Hang Tough!

Dear Readers —
As I write this I am sitting on an airplane at the end of the runway in Pittsburgh. We can't take off because of heavy storms in the New York City area and my arrival is now delayed by at least 8 hours (we're talking mega-storm front).

An apt metaphor for what's happened to folks who had thought they were going to land in retirement, only to find that financial storms have wreaked havoc with their portfolios, forcing them to re-think their timetable.

I've written about this before, pointing out that government leaders will move quickly to fix the crisis of confidence on Wall Street because they have to: our entire financial system is based on trust. As we saw in response to the Savings & Loan crisis in the early 1990s, regulations will be toughened and certain individuals will pay the price of manipulating profits and abusing the public trust.

I only wish this were not an election year. I can't help but believe all the political posturing we're being subjected to is only delaying a resolution.

I know how painful this stock market decline has been. And I appreciate how hard it is to fight the impulse to chuck it all and cash out. However, I've also seen the charts of similar periods in the past. They clearly show that those who can separate their emotions from their investing, have been rewarded over time.

I'm reminded of the response renowned investor Warren Buffett gave when asked what it takes to succeed in the stock market (paraphrasing here): "You need the ability to be fearful when others are being greedy and the ability to be greedy when others are being fearful."

Remember, too, that Warren Buffett has picked some losers over the years. The important thing is that his winners substantially outnumbered them and he had the patience to continue to own stock in a company he believed in, even when it was un-loved by others who had grown fearful.

If your asset allocation is correct, that is, if you are properly diversified among stocks, bonds and other investments, and you believe you are invested in solid companies, then I urge you to hang tough. Here are a few reasons why:

— The stock market and the economy have become "disconnected." All of the major economic indicators — inflation, interest rates, productivity, energy costs, housing, consumer spending — along with lower taxes, point to a stronger economy than we're seeing reflected in stock prices.

— There are more than 17,000 publicly traded companies in this country. Even if more Enrons and Worldcoms emerge, this will still represent only a fraction of the total. Most CEOs are angry about how a few bad apples have tainted the barrel and are anxious to prove to investors that their firms are run honestly, their numbers reliable.

— There are literally trillions of dollars sitting on the sidelines as nervous investors shove money into savings accounts, CDs and money market funds. When it dawns on folks that, gee, this economy is in darn good shape and, hmmm, most American companies do not play games with their numbers, then stand back. Because that sidelined money earning maybe 1% is going to start coming back into the stock market. I just wish I could tell you when. In the meantime, consider the advice of Warren Buffett.

Keep the faith,



Gail —

I understand I can take money out of my IRA or my wife's SEP IRA to pay for tuition and room and board for my kids college educations without paying the penalty (just the normal taxes). Are there any limitation as to the amount one can take out? Or the rate at which one can take out?

I have two kids in college at the same time next year and I'd like to use my entire IRA (about $50,000) to pay for next year's costs. Is that possible?

I've heard that the IRA check should be written out directly to the college (and not to me) but my financial planner says they cannot do that, and insists that it must be sent to me. What else do I need to be concerned about in using my IRA to pay for my kids college education?

Thank you.



Dear Ken —

I feel like a broken record on this subject but I will repeat this until folks get it: While you can always get a loan to cover a child's college education, I haven't yet heard of a loan to cover your retirement expenses!

I hate the idea of raiding your nest eggs to pay for college. (Have I made myself clear?)

OK, I've climbed down off my soapbox...

To answer your question, Section 72(t) of the tax code allows you to withdraw as much money as you want from your IRA to pay for a child's, grandchild's, your or your spouse's qualified higher education expenses.

These include tuition, room & board, books, fees and supplies. You will owe ordinary income tax on the amount of your withdrawal (assuming all contributions were made on a pre-tax basis), but you will not be subject to the normal 10% penalty for taking the money out prior to age 59 1/2.

The check will be made out to you. Make sure you save all receipts. In the event you are audited, you will have to justify every penny. Please. please think long and hard before you do this. Especially since the rate on federal college loans is now at a 30-year low. (More on this in next week's column...)



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The views expressed in this article are those of Ms. Buckner or the individual commentator, and do not necessarily reflect the views of Putnam Investments Inc. or any of its affiliates. You should consult your own financial adviser for advice regarding your particular financial circumstances. This article is for information only and is not an offer of the sale of any mutual fund or other investment.