College plans - for somebody else's kids

[unclemick]

Step daughter in spare room had the audacity to die unexpectedly. Since me and the late SO were not married there is no legal relationship to her 4 grandchildren. The son and DIL are consumers in the grand American Tradition - they never met a dollar they could hold on to - and income is not 'that' high either. Pray for a scholarship and or military service training is their current hope.

So 529 Or

Just starting to research this. Age spread 3 months to age 10.

Looking for something that locks it up for education and won't get raided for er ah emergencies.

heh heh heh

Won't offer a free ride - just perhaps a tipping  point - jump start.

 

[bpp]

Wow, really sorry to hear about this latest blow, unclemick. It has been a really terrible last year for you.

You could open Coverdells, which you retain control of but with the kids as designated beneficiaries. Limit is $2,000/year/kid, and you would have to make sure that nobody else is doing the same because the limit applies to all accounts in each kid's name.

If you need more than that, I guess 529's, or maybe better yet some kind of trust to make sure the parents don't get ahold of the money in the event you aren't around to prevent it?

 

[brewer12345]

If you really want to keep them from raiding it, I would seriously consider setting up a trust for them that is administered by someone who would take a dim view of non-educational expenses. If possible, it would be better if they never knew about these trusts, given that such things have a funny way of affecting people's behavior.

 

[unclemick]

Hmmmm

Brew - that's what's in the back of my sneaky mind - altering behavior without them realizing it - enough to get them to step up to the plate and learn to play the game.

Not give them fish - but teach them how to fish - and all that rot.

The son at 17 scored high on whatever test they had in those days and was signed up for the Navy - but was hit by a car and ended up a with a dinged up back - sooo no Navy.

And one of my watercooler buddies back in the old days - aka Jim the Black Major(army double dipper) used to tell us spoiled daughter in med school stories. All husband/wife tales about the early days of the Civil Rights Movement and 'all praise to the US Military reforms' went in one ear and out the other. Heard that even before reading Millionaire Next Door.

To repeat - enough to suit up and show up but not a total free ride

 

[2soon2tell]

Unclemick,

I'm sorry to hear about your recent loss. You've had a rough 12 months.

In answer to your question, check out 529 plans for college savings.

Incidentally, my DW and I are originally from your former neck of the woods and kept our sailboat on Bayou Liberty in Slidell.
2soon

 

[brewer12345]

UM, my comments on altering behavior were in light of the trust fund beneficiaries I have known. To a person, they have been rootless, undirected people who drift through life without a whole lot of worry about the future or attention to much of anything in particular. I think this behavior is engendered by the knowledge that the money (that they never sweated for in the first place) is in the bank, so why should they trouble themselves with anything? I don't think that net-net it has been a positive in their lives. That's why I suggest a trust that they don't know about until it is time to pay for school.

 

[LOL!]

UM, my comments on altering behavior were in light of the trust fund beneficiaries I have known.  To a person, they have been rootless, undirected people who drift through life without a whole lot of worry about the future or attention to much of anything in particular. 

Perhaps the provider of the trust used a trust because of this behaviour. That is, the trust did not cause this behaviour. If the trust beneficiaries had been fine upstanding members of the community, then a trust would not have been necessary in the first place.

Back on topic: I think a 529 plan is a great way to go for UM.

 

[cute fuzzy bunny]

Depends on your tax situation mick. If you're keeping a good handle on your income taxes, all of these programs will give you just a modest financial advantage. And there are some benefits to each so that more than one might make sense.

529's allow huge contributions and Roth like tax-free growth and dispensation but are only good (IIRC) for primarily domestic US college stuff. Some international and nontraditional school stuff is plausible if it fits specific guidelines. Looking at .8+% expenses/fees on the funds at the cheapest end of the spectrum. For someone in a lower tax bracket, sticking with a <.20% index fund, selling it and paying a 5% capital gains rate, and paying the school directly or gifting money to the student might be better options.

ESA/Coverdells only allow small contributions...I thought it was $3k a year although BPP says 2K. But they can be used on almost any education expense including preschool, technical schools, even buying uniforms, paying for any education related tool such as a computer...lots of flexibility.

Curveball is many of these plans "expire" in about 5 years and have to be renewed by congress. Our fabulous congresscritters wanting to be able to leverage their influence repeatedly on the same issue instead of setting a stick in the ground and leaving it there. The "other side" is concerned about the dilution of the public school systems with such plans...look at the school voucher issue and you'll see the trench warfare at hand.

So you might chuck a bunch of money into one of these things and then lose the tax benefits or have to move to another vehicle if the one you pick isnt picked up for another season.

I decided to just pay out of the regular taxable for Gabes school. I still might put a few bucks into an ESA just to buy computers and stuff but my savings at our average tax rate would hardly be worth doing the paperwork.

 

[unclemick]

Hmmm - thanks everyone

Leaning toward Missouri 529 - Now have a Vanguard option, 0.62% expenses - probably lump - given that I'm more gunshy about life expectancy nowadays. They have been here 12 years and no plans to move. Plus my limited research shows - live at home and go to school is a low budget option for a state school - ?Western MO??

heh heh heh - will look into trusts also. Have to see the lawyer after the 4th - since my benficiaries seem to have a bad habit of passing away. Down to just my sister - not much younger than me - so a little gifting while I'm above ground might be appropriate.

heh heh heh - then I can revert to my heart - "cheap bastardhood" - rusty old pickup, bib overalls, good old dog and Jimmy Buffett shirts on Sunday. BTY - step daughter in spare room knew Jimmy back in Mississippi way back 'before'.

Anyone care to guess which town Not to cross thread or anything.

 

[LOL!]

529's allow huge contributions ...
Looking at .8+% expenses/fees on the funds at the cheapest end of the spectrum. ....

Apparently CFB has not kept up to date on the expense ratios and fees of the cheapest plans.
From the Utah 529 plan (which uses Vanguard institutional funds) at www.uesp.org:
"The total range of asset fees on any UESP option including the UESP administrative asset fee is 0.00% to 0.391%."  (That's right, they have a plan with 0% expenses and fees!)

For our kids (who will get full academic scholarships anyways  ), we decided to use 529 plans just as a way of diversifying assets and reducing our tax burden.

It is true that if you are in a low enough tax bracket, just saving in a tax-managed way gives you more flexibility and options with your money. 

But if you keep it a secret from the kids that they have a college benefactor, then there is no leverage or motivation on their end.  Part of charitable giving is to leverage your giving: "For every $1 of college you pay yourself, I'll give you $2."

 

[youbet]

ESA/Coverdell is superior to any 529B plan I've researched except for the $2k/yr max contribution limit.   Much, much more flexibility and lower costs. 

 

[cute fuzzy bunny]

Apparently CFB has not kept up to date on the expense ratios and fees of the cheapest plans.
From the Utah 529 plan (which uses Vanguard institutional funds) at www.uesp.org:
"The total range of asset fees on any UESP option including the UESP administrative asset fee is 0.00% to 0.391%." (That's right, they have a plan with 0% expenses and fees!)

Wow that is cheap. I looked at the california options and the cheapest I could find from someone I recognized was TIAA/CREF's plan and I think their ER is around .80 for the fund options I looked at. At the time vanguard didnt offer a california plan...not sure if they do now or not.