fact: tuition at Cornell University (non-state colleges) is $35k for 2007-2008. Add $7k for dorm, $6k for full meal-plan... Call it $200k for 4yrs (at today's prices!).

goals

• maximize saving toward College Education expenses for 3 kids (regardless of how skeptical I am about value, want to be ready)

  • and my sister's 2 kids - they're in UTah

• reduce Estate Tax by shifting assets out of my mother's estate in advance

alternatives to 529 plan

A Coverdell [ESA] account has some advantages over a 529 plan, but has a low limit on contributions.

An "independent 529" plan is tied to a specific university. Can provide better returns, but if kid goes to a different college (or none at all), you get very little return. (And having the money there doesn't guarantee your kid even gets in.)

General gifting ([UTMA]/[UGMA]) - can pass any type of gift without liquidating, can use for anything. But not tax deferred.

Trusts (various types): have some small advantages, but more expensive/complicated to maintain.

for 529 plans

basic info

• the contributor owns the plan and controls it. So if aiming for generation-wealth-transfer, parent of future-student owns the account, grandma gifts to the parent-account.

  • this gift doesn't count toward the normal annual-gift-tax exclusion! It has its own set of matching limits. So even though Grandma's gift goes to the parent to put into the 529, she can also gift the parent separately for his own benefit.

  • and can gift up to 5yrs up front (then not gift anything for the rest of the 5yrs), which ramps up the tax-deferred investment faster: that means grandma can give $60k up front to each kids.

• separate account for each child ("beneficiary")

  • typically have a limit in total contributions allowed in (in New York State, currently $235k), but total balance has no limit

• beware of high fees, so shop around

  • New York State has Vanguard-managed index funds available - great. So does Utah.

• and consider any special benefits that might come from picking a plan in the contributor's state

  • in New York State you can get a $5k tax deduction on what you pay in (but that goes into general-deduction category, so it doesn't do you much good unless you have a lot of other stuff in that bucket)

• financial aid implications: value gets counted in parent's assets. Once kid hits 18 you can transfer account to his ownership, so it counts in his assets (they take a higher % of that, but since there's only that 1 asset you still probably win) (note that he can raid the account once he owns it)

• if the child ends up not going to college at all, you pay an extra 10% penalty (on top of paying taxes on the gains). Like [IRA] non-qualified distribution.

  • note that any accredited university counts, and some beauty schools even qualify for that

  • expenses for tuition, housing, meal-plan (?), books qualify

  • if kid over 18, can transfer account to them first, so penalty is at lower income-tax bracket

  • can transfer money to account for a sibling (in New York State)

  • can just hold account for next generation!

links

• http://en.wikipedia.org/wiki/529_plan

• http://money.howstuffworks.com/529.htm

• http://www.savingforcollege.com/

• http://www.usatoday.com/money/perfi/columnist/block/2006-12-04-college-529-contributions_x.htm

• http://www.usatoday.com/money/perfi/columnist/block/www.collegesavings.org

• http://www.smartmoney.com/college/investing/index.cfm?story=5292004 [McNeela]'s advice is to look for a range of 0.65% to 0.70% of assets when investing in a plan that's build around inexpensive index funds, and 1% to 1.1% for plans that use more expensive actively managed funds. ([Mutual Fund])

questions

• what is the real limit that can be gifted into each of these accounts?

  • are there any limits not to do the max?

• what's the best source of funds to provide the gift?

Update/outcome

• New York State will only take checks in the name of the account owner (parent). So grandma has to write check to parent, who signs over to account.

• and they'll only take check with max of $10k, so big deposit has to be sent across multiple checks!

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