Dear Readers,

A couple of weeks ago I answered a letter from "Nancy" who is snowed under by debt. I referred her to a national, nonprofit organization called Consumer Credit Counseling Service which will intercede on your behalf and work out a repayment schedule both you and your creditors can live with. They've asked me to pass along a special toll-free number you can call to locate the office in your area, so here it is: 800-388-2227.



I have a question that is not likely to impact your other readers but I still hope that you can help me. My employer, a large, international tax and benefits consulting firm, paid for my education (MBA) by paying tuition funds directly to my school. I am under contract to work for my firm for the next few years to absolve this financial obligation. My salary will be $125k.

My company has offered me the one-time option of changing my existing contract and I am trying to figure out what, if any, tax consequences this tuition program and the repayment options will have.

Option #1: My tuition debt is erased by one third over each of three years. If I leave the company for any reason, including being fired, I owe the entire amount with the exception of the first year.

Option #2: My debt is erased at the end of two years, but if I leave the company at any time during that period, I have to re-pay the entire amount.

Thank you,


Dear Dan —

Under existing tax regulations, if an employer pays for undergraduate college courses, the amount of this benefit is not included in your taxable income. However, employer-paid graduate-level education is, and would show up on your W-2 income statement. This would be the case under either option you've been offered.

The 2001 Tax Act has extended this exemption to include graduate school starting January 2002. Unfortunately, since you've already completed your MBA, you fall under the old rule.

But you still might be able to avoid having the cost of your education tacked on to your taxable income according to Jerry Weinstein, a CPA in West Roxbury, Massachusetts. He says the tax code makes an exception for graduate school courses taken either: a) to maintain or improve your skill in your current job, or b) as an express requirement of your employer as a condition of your continued employment. The latter is what's known as a "working condition fringe benefit."

In other words, if your employer required you to get an MBA in order to keep your job, then the tuition would not be included in your income. However, this is not something you get to decide. The nature of the tuition payment is determined by your company.

Trust me, you are not the first employee working for your firm whose tuition was paid. Weinstein says the first thing you should do is contact your human resources department and ask them how this has been handled in the past. Unfortunately, you will probably be stuck with whatever precedent has been established. In either case, the company gets to deduct the expense they paid, so it's hard to imagine it would not handle this in a way that reduces the impact on employees — especially since so many of them are tax professionals!

If if turns out your tuition will be taxed as income, then it behooves you to stretch this out as long as possible — especially since ordinary income tax rates are being reduced every year. So take the three-year option if you think you'll stay there long enough to complete your obligation.



Up to last year, my husband and I contributed to a regular IRA, $2000 per year. This year, my husband started a 401K with his company. He is making $68,000 a year and contributes the maximum of 15%, which will result in a contribution of $10,200.

His company matches another $1250. He also started a Roth IRA this year, since he can't contribute any more to a regular IRA. I continue to contribute to my regular IRA. Our AGI was $127,000 last year. Can we do all this? Is this the best way to go?


Dear Beth —

It sure sounds as if the two of you really have a grasp of the IRA rules! (For those who need a refresher course, click on the "Archives" bar at the top right of this column and scroll down to the article titled "2001 Contribution Rules.")

I just have one question: Are you also covered by a retirement plan through an employer, Beth? If not, then you fall under the rules for taxpayers who are "married, filing jointly" where one spouse has a plan through work and the other does not. Provided your MAGI ("Modified Adjusted Gross Income" — your AGI found on line 14 of form 1040A plus interest you earned on certain bonds and certain tax-exempt income) does not exceed $150,000, then the spouse not covered by a company retirement plan can make a tax-deductible contribution of $2,000 to a traditional IRA this year.

As you've probably heard, contributions to all kinds of retirement plans are going up next year. Not only will your husband be able to increase the money going into his 401(k) to $11,000, each of you can put $3,000 into an IRA. If you're over age 50, you can contribute an extra $1,000 to your company-defined contribution plan and an additional $500 to your IRA.

Anyone interested in a free brochure which covers the basics on IRAs can download "Publication 590" from the IRS website: www.irs.gov.

Congratulations, Beth, the two of you are headed in the right direction!


Gail —

According one of your recent articles, I can be a member of a qualified retirement plan and still contribute to a Roth IRA, assuming I am not over the income limit (single, MAGI under $95,000). Is this true for traditional IRAs too? For instance, if I do not have a retirement plan I am eligible to contribute $2,000 to traditional IRA regardless of income. If my MAGI is under $95,000, can I also contribute $2,000 to a Roth IRA?


Dear Walter,

If you are employed, but are not covered by a company retirement plan, then no matter how much income you earn you are eligible to make a tax-deductible contribution to a traditional IRA.

Things get more complicated if you have a retirement plan at work. That's when the income limits on deductibility kick in.  (Please see the above-referenced article.)

As you clearly understand, if you make too much to qualify for a deductible IRA, then a Roth IRA is a good alternative. As a single person, even if you participate in your employer's plan, you are still eligible to contribute $2,000 ($3,000 next year) to a Roth IRA provided, as you point out, your Modified Adjusted Gross Income income does not exceed $95,000.

However, under NO circumstances can you contribute to BOTH a traditional and a Roth IRA in the same year!

Hope this clears things up,


If you have a question for Gail Buckner and the Your $ Matters column, send them to moneymatters@foxnews.com along with your name and phone number.

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.