529 Plans...

Started an UGMA for my 6 year old years ago...right before the market TANKED. It's actually FINALLY above what it originally was.


Just opened 2 529's for my kids (4 and 6). Gonna start putting a set amount in each monthly. Admittedly, I've done very little research. I DO know that the NC one used to SUCK...but it's added some good options, so that's the one I'm in.

I BELIEVE I can write off the Fed and State contributions...right?

Any other opinions? (Meat...you're going to tell me I should keep the money in my name, right?)

 

Some plans allow the state deductions some don't.

This is something I need to do also. I currently have just an online savings account for my 22 month old that we contribute to each month. I figured once we got enough in the account we'd switch over to something that earns more interest. Not sure what to do though. Coverdale, 529, Prepaid Tuition Plans, etcc. Lots of confusing options that I haven't researched enough yet. Like, with the 529, what happens if my daughter gets a full scholarship? Am I going to get taxed out the ass since she won't need the money for tuition? Lots of questions.

 

I've been following the Meat story, fully fund ME and I can fund them when needed or fund US right now if needed.

I'm changing that tune a little - the retirement and education fund vehicles are fairly flexible for "emergency" withdrawals, so use them for the tax benefits. Tax-deferred growth and tax-free withdrawals are an insane combo - you can load this thing with tons of cash and never pay the taxes on it if used for your kids higher education.

Unlike a coverdell, I get to maintain full control of the 529 plan funds (my kid doesn't get control). It also stays in my name so my kid can still get a scholarship, but unfortunately it also is managed by the state so I can't control the investment allocation. Fortunately, NC offers Vanguard age-specific funds that are perfect for me.

I max out my 401k, max out my IRA, and I'm just starting to fund a 529 (likely NC, haven't made the final commitment yet, and no way I'll max it).

Info:

Beginning with tax year 2007, contributions to North Carolina's National College Saving Program up to $2,500 ($5,000 for joint filers) per year are deductible in computing North Carolina taxable income.
You can do $12000 per person ($24,000 for joint filers) per year for federal tax purposes.

9. What if my beneficiary receives a scholarship and doesn't need all the money in the account to pay for college?
No problem! You won't lose access to your money. Simply request a withdrawal from the account in an amount equal to the scholarship or tuition waiver. The earnings portion of such withdrawals would be subject to federal and state income taxes. If a withdrawal for a scholarship is requested from the Protected Stock Fund, a 5% surrender charge will apply.

11. What if, due to unforeseen circumstances, I need to use the money in my account for something other than higher education purposes?
Unless money is withdrawn for payment of qualified higher education expenses for your beneficiary or in the case of the beneficiary's death, permanent disability or receipt of scholarship, the withdrawal is considered a "non-qualified withdrawal." A participant making a non-qualified withdrawal must pay federal and state income tax on the earnings portion of the withdrawal plus a 10% penalty.

And one I really like:
4. Can others contribute to my beneficiary's account?
Yes! Anyone can make a contribution to the account. Such contributions make wonderful gifts for birthdays, holidays, and special occasions. Once a contribution is made, it becomes part of the participant's account on behalf of the account beneficiary. Use the gift form on our site.

That last one lets your parents put money into the account for your kids.

 

Thanks for the info. What's your thoughts on Prepaid Tuition plans?

 

Exactly how much can you control it?

In other words, can you tell him he can't use it for college, even if he's in college? Or at that point can he pay tuition without your permission?

Just curious about specifics.

 

Correct - it is YOURS, not his/hers. You totally control it, if you choose to withdraw funds and use them for higher ed, then it's tax free and no penalties, but it's your call.

 

VA49er, I would tend to stay away from the Pre-Paid Tuition plans unless you can't do better than 7% in the market. Historically, college tuition has grown by 7% a year. So, as with any pre-paid plan, it is growing at the inflation rate of that product. So, if someone can't do better than 7% in the market, then they should do it but most of us can do better than 7%.

 

Thanks.