Put Your Hard-earned Money Back to Work

After working for years toprovide for their families,many physicians are nowchoosing to chase theirdream job or are workingfor charitable causes. If you findyourself in this growing statistic, hereare a few investment ideas for the excessfunds you earn in your golden years.

Help Fund an Education

You know the true value of an education,and just as you make plans to passyour wealth on to your family, you canalso help your grandchildren experiencethe joys and opportunities gained from acollege education. One popular vehicleto help your grandchildren save for collegeis a 529 plan. This type of planallows funds to accumulate tax-deferred.Withdrawals that are federal tax-free aresubject to the sunset provision, whichexpires in 2010 unless extended byCongress. In conjunction with stepped-upgifting, no additional gifts can bemade for 5 years, and a portion of thegift may be subject to recapture if thedonor dies within those 5 years.

Your grandchild can use the moneyin the fund for qualified, higher educationexpenses, such as tuition andbooks. Money withdrawn from a 529plan for this type of expense is exemptfrom federal and, in some cases, stateincome taxes. State tax-free withdrawalsare limited only to residentsof states that allow this benefit.Noncollege-related withdrawals aresubject to income taxes and an additional10% IRS penalty on earnings. Aninvestment in a 529 plan will fluctuatesuch that an investor's shares, whenredeemed, may be worth more or lessthan the original investment. All 529plans have various fees and expenses.Before you invest in a 529 plan, be sureto read the 529 plan's offering documentcarefully for more information onfees, charges, and expenses.

There are several attractive featuresto a 529 plan, especially if you have multiplegrandchildren. You can open separateaccounts for each of your grandchildren,and you can transfer funds fromone child to another in the same family.Some 529 plans also allow you to deductyour contributions—up to a limit—on your state income tax return.

Coverdell Education Savings accountsare another option to help yourgrandchild not only save for college, butalso for elementary or secondary educationcosts. Qualified withdrawals fromthis type of account cover a wide varietyof education-related expenses. There isan annual contribution limit of $2000per beneficiary, and you can only contributeto accounts for children aged 18and under. In addition, your adjustedgross income must be under a certainlevel for you to be able to contribute.Funds in the account must be used bythe time the beneficiary turns 30. Aswith a 529 plan, funds in a CoverdellEducation Savings account accumulatefederal income tax-deferred and are distributedfederal income tax-free, if usedfor qualified expenses.

Contribute to Charity

A common motivation for many whoare embarking on a second career is tosupport their favorite charitable causes.You can give to your favorite charitiesby participating in a donor-advisedfund, which allows you to contribute toone or several charitable causes.

A donor-advised fund allows you tocontribute to a charitable fund establishedin your own name. Through thisvehicle, you can control the timing anddistribution of the grants from the fund,and you receive a charitable income taxdeduction at the time you contribute tothe fund. Also, assets contributed to thefund are removed from your taxableestate, reducing your potential estatetax liability. You can establish a donor-advisedfund for as little as $10,000.

There are many ways to save, invest,and spend your additional incomeif you choose to work duringretirement, but don't forget to spend alittle on yourself. After all, these areyour golden years, and you shouldtreat yourself well. Your financial consultantcan also help you best allocatethe money you will earn from yoursecond career to maintain a well-balancedfinancial picture.

Joseph F. Lagowski is vice president, investments,and a financial consultant with AGEdwards in Hillsborough, NJ. He welcomesquestions or comments at 800-288-0901, orvisit www.agedwards.com. This article wasprovided by AG Edwards & Sons, Inc, member SIPC.