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We're in the Money!
Spending Your Advance Child Tax Credit Check
By Cara J. Stevens
Tax experts such as Denise Sposato, public relations manager for H&R Block, have other advice. "Experts all agree that if you can put it into savings and let your money work for you, that's always the best way to go," she says. Sposato recommends putting the money into a 529 plan, which is a state-sponsored educational savings plan. With this plan, an investment company administers the accounts, and withdrawals are taxed at a child's rate rather than at the high rate of an income-producing adult.
Rick Birnbaum, a CPA in Tarzana, Calif., agrees with this advice. "I recommend that each person open up an educational IRA account or a special savings account for each child so the money can grow tax-free for years and really be something by the time the children will need it," he says.
Brokamp recommends paying off high-interest debt (anything that charges more than 8 percent in interest) and then using the money for a retirement account.
He also recommends the 529 educational savings plan or the Coverdell Education Savings Account (formerly known as the Education IRA). Brokamp does offer a note of caution, however.
"Keep in mind that if parents haven't saved enough for college, the student can always apply for financial aid and take out loans," Brokamp says. "However, there is no financial aid for retirement – there is no such thing as a Geezer Scholarship. So make sure retirement is funded first."
Whatever you decide to do with the credit, "the bottom line is that it's free money from the government," Lyons says. "Enjoy it!"
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