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Re: Saving for education
Old 05-18-2006, 06:18 PM   #21
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Re: Saving for education

Quote:
Originally Posted by JB
I looked into 529 plans for my brother.* I didn't recommend them because of the high expenses.* At best you'll see .5% extra cost (in most cases more).* In my view the extra cost and complexity offsets the tax benefits. For example, if the savings is outside the 529 you can offset gains with losses, or even write losses off.* If your 529 loses value you can't take a loss.*
The Utah plan has a 0.25% additional fee, not 0.5%* The* underlying fund expenses are those of Vanguard institutional shares which are not generally available to you.* *From http://www.uesp.org/investmentOptions02.html those are 0.025% for the S&P500 index fund, 0.08% for the midcap and small cap funds, and about 0.5% for the international funds.


And SteveR makes a good point about the state income tax advantages for some folks.
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Re: Saving for education
Old 05-18-2006, 07:00 PM   #22
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Re: Saving for education

One more thing to add - scholarships. If your child is lucky enough to go to a cheap state school AND get merit scholarships, you may have a hard time using up the college-specific savings that require expenditure on qualified educational expenses.

What would be worse than saving a small fortune for college expenses then not being able to use it?!

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Re: Saving for education
Old 05-18-2006, 07:31 PM   #23
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Re: Saving for education

IIRC,

Most 529 Plans allow for no penalty withdrawals for the amount of the scholarship [but might want to check on that]. This would certainly make my ER all that much sooner.

We're going to wait on contributing to college for the kids until we're able to max out our retirement plans + Roth IRAs. I showed my wife a spreadsheet to show her how much we'd have to save for the next 25-30 years to retire

Until then, my parents began contributing to NY's 529 plan [only 0.50-0.56%], since PA's investment 529 suuuuucks and MD's 529 investment plan is too expensive. After we're able to contribute we'll probably do the Maryland Prepaid College Trust a bit. And if our kids dont' go to a MD state school, we can use that money at any US-accredited college.

It certainly does suck a bit that prepaid tuition plans usually count much more against you when applying for financial aid than 529 investment plans.

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Re: Saving for education
Old 05-18-2006, 07:46 PM   #24
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Re: Saving for education

We did the UGMA thing many years ago and now we are doling out the money to her on a regular basis. Even though she's reached majority she's never questioned where the money is coming from (even though the checks are printed "FBO") and I endorse them and give them to her for deposit. I can see some problems going this way but the option wasn't available to us 20 years ago.
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Re: Saving for education
Old 05-18-2006, 07:56 PM   #25
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Re: Saving for education

My brother lives in South Carolina and two of his boys have their tuition paid by the state lottery program. He told me they had to make an SAT score of 1100 to qualify. His third made 1090 and is going to retake. I know Georgia has a similar program for tuition.
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Re: Saving for education
Old 05-18-2006, 07:57 PM   #26
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Re: Saving for education

The Utah plan looks better than the NY plans I looked at.... I still don't like the complexity. If everything goes according to plan they should be OK and you'll save on the tax of your appreciation. But if something goes wrong, like the market underperforms, or the kid doesn't go to college, the additional costs are against principle.

I'll just gift appreciated assets to loved ones who need money for college.
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Re: Saving for education
Old 05-18-2006, 08:02 PM   #27
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Re: Saving for education

Quote:
Originally Posted by poboy
My brother lives in South Carolina and two of his boys have their tuition paid by the state lottery program.
I tried the same thing to get my kids tuitions paid. My numbers never hit.

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Re: Saving for education
Old 05-18-2006, 08:45 PM   #28
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Re: Saving for education

I have been putting money into a Coverdell ESA and I Bonds. Don't like the costs of 529s (and not sure I could open one anyway), so anything needed beyond this will come from general retirement funds. I expect/hope that the ESA plus I Bonds should cover about 1/2 of the cost of college by the time we get to that point.

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Re: Saving for education
Old 05-18-2006, 08:50 PM   #29
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Re: Saving for education

Quote:
Originally Posted by justin
What would be worse than saving a small fortune for college expenses then not being able to use it?!
Having to go back to school yourself to spend down the account!

Or I guess it could be redesignated for grandkids... sort of an educational tontine.
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Re: Saving for education
Old 05-18-2006, 08:56 PM   #30
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Re: Saving for education

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Originally Posted by Sam
But there's a catch:* When I filled out the Federal Financial Aids form last year, it specically asked if I own any prepaid tuition plan.* I did a little research, and found out that the financial aids awarded would be reduced by a certain percentage of the value of the prepaid tuition plan.* I was not happy at all.* Luckily, my daughter did not need any finanacial aids at all.

Anyway, be aware of the reduced aids created by the presence of tuition plans.

Sam


Sam,
You might be happy to know that FINALLY, effective this coming*July 1, prepaid tuition plans will be on equal footing with the 529 savings plans (the mutual fund-type offerings) as far as aid eligibility is concerned. *Only 5.9% of the value of the account will need to be declared on the FAFSA.* Before, as you found out, prepaid plans were treated MUCH more harshly.

This was contained in a bill signed about a month ago.
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Re: Saving for education
Old 05-18-2006, 09:01 PM   #31
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Re: Saving for education

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Originally Posted by bpp
I have been putting money into a Coverdell ESA and I Bonds.* Don't like the costs of 529s
As stated earlier in this thread, *my research showed the ESA to be superior to any 529b I could find other than the $2K annual contribution limit. *In our case, my son owns the accounts FBO his children, my grandkids. *I only get to put the money in and manage the accounts with full POA.

Even with the $2K anual limit, we're progressing right along since we start immediately when the kids are born. *
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Re: Saving for education
Old 05-18-2006, 10:07 PM   #32
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Re: Saving for education

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Originally Posted by gindie
Only 5.9% of the value of the account will need to be declared on the FAFSA.* Before, as you found out, prepaid plans were treated MUCH more harshly.

This was contained in a bill signed about a month ago.
Thank you gindie.* I didn't know about it.* Do you happen to have a link to that bill?

Sam
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Re: Saving for education
Old 05-18-2006, 10:14 PM   #33
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Re: Saving for education

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Originally Posted by justin
What would be worse than saving a small fortune for college expenses then not being able to use it?!
I don't know about other plan.* But with the Texas Tomorrow Fund, you have several options:* 1) Transfer it to another kid.* 2) Cash out.* The value is equivalent to TODAY'S average tuition, which is slightly over 2 times what I paid 9 years.* 3)* Keep it for another 10 years then cash out.
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Re: Saving for education
Old 05-19-2006, 02:27 PM   #34
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Re: Saving for education

Super information.

After looking through the options again, I decided to hang in there and see what eventually falls out of my brain. Probably none of the above. The ESA is appealing due to its breadth, but that advantage might go away before my son is old enough to use it. 529's are too restrictive on what we can spend the money on.

At our current ~7-8% average tax rate and 15% capital gains being our probable ceiling, its just not worth the loss of flexibility and the probably irritating paperwork to maybe save a couple of bucks someday.
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Re: Saving for education
Old 05-19-2006, 08:18 PM   #35
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Re: Saving for education

The best way to pay an education for children is not to save at all or channel all non-retirement money to your primary residence. We went to a college presentation represented by Harvard, Georgetown, U of Penn, and Duke. They said that if your income is less than $60K the cost is $0, which is similar to that of Princeton University. The admission to these Ivy-league schools is not depenent on your ability to pay. They will provide the necessary financial aid. Primary residence and retirement investments are excluded. Only income and savings (cash, stocks, bonds, etc) will be used to determine financial aid. According to Harvard, over 70% of undergraduate students receives aid in excess of $32K per year - wow.
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Re: Saving for education
Old 05-19-2006, 09:09 PM   #36
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Re: Saving for education

Sam,
The name of the bill was the Deficit Reduction Act of 2005.* Here is a snippet from the very good Saving for College website:

"Another major change in the new law is the way a 529 prepaid tuition plan is treated. Under the old law, your investment would not show up at all on the FAFSA, but the benefits paid out would be considered by the institution as a resource that reduced your child's overall financial "need". The bottom line effect for most families was a dollar-for-dollar offset in eligibility.

Going forward, a 529 prepaid tuition plan will be treated the same as a 529 savings plan. It will no longer cause a dollar-for-dollar reduction in financial aid. Instead, the reduction will be no more than 5.6 percent of the refund value of the prepayment account."

I recommend reading the whole page.* URL is http://www.savingforcollege.com/intr...neral_faq_id=4
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Re: Saving for education
Old 05-19-2006, 09:12 PM   #37
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Re: Saving for education

Thanks for the post Spanky.

How long ago was that college presentation you attended? *From what you provided that is a strong confirmation of my approach to college planning. *

Quote:
Originally Posted by Spanky
Only income and savings (cash, stocks, bonds, etc) will be used to determine financial aid. According to Harvard, over 70% of undergraduate students receives aid in excess of $32K per year - wow.
Get accepted at one of the academies and 100% get full financial aid --- thanks to you and me!
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Re: Saving for education
Old 05-19-2006, 10:12 PM   #38
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Re: Saving for education

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Originally Posted by Papi
Thanks for the post Spanky.

How long ago was that college presentation you attended? From what you provided that is a strong confirmation of my approach to college planning.
Get accepted at one of the academies and 100% get full financial aid --- thanks to you and me!
Papi,

We attended the presentation a week ago. It was intended for our daughter. We do receive letters from West Point and other academies. However, she is not interested even though I have been telling her that it is a good place for a sound (and free) education and acquiring leadership skills. My coworker's son has just been accepted into West Point. He is very happy about it.

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Re: Saving for education
Old 05-19-2006, 10:34 PM   #39
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Re: Saving for education

Quote:
Originally Posted by Spanky
My coworker's son has just been accepted into West Point. He is very happy about it.
Who's happy-- the coworker or the son?

Just kidding...
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Re: Saving for education
Old 05-20-2006, 08:50 AM   #40
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Re: Saving for education

several mentions of UTMA vehicles ... FYI, my lawyer refers to them (and UGMA s) as HARLEY FUNDS ... having seen many used for such purposes by the minor (when attaining majority) rather than as intended
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