Joe Hurley launched Savingforcollege.com in 1999 while working as a tax CPA in Rochester, New York. He wrote and self-published the book 'The Best Way to Save for College--A Complete Guide to 529 Plans', now in its eleventh edition with over 100,000 copies sold. Through the years Joe and his wife Ginny opened accounts with 529 plans in 34 states for their two children, both of whom are now graduated from college. (The reason for so many different accounts was to facilitate research of 529 plans.) Joe now spends his full-time at Kettle Ridge Farm (maple syrup, honey, and shiitake mushrooms), though you may still see him occasionally at Savingforcollege.com.
10 Rules for Superfunding a 529 Plan
Superfunding is a term sometimes used to describe large 529 plan contributions using 5-year gift tax averaging. It can be a great way to jumpstart a child's or grandchild's college savings account, since it allows individuals to contribute a big lump sum in one year without gift tax consequences. Here are a few rules and tips to keep in mind when considering superfunding a 529 plan.
Coverdell ESA versus 529 plan
The Coverdell ESA offers superior investment flexibility, potentially lower costs, and tax free treatment for a wide range of elementary and secondary school (K-12) costs, compared to 529 college savings plans. However, the Coverdell ESA comes with limitations that could make a 529 plan more attractive for many investors.
The magic number for college savings
The day finally arrives when you get to bring your new baby home from the hospital. Maybe you've already given some thought to saving for her college education. If not, you can be sure that one of your friends will remark in a joking sort of way that paying for college in 18 years could put you in the poorhouse. So you ask yourself how much you really should be putting away for each month to prepare.
How to gain financial-aid expertise
Let’s face it. Nearly all of your clients with school-aged children are concerned about college financial-aid eligibility, whether or not they should be. By that I mean many of your clients will never qualify for needs-based financial aid, simply because their income is too high. Yet they may still turn to you, their financial advisor, for guidance. Here's how to quickly gain financial-aid expertise.
When should you switch 529 plans?
Federal tax law allows you to roll over any or all of your 529 account from your current 529 plan to a different 529 plan, but only once in any 12-month period. (You can get around the 12-month restriction by naming a different family member as beneficiary of the 529 plan you are rolling into.) If you violate the 12-month rule, you must treat the transaction as a nonqualified distribution and pay federal tax and 10% penalty on accumulated earnings.
Going "all-in" on 529 plans
The IRS permits 529 plans to establish very high contribution limits--currently the highest is $452,210 in Pennsylvania. The reason for such generosity is because Congress in developing Section 529 did not want to prevent families with sufficient financial resources from saving for the FULL cost of postsecondary education, including both undergraduate and graduate school expenses.
Did college just get less expensive?
The College Board this week released its annual report "Trends in College Pricing" containing data that suggests college tuition inflation may be slowing. This is good news for your clients concerned about funding future college costs for their children and grandchildren.
Coming soon to a state near you: tax-free investment accounts for those with disabilities.
The ABLE Act would permit states to establish 529-ABLE programs to accept and invest contributions for individuals with disabilities, and to make federally tax-free distributions when used for a broad category of expenses incurred by an eligible beneficiary.
The impact of 529 plans on claiming a dependent
How does taking a distribution from a 529 plan affect a client's ability to claim a child as a dependent? No one really knows the answer to that question, at least not with any certainty. A tax preparer's stance could determine whether the client is able to take advantage of the dependency exemption, the American Opportunity credit, the Lifetime Learning credit, and the tuition and fees deduction.
A checking account is a checking account
I appreciate a good survey as much as anyone. The results can provide useful insights and uncover trends, either positive or negative. However, there is usually much more to be found in the survey details than the headlines and executive summaries might suggest.
5 ways to compare your 529-plan performance
Simply seeing that your 529 investment gained or lost value is not the best way to judge its performance. The allocation of your account among stocks, bonds, and money-market funds, the overall trends in the market, and the level of "risk" in your portfolio are all important factors. Here are five ways to judge your 529 plan's performance.
Does your state's prepaid tuition plan make sense?
While stock portfolios and home values suffered major losses and "safe" investments turned out to be anything but over the past 18 months, many parents and grandparents are wondering if there's a better hedge against ever-escalating college costs than prepaid tuition programs.
Putting education on the holiday gift list
Here's a great way to boost your child's college savings account: invite your family and friends to direct their holiday and birthday gift money into your 529 plan. A number of 529 plans and online registries are not only promoting the idea, they are also making the process easy.
Age-based investment options show wide variation
Savingforcollege.com's study of 529 plans conducted in November 2008 found a significant variation among 529 plans in the asset-allocation approach underlying the age-based options. Some plans are very conservatively invested for beneficiaries in college or close to college, while others maintain a significant investment in stocks and longer-term bonds even for beneficiaries of college age.
Multiple 529 accounts for the same child: does it ever make sense?
There's no set limit on the number of 529 accounts that can be opened for any particular beneficiary, leading some to wonder if maintaining accounts in different 529 plans might be a good strategy. It's hard to imagine circumstances in which anyone (other than those researching these plans) would want to open accounts in more than two, or at most three, different 529 plans for the same child. But here are some reasons that will lead some families to consider using more than one 529 plan
Saving estate taxes with a 529
To be eligible for the gift-tax annual exclusion, the gift must be irrevocable, and it must be made without any strings attached (except for what your attorney may be able to craft through a trust or family partnership). What's yours now no longer belongs to you, and that can be a tough pill to swallow. Unless, of course, we're talking about a 529 plan.
Using 529s for your "safe" money
Parents with children approaching college age may be tempted to park their college savings in high-yield savings accounts and avoid the short-term market risk that comes with stocks and longer-term bonds. You may be able to do significantly better in a 529 plan and still avoid market risks.