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 Giving $55,000 to Your Newborn: (zt) |
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ceo/cfo
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作者：ceo/cfo 在 海归茶馆 发贴, 来自【海归网】 http://www.haiguinet.com
Strategies for 529 College-Savings Plans
June 22, 2005; Page D1
We don't have the final grades yet. But it looks like 529 college-savings plans will finish at the top of their class.
For years, these plans have been dogged by uncertainty. How would they be treated for financial-aid purposes? How would they be taxed? Things are still up in the air. The signs, however, are pretty darn encouraging.
Indeed, 529 savings plans are emerging as the best investment option for college savers, better than custodial accounts, Coverdell education savings accounts and prepaid tuition plans.
But if you want to get the most out of 529s, you need to favor low-cost plans -- and you have to sock away a truckload of money as soon as your kids are born.
• Clouds clearing. A 529 savings plan allows anyone, regardless of income, to save tax-free for college by investing in the plan's menu of mutual funds.
The key advantage -- tax-free growth -- was bestowed by the 2001 tax law. Problem is, like many provisions in the 2001 law, this federal tax-free treatment is scheduled to sunset in 2010, which means withdrawals in subsequent years could be taxable.
Relief, however, may be on its way. Last month, bills were introduced in both the House and Senate that would make 529 plans permanently tax-free. "There's a 50-50 chance we will end the sunset provision before the end of the year," reckons Joseph Hurley, founder of Savingforcollege.com.
There has also been concern that 529 plans could make it harder to get financial aid. But once again, things are looking up.
Early last year, the U.S. Department of Education issued a memo saying that, for purposes of federal financial aid, 529 savings plans "can be regarded as assets of the parent if the parent is the owner of the account." If parent-owned 529s had been treated as student assets, the impact on financial aid would have been much more severe. In addition, the Department of Education said that tax-free distributions from 529s wouldn't be counted as either parent or student income, and thus these distributions wouldn't reduce aid eligibility.
When doling out their own aid, colleges seem to be taking a similar approach, treating parent-owned 529s as a parental asset. That's critical, says K.C. Dempster, director of program development at financial counselors College Money in Marlton, N.J. The reason: While federal financial aid consists largely of low-cost loans, the colleges themselves award a heap of grant money -- which never has to be repaid.
• Dodging trouble. Sound appealing? Even with all their advantages, a 529 could be a bum investment, unless you pick your plan carefully.
The fact is, there's huge variation in plan costs. While some 529s charge no sales commission and annual expenses equal to less than 0.7% of assets, others impose an initial or deferred sales commission and expenses that can top 2% a year on some share classes. Such hefty costs make it tough to earn healthy investment gains.
Last year, the National Association of Securities Dealers even issued an "investor alert." One concern: Brokers were directing clients into out-of-state plans, even though these clients could have enjoyed both lower costs and a state-tax break by sticking with their own state's 529.
To check out the different plans, go to www.savingforcollege.com. There, you can get details on no-load, low-cost plans, such as those offered by Iowa, Michigan, Minnesota, Missouri, New York and Utah. Some of these states also have broker-sold plans, which are more costly.
Found yourself an attractive 529? Before you plunk down any money, think carefully about whether you can really afford to fund the plan. For those who can, it's a potential bonanza.
In fact, there's a special provision that allows folks to "superfund" a 529. Usually, you can't give more than $11,000 to another person in any year without worrying about gift taxes. But with a 529, a parent or grandparent could invest, say, $55,000 in one shot and count it as his or her contribution under the gift-tax rules for the next five years.
Suppose you stash $55,000 in a 529 when your daughter is born. Let's also assume that you invest in stocks until your daughter turns 15 and then swap the money into bonds. Result: You might amass more than $200,000 for your daughter's college costs, including a startling $150,000 of tax-free gains, calculates Glenn Frank, a financial planner with Wachovia Wealth Management in Waltham, Mass.
What if you don't have $55,000 kicking around when your daughter is born? The numbers are less compelling. Suppose you again invest in stocks until your daughter turns 15 and then shift into bonds. But this time, you invest the $55,000 over 20 years, in $229 monthly installments. Sure, you might amass $110,000, giving you $55,000 in tax-free gains.
But as Mr. Frank notes, you could have accumulated at least that much, and probably more, by investing in a 401(k) plan with an employer match or by purchasing low-cost funds in a Roth individual retirement account. Indeed, if you find you are forced to choose between funding a 529 and saving for your own retirement, that probably means the 529 is a bad idea -- and you should talk to your daughter about taking out loans to pay for college.
"Your first priority should be to maximize your own retirement-account contributions," Mr. Frank says. "I wouldn't want parents to put $229 a month into a 529 until they've maximized their 401(k) and IRA contributions."
作者：ceo/cfo 在 海归茶馆 发贴, 来自【海归网】 http://www.haiguinet.com
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 Giving $55,000 to Your Newborn: (zt) -- ceo/cfo - (5564 Byte) 2005-6-23 周四, 06:45 (1227 reads)
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