full control over the account,

including the right to get your

money back.

As the account owner, you

designate the beneficiary—

be it a child or grandchild,

a niece or nephew, or even

yourself!—and you retain

complete control over the

funds in the account, includ-

ing distribution.

You can change the benefi-

ciary whenever you choose.

Once you set up a 529 college

savings plan, other family

members and friends can

also contribute. This is a great

way for families to come

together to help give the gift

of a college education.

Remember, 529 funds

grow tax free. If the funds are

withdrawn before being used

for the beneficiary’s educa-

tion expenses, they become

taxable.

Finally, in addition to

investing in family members,

consider investing in another

worthy cause, the AFSA

Scholarship Fund.

A donation to the fund

enables Foreign Service high

school students to continue

their academic achievement

as undergraduates. More

information about this can

be found at

www.afsa.org/

scholar.

n

REMI NDER :

NOMI NAT I ONS FOR

D I SSENT AWARDS

AFSA proudly recognizes constructive dissent within

the systemwith four separate awards.

The

W. Averell Harriman Award

is for entry-level

(FS-6 through FS-4) ožcers; the

William R. Rivkin

Award

is for mid-level (FS-3 through FS-1) ožcers;

the

Christian A. Herter Award

is for Senior Foreign

Service ožcers; and the

F. Allen “Tex” Harris Award

is for Foreign Service specialists.

Recipients receive prize money and travel

expenses to attend and be honored at a ceremony in

June in the Benjamin Franklin Diplomatic Reception

Room at the State Department.

Nominate someone—or yourself!—for one of

these awards. The nomination deadline is Feb. 28,

2015. For more details on the awards, and to sub-

mit an online nomination, visit

www.afsa.org/dis-

sent. Please contact Special Awards and Outreach

Coordinator Perri Green, at

green@afsa.org

or (202)

719-9700, for more information.

ANNOUNCEMENT