• 529 plan for high school student?
• Gift from grandparents - 529 or other some fund?
• Need a 529 Plan and low maintenance company
• 529 plans - does it matter which one?
• IRA or 529?
• Best way to put money away for baby?
• Looking at 529's for baby's college
• How to choose the best 529 plan?
• Can anyone recommend s specific 529 plan?
• The array of 529 choices is mind boggling
• Starting a college fund for one-year-old
• See also: College Financing Consultants
• More Advice about Paying for College

529 plan for high school student?

A friend's teenage daughter is a junior at BHS. This friend was told by a BHS counselor that it was too late to open a 529 savings plan for her daughter. I'm not sure why she was told this. Can anyone clarify:

1) Purely for tax purposes, since the earnings on a 529 savings plan are tax-free, what is the down-side of beginning one at ANY time before college expenses need to be paid?

2) Regarding financial aid, I was told by a tax accountant a 529 savings plan opened for a child by a parent counted less-adversely against financial aid than, say, a Coverdell (Educational IRA) that is in the student's name, or than ANY assets (such as an UTMA account) in the student's name. But I read this, from a US Securities Exchange website, http://www.sec.gov/investor/pubs/intro529.htm:

''Does investing in a 529 plan impact financial aid eligibility? While each educational institution may treat assets held in a 529 plan differently, investing in a 529 plan will generally reduce a student’s eligibility to participate in need-based financial aid. Beginning July 1, 2006, assets held in pre-paid tuition plans and college savings plans will be treated similarly for federal financial aid purposes. Both will be treated as parental assets in the calculation of the expected family contribution toward college costs. Previously, benefits from pre-paid tuition plans were not treated as parental assets and typically reduced need-based financial aid on a dollar for dollar basis, while assets held in college savings plans received more favorable financial aid treatment.''

Can someone clarify this to me?

3) When applying for financial aid, is there a cut-off date after which one cannot transfer assets that would affect family contribution assets that count towards financial aid determination, and what is that date? Thanks. Rick

We were sorely tempted to put the money in one of the higher risk plans, earning 10-23%, but we are lucky we did not since we would have been investing last spring and the stock market has been so volatile this fall. The plans generally allow you to select specific portfolios or to put the money in ''age based'' plans where risk is lowered the closer the student is to going to college.

There has been speculation that at some point the state will let you submit income to their fund pre-tax (this is the case in some states), but if that ever happened you could simply open an account and start then. Given the state's fiscal crisis, this scenario is unlikely anyway.

In terms of financial aid, it is very difficult for a middle class person to qualify. It seems fair that money that has been saved in a College savings plan should be counted as money to be used for college by a financial aid assessment. Ethically, I think one should not try to fiddle financial aid; Practically, I think college is so expensive now and the system is so rotten to the middle class that I have little problem with it. We never would have made it though! And FAFSA does not count the value of your home. Just our income, upon which we barely get by here in the bay area (old cars, old clothes, no eating out--admittedly, however, not hungry or poor!) was enough to disqualify us. All I can say is that people who do qualify REALLY DO NEED IT and I don't know how they survive around here. As a taxpayer, I guess it is good to know that I am subsidizing people who are in need, but in fact I would be happy to give more of my taxes to the University of California so that fees could be more reasonable for all of us. been there

After Jan 1 of the child's senior year (Jan 1, 2008 for a current senior), on the FAFSA you report the current value of parents' and child's assets and also the income for the previous (2007) calendar year. In April, most private schools also require you to send them a copy of the completed (2007) income tax form for parent and child. Public schools request this information from a random selection of students. A few private schools also require copies of tax forms for the year prior to that (2006 calendar year). In addition, the PROFILE form used by private colleges asks many more questions including amount of equity you have in your house, cost of your cars, etc. Anonymous

Gift from grandparents - 529 or other some fund?

My parents have generously offered to gift some money towards our children's college funds. We are struggling and it seems clear we will not be able to afford to pay for our children's college without financial aid. I have been told that the problem with 529 plans is that they usually disqualify you from receiving financial aid, but that there are certain kinds of funds, trust funds, grandparent trusts that make it possible for there to be some funds for college and to still qualify for financial aid. Does anyone know anything about this? I have also been told that it is important that the childs social security number not be connected with the account. I would appreciate any direction. Thank you anonymous

The need-based financial aid treatment of family assets depends
on whether they are owned by the student or the parent. During
need analysis, the federal financial aid formula assesses a
percentage of student assets and a percentage of parents assets.
Student assets are assessed at a flat rate of 20% (effective July
1, 2007). Parent assets are assessed on a bracketed scale with a
maximum rate of 5.64%. Parent assets are also partially sheltered
by an asset protection allowance based on the age of the older
parent (around $45,000 for most parents of college-age children).
Parent assets in retirement plans and the net market value of the
family's primary residence are also sheltered, as well as small
businesses owned and controlled by the family. Accordingly, the
impact of a college savings plan on need-based financial aid
depends on whether the plan is considered a student asset, a
parent asset, or neither.
A separate section discusses account ownership for each type of
college savings vehicle and its impact on financial aid
eligibility. The following summarizes the impact of section 529
plans on financial aid eligibility:
   * Section 529 college savings plans are treated as an asset
of the account owner, and so have a low impact on financial aid
eligibility. College savings plans are reported on the Free
Application for Federal Student Aid (FAFSA) as an asset of the
account owner, which is typically the parent. Distributions from
a college savings plan have no impact on financial aid
eligibility (i.e., they are not counted as untaxed income or a
resource).
   * Section 529 prepaid tuition plans are now treated as an
asset and are reported on the FAFSA, just like section 529
college savings plans. The asset value is the refund value of the
plan. Distributions have no impact on financial aid eligibility.
This change went into effect July 1, 2006. (Previously they were
treated as a resource, which reduced need-based financial aid 100%.)

Need a 529 Plan and low maintenance company

Looking for a low maintenance fee 529 Plan? victoria

529 plans - does it matter which one?

I am about to start a 529 college savings plan for my child. Two different financial planners have suggested two different plans (D.C. - because it uses calvert which is more socially responsible and Utah). California has a new plan that is also suppose to be socially responsible. Can anyone tell me how much difference it will make which plan I use and do I need to sign up through a financial planner or can I just do it myself? hope my child goes to college

IRA or 529?

My husband contributes regularly to his 401K and I have a profit-sharing plan through my employer but neither of us has made any IRA contributions in the past several years. We make small but regular monthly contributions to a 529 for our kids but there's no way it's going to keep up with rising college costs. Since we don't have enough disposable income to save towards everything, where should we put the small amount we have, knowing that no matter what, it's not as much as the experts say we'll need? -getting a headache just thinking about the future

Our annual plan is to max out my husbands 401(k) and IRAs for both of us (I am a stay-at-home mom). We save a token amount each month for the kids ($200/per kid) during the beginning of the year. After we've maxed out on our Social Security tax for the year (somewhere in the $90,000 range) then we put what we would be paying in SS taxes into the girls 529s every month. When we max out my husbands 401(k), then we keep the 'payments' going into a rainy day fund. We don't 'miss' the money, because we have already been paying it out every month. It isn't a HUGE amount, but it does help -anon

Best way to put money away for baby?

Any advice on the best way to put money away for my baby now, so that it will grow as much as possible by the time she is 18? future-thinking mom

There are also advantages and disadvantages to saving under your name vs. your child's name, and to saving in a tax advantaged account like a 529 plan or Coverdell account, vs. saving in a fully-taxed account. Again, which of these is best for you depends on specifics of your own personal financial situation. I therefore recommend reading the book and then going from there.

After reading the book, I concluded that the best choice for my own financial situation and level of risk tolerance was to start saving money in a taxable account in my own name. I started an automatic savings plan with a highly rated mutual fund. BTW, most mutual funds will waive their minimum investment if you set up an automatic monthly investment -- for example, the one I chose normally requires a $1000 initial investment, but they waive that if you automatically deposit at least $50/month.

Good luck! Diane

Looking at 529's for baby's college

hello! i am looking into getting a 529 savings plan for my baby. Is it better to get a plan in the state the child will go to school? (which seems hard to determine) His grandparents/ uncle have a couple of different 529 plans started- is consolidation better or having multiple plans ok? Does having a 529 plan affect getting scholarships/financial aid? Any 529 plans you can recommend? Also does a 529 plan lower one's adjust gross income like a Traditional IRA? thanks. seeking so many answers

If you have decided on a 529, then my first choice would be the plan offered by your state if you are allowed to deduct contributions (like the traditional IRA). Many offer the first $2,000 to be deducted. If your state does not allow the deduction (and even if it does), check around for the fees you will be paying. 529 plans are ripe for high fees so check them as well and know what you will be paying. I would not consolidate since others may be taking advantage of the deduction. Regarding aid, 529s are considered a parent's asset so under FAFSA will not really affect aid, but Coverdell's are student's assets so will affect much more. However, many private schools look at the total picture regardless of who owns what so ultimately a high 529 balance may affect.

good sites to compare plans:
http://www.collegesavings.org/
http://www.independent529plan.org/
http://www.savingforcollege.com/

We set up a plan with American Funds, since we have been very happy with our other investments with this organization, and receive lower sales charges when our total investments exceed certain break points. Plus we find it's just convenient to have as many assets as possible managed by the same company. You can choose from a wide variety of fund options--we chose the higher- growth/higher-risk New World Fund since our kids are young like yours, but will balance this with more conservative funds as the kids approach school age--if you are concerned about diversification. Good luck!

mom who has done lots of 529 research

I am not aware, however, that the state in which the 529 is dictates that the student go to school in that respective state--that would be restrictive and unknowable, no?

Finally, also know that while there is a limit (110k) on that which you can put in a 529, direct checks to the respective educational institution are allowed with no ceiling and is not impacted by what you/your family receives as legal disbursements (11k/yearly or 55k, given in one single year but not to be given again until after 5 years) from parents/grandparents/family.

Good luck. Anon

Unless you live in a state that offers tax breaks for contributing to a 529 (and California doesn't), it really doesn't matter which state's plan you use. In such case, low fees and investment choices are important things to consider. Utah and Nevada's plans are among the best in terms of low fees and reasonable investment choices. They consistently show up on ''best'' lists.

Also, check out Coverdale plans (the former Education IRA). Depending on your situation, a 529 plan may be better than a Coverdale, or vice-versa. Bob

How to choose the best 529 plan?

With so many 529 plans available, I would like to see what are the suggestions for choosing the best one (by state, by managing company, ...?). Thanks.

However, I've recently been having an email dialogue about this with one of my husband's collegues and he pointed out the following sort of alarming fact:

''At the present time, distributions [from California Scholarshare accounts] taken out after year 2010 will be subject to State Tax. That means if I choose CA's 529 plan, I'll have to pay State Tax on withdrawals after 2010. But if I were to choose an out of state plan, I wouldn't have to pay any State Tax as long as we don't become a resident of that state in the future.''

I didn't know this -- and will research it further and write my Assemblyman about it...the guy who pointed it out is pretty meticulous and methodical about his research, so I don't doubt it's true.

Also, my friend says that higher fees or not, the Fidelity-managed plan(s) (in other states--I don't know which) are doing better than average on the equity invested funds than the TIAA-CREF funds. He says you can see this at http://www.morningstar.com/529/529Table.html (Click on column ''% of Funds with 4 or 5 Stars'')

Sorry to give you more to chew on -- it's a long process and I know you just want to start SAVING so it's taken care of! writing my Assemblyman

See http://www.brookings.edu/views/op-ed/aaron/20030406.htm

It points out an often overlooked part of the plan -- fees that many investment companies charge for setting up and maintaining 529 accounts, along with other features and pros and cons of the plan. Good luck. Chris

''After 2010, we will have to pay taxes on any distribution from a 529 plan.''

If the current tax provision does not get extended or made permanent by 2010, any distribution from a 529 plan will be taxed to a child at the child's rate, NOT to a parent.

The posting also said:

''If we take a distribution from a plan belonging to a state other than California, we will not have to pay California tax on it.''

As long as you are a California resident in the year you take that distribution, California will tax you on your WORLDWIDE income, as it taxes all of its residents. Maria U. Ku, C.P.A.

So if this law is NOT extended, all withdrawals would be taxable, by federal and state, I imagine. Its a bit of a gamble. Although, as I understand it, the funds can be withdrawn for any qualified education expenses, so perhaps that also means private high school which many of our children might be going to in the years preceding 2010. Someone correct me if I'm wrong on this. jaredjo

Can anyone recommend s specific 529 plan?

Hi-- I am seeking adivce on 529 Plans. I know there have been significant changes to most plans lately. Can anyone recommend a specific plan they have set-up and/or let me know how to go about selecting the best one? Thanks. Sondra

The array of 529 choices is mind boggling

Our accountant has suggested we open a 529 plan for our daughter who is two. The array of choices is mind boggling. Recommendations from anyone who has already sifted through the choices will be much appreciated. Thanks, Anon

Some questions many people ask when it comes to saving for education are:

What if my child does not decide to go to college? You can change the beneficiary to another member of the family, you can take a withdrawal and pay the taxes and penalties or you can do nothing and simply leave the money in the account to grow tax-free.

What if my child gets a scholarship? You can take a withdrawal equal to the amount without paying taxes or penalties (With the Coverdell, you would have to pay taxes if your child received a scholarship).

Who can start a 529 or Coverdell account? Anyone can open and/or contribute to an account for a grandchild, niece, friend, or themselves. For financial aid purposes, who owns the money? With the 529, they are considered the asset of parents while the child/student owns the Coverdell.

I know this is a ton of info and I hope it helped. If you have any other questions, let me know. Vincent

Starting a college fund for one-year-old

My son is a little over one and we're finally getting around to starting a college fund for him. We don't have a lot of money to start with about $2,000 - $2,500. Does anyone have any recommendations? Thanks!