A Glimpse into the Independent 529 College Plan

Let’s take a glimpse into the independent 529-college plan. This is wonderful program designed to avoid the rampant inflation of college tuition. You actually lock in the current price of today’s tuition that your child can later use at any member college.

Here’s how the independent 529-college plan can work for your family. Say that you purchase half a year of tuition for your child today. The member colleges carry the risk and you are protected from future tuition increases. The tuition rate that you just paid is absolutely locked in no matter how much the tuition rises.

So you invest $10,000 this year for your daughter who will begin college in 15 years from now. As long as she attends a college that’s an independent 529 member, the plan will look up what the college was charging the year you made your deposit.

Say that it was $40,000; you have credit for 25% of one year’s tuition no matter what the school is charging in 2022. By prepaying, you’ve just saved $30,000 tax-free. You may be paying in excess of 50% less tuition than someone who is not participating in the independent 529-college plan.

The amount you save is in relationship to the amount you prepay, but even a small purchase can go a long ways towards saving on college. The independent 529 money covers only undergraduate tuition and mandatory fees. Nothing like the room, board, books or supplies like the other 529 plans do. This may or may not be changed by the time your child attends college.

Each member college offers a special tuition discount so you’re not only saving on tomorrow’s rates, but you’re actually getting a better deal than today’s prices. Each college sets their own discount rates. There are over 260 colleges participating in the independent 529 plan today. Take a look, some of the finest colleges and universities are among the participants.

Now say that your son or daughter is not accepted into any of the participating colleges. You still have options. You could roll your independent 529 plan over into a state sponsored 529 plan. You could change the beneficiary to another child.

Or you could get a refund and still take advantage of the tax breaks if you use the monies for other higher education expenses. Withdrawals used for items other than higher education will be taxed. If your child gets a scholarship to the school, the same options will apply.

The new schools that join the plan will honor the certificates from the current owners. And if a college ever terminates the plan, they will continue to honor the certificates that were sold during and before the time they were involved.

There are many positives to the independent 529 programs. You can enroll at anytime and add monies to your account at anytime. You can contribute as little as $25 a month as long as you reach a minimum of $500 in two years. There are no annual fees, entry fees or exit fees.

The member colleges pay for the annual management fee so all of your monies go to tuition. And best yet, all of it is federal tax-free. The rise in value between the original purchase and the amount of tuition the corticated is redeemed for is tax-free.

If you have high aspirations for a private college for your child, check the list of participating independent 529 plans. This is a great way to save on tuition. Check with your tax professional to take an ever better glimpse into the independent 529-college plan. This is a great way to get a big bargain on a college education for your child.

Financial Know-How for New College Students

If you are a prospective college student or already in college, you should know that there is a whole industry out there waiting to take your money. As a new college student, it is important that you pay close attention to how your money is being spent.

It can be very easy to lose track of your money, especially with the stress of being on your own for the first time. Here are some tips for gaining financial know-how if you are a new college student.

New College Students – Know that You Are a Target

If you are a new college student, you should know that there are a lot of people out there who think you are an easy target. Credit card companies, private lenders, cell phone companies, and yes, even booksellers, all roll out promotions and advertisements in the hopes of catching the attention of young college students.

Walk through any college or university during the first week of classes and you are bound to come across dozens of tables set out to get college students attention. Know that these companies are relying on your financial inexperience. Watch out for promotions that seem too good to be true. They probably are.

High Interest Credit Cards – The Bane of the New College Student’s Existence

What is perhaps the most important thing to remember if you are a new college student when it comes to taking charge of your finances? Credit cards, or perhaps more specifically, high interest credit cards.

Did you know that credit card companies will specifically target college populations? Credit card companies are well known for drawing in college populations with promotions, maybe a college sweater or gift card, and with their promotional annual percentage rates. Note the word ‘promotional’.

That means that what seems like a very good interest rate may only last you for a few months, and then the credit card takes on much higher interest rates. Be very wary of so-called student credit cards with promotional low interest rates. Read the fine print very carefully, and never sign up for a credit card just because of the cool promotional gift. It could end up costing you hundreds of dollars!

Making Sense of Your Financial Aid Package

Financial aid packages can definitely be confusing. There are subsidized student loans, unsubsidized student loans, work-study funds, grants, and scholarships. When it comes to understanding your financial aid package, it can be tough to crack the jargon that usually accompanies most of these packages.

Let’s tackle one of the most confusing aspects: the difference between subsidized and unsubsidized student loans. On the whole, subsidized federal student loans are the most desirable. These allow you to lock in low interest rates, and do not begin to calculate interest until after you graduate.

Visit Your College’s Financial Aid Office

It happens to almost every college student. Inevitably, there will be a problem with your financial aid package, there will be a problem with your financial aid funds, you will be asked to turn in supplemental forms, or you will simply not understand part of your package and you will want to ask a question.

By all means, try to ask any questions you may have about your financial aid package before school starts. You don’t want to have to stand in the mile long line that trails out of the financial aid office on the first few days of school across every college campus in the United States.

If you have to stand in line, try to get there first thing in the morning, even if it means dragging yourself out of bed. Also, make sure you bring every piece of information you may need, including any forms, correspondence, and tax forms that you may be asked for.

The Scoop about 529 Penalty on Refunds

One of the downfalls to the 529 plan is it is intended solely for college. Unlike other types of investment tools, such as CDs or stocks, where the money applies for whatever purpose you deem best, a 529-college tuition savings plan is solely for college fund use.

This is why they offer the option of multiple beneficiaries as well as the opportunity to switch beneficiaries to relatives such as grandchildren or other relatives should the original beneficiary have no use for the money. It is possible, however, to gain access to the funds without college as a purpose, but there are penalties involved.

It is important that you understand the scoop on 529 penalties for refunds. A refund on a 529 fund is a non-qualified withdrawal; meaning that the money is for any purposes other than for use at a qualified school.

If you do need to get a refund on the money you have invested throughout the years, the first fee involved will be state and federal income tax on the earnings of the money. Of course, the longer you have been investing, the more money you will have contributed, hence higher earnings.

This is particularly true if you have been investing since your child was young and the higher risk investment methods had a higher payout. This money could add up to quite a bit, so it is important to understand that you are accountable for these funds.

This applies to both the state level of earnings taxes as well as the federal level. This money is now income, potentially pushing your earnings into a higher tax bracket and costing even more, so this is a very important detail to consider before withdrawing funds for non-qualified purposes.

In addition to this, there may be a 10% penalty enforced at the federal level due to the money not used for college. It is important to contact a representative from the program you are either using or will be using to ask about this penalty so you can fully understand the risks. This high of a percentage can add up to a lot, particularly if you invested for many years.

It is best to understand all the options fully so that you know what you are getting into before even beginning the program, particularly since the 529-college tuition savings plan is one that requires a commitment every month. If you know that there is a high risk of the need for early investment, or if you know your child may not attend college, you may want to consider other investment tools.

While other types of investment tools may not be able to offer as many benefits as the 529 savings plan, they may offer fewer penalties for non-qualified use of the money. By studying all the different investment tools, and weighing in your particular needs, you will be able to determine whether this type of fund is the best way to go.

Once you have went over everything, you can then decide whether the risks involved are worth the benefits to you, or whether you would prefer a safer avenue of saving for your child’s college tuition. Since you invest so much time and money in this type of life-changing event, it is always best to pick the one that will work best for you and your family.

This also means fully considering how likely it is that you will need a refund on the account or that you will need to make early withdrawals. Knowing this will help you decide which type of account is right for you and whether or not the penalties for refunds on a 529 plan should be of any concern to you.

Top FAQ’s Regarding the 529 Plans

There are many questions that need to be asked about any type of savings plans for college tuition, but the 529 plan has more than most. This is because the 529-college savings plan is widely available, and because it varies from state to state. This creates a need for even more answers than most other college investment tools. Many top questions seem to appear more often than others are, and they are as follows:

Are there any tax benefits to using the 529-college savings plan? The answer to this question is yes, there are many tax benefits. If you live in a state where there is state income tax, it does not apply as income for tax purposes. This is also true for federal taxes no matter where you live. This means that you can potentially bring home the same amount of money every week or month while still investing in this account. 

What happens if I file bankruptcy? This is another key question, particularly for people who think this may happen in the future. Fortunately, these funds receive protection from creditors, even if you need to file bankruptcy, which is another appealing quality of the plan.

What happens if my child decides not to go to college? This is one of the foremost-asked questions, because everyone wants to know that they will not lose their money in this case. The funds for a 529 plan can switch to other beneficiaries at any time, so you can transfer the funds to your other child or even close relatives.

There are limitations to who the beneficiary can be, but they are not extremely limited, allowing you many options. In the case that there is no one to transfer the funds to, you can still have access to the money, but there are typically penalties that vary from state to state.

How does it work? This is the main question, and has a variety of answers, particularly because each state is different. Typically, however, you get to choose from two options. One of these options is to purchase college hours in advance; saving you the increase in costs that will have raised by the time your child actually goes to college. The other option is investment allocations, set up by you with limitations.

Will this type of account limit where my child can attend college? Since the plans are state-run, there is often the misconception that this money will only be good for colleges within state borders. However, this is not true. There are over 8,000 colleges spread out all over the United States that will allow use of these funds, and this keeps the limitations low on where your child can attend school.

Will having this money saved affect my child’s ability to qualify for financial aid? This is another of the top FAQ’s about 529 savings plans, and the answer to this is no. Similar to the way the funds do not count as income for tax purposes, they do not apply when applying for financial aid, either. This allows your child to use the funds you have saved, as well as use additional moneys loaned by the school or state.

These are just the most commonly asked questions, and there are many others, as well. Fortunately, each state will answer questions about their individual program, so you can be sure that this is the best plan for you before beginning the investment. Knowing which plan will offer you and your child the most benefits in advance can help you start saving in the right way from the very beginning.

Sound Reasons For Multi-State 529 Contributions

Getting your kids through college seems to be rising rapidly these days and one way to help curb the cost is Multi-State 529 contributions. What exactly is 529 contributions and how do they effect your child's education? With the mounting cost of education many parents and even grandparents have to choose between retirement savings and putting kids through college.

The 529 college savings plan is an alternative that many people are looking into to bridge the gap between the higher costs and what they kids can't afford. The Multi-State 529 college plan lets you save money free of state and federal taxes and use it tax free as long as you are using if for higher education.

These 529 contributions can be used for public or private schools. Many people wonder where the 529 code comes from. The code comes from the IRS to distinguish the tax saving plans and the savings these programs can do for their users.

These multi-state 529 programs are something people are looking deeper into as many sound reasons can be explained for their popularity. These tax programs are used in most every state and the District of Columbia. This is one of the main reasons for the popularity.

A lot of times these programs can be moved state to state which is a plus if your are moving and you are enrolled in these programs. In usually varies state to state so check into where you’re going before you decide. Tax breaks are another very sound reason to use these 529 plans and that is something that varies very much depending on where you live.

Each state that has their own program usually regulates it. This means one state could give you a better break than another. Always remember even though these programs are on the same basic premise it doesn't mean they are exactly the same. Look them over carefully.

529 programs are one of the things if started early you can really see the benefits down the road. Depending on which state you’re in and their program you can save yourself a lot of money. the key though is to get in early and keep a steady investment over the years. Some state institutions will actually let you lock in a rate now even if your son or daughter goes in five or ten years.

Now with that program it varies with each university. These programs give grandparents a chance to put away money for their grandchildren and make a difference in their future, which makes them feel good and worthwhile. 529 programs also give grandparents tax breaks by their contributions which when they die leaves less of a tax burden for their kids.

To get the most of these 529 plans the key is to start very early and learn the in's and out's of the programs. Not every one is equal and some our better than others. As with any investment you should look carefully at the plan you want to use.

As costs increase more people will look to these 529 programs and kids are even looking at them to help defray some of the cost of higher tuition bills. Making sound decisions now of your child's future could save you a lot of money down the road.

Multi-State 529 programs and contributions to these programs will continue to grow as the need does. get in early and reap the benefits that will come from it. These are good effective programs and it's hard to discount the sound reasons for joining one and the good it will do for your child's education.

Good News/Bad News on 529 Gift Tax Situation

When investing in anything, particularly for college, many advantages and disadvantages go hand in hand with the savings. For example, there are many tax advantages to having a 529 savings plan, but there is the disadvantage its intention is solely for college.

This means that you are able to save more money than you can with any other investment, but if this money’s purpose changes, this savings no longer applies. Similarly, there are both good and bad points on the gift tax situation of the 529 savings plan for college.

The first and most important thing to understand about gift tax issues on your 529 savings plan is that the rules may vary from state to state. This is very important, and if it is an issue with you, considering the rules and regulations of other states’ programs may be a good way to go.

Typically, gift taxes are taxes paid on gifts of monetary funds because they are a source of income. These taxes may apply when relating to a 529 savings plan, but there are limitations. It is important to understand that the gift tax limitations stop at $12,000 per year, which may be bad news for those who need to use more funds than this.

However, this increased in 2006 from the $11,000 it was originally set at, and may increase to an amount even higher than that by the time your child reaches college age. It is also important to know that this only applies if the owner of the account is a single person. This is double that amount for a couple, and modifications are possible if the amount of contributions will exceed this limit.

For example, if you make an agreement to contribute in equal amounts over a five year period, you will be allowed to contribute up to $60,000 every calendar year for an individual or double this for a couple.

By agreeing to contribute in equal amounts, and to make no other monetary gifts to the beneficiary, you will receive gift tax exclusions through the federal government. Typically, this would not be possible, and the cost of investing would be much higher.

The bad news about this gift tax is that this applies at the federal level. For those living in, and contributing to, state programs of the 529-college savings plan of states that have no income tax, this is the only concern. However, the rules may be different for gift taxes at the state level if there is a state income tax.

This is why it is important to discuss and fully understand all aspects of the 529 plan within your state, and to consider possibly investing in other states. By talking to your tax advisor, you will be able to determine whether it is best to invest in the 529 plan of your own state or to contribute to an account run in a state with no income tax, and therefore no gift tax.

You should also know what benefits you may be losing if you do choose to go this route, as most states offer incentives for those who use their own state’s program. By knowing all this information, you will be able to understand how the gift tax laws will affect you and your beneficiary, and you can make the best choice regarding investment for college.

Keep in mind that the amount of research involved in finding the best college savings plan may be equal the research needed in finding the best school in which to use those funds. Spending as much time as necessary doing the research can literally pay off in the end.

The 529 College Savings Plan as an Estate Planning Move

Let’s take a brief look at the 529-college savings plan as an estate-planning move. A 529 plan is not merely just a great vehicle to fund your child or grandchild’s future. A 529 plan is an excellent tool to remove money from your taxable estate. This will assist you in lowering your tax liability and keeping intact more of your estate for your loved ones once you pass.

All 50 states and the District of Columbia now offer some type of 529 savings plans. A 529 plan is a state sponsored savings plan that invests money on behalf of beneficiaries. The earnings are tax deferred from federal income tax and most states have programs that will defer state taxes. If your beneficiary uses the money from this fund for any qualified education purpose, the withdrawals will be free of tax.

There is a lot of competition between states that has lead to very large contribution limits. This is good news for you as you plan your estate. 529’s have extremely simple investment options- age based and individual portfolios. Basically, these college savings plans afford the family the ability to transfer wealth from generation to generation, free of income, estate and gift taxation.

So what makes a 529 college savings plan so attractive to an estate planner? They do not have any income limits unlike the educational IRAs. Almost everyone can qualify for a 529. And if you’re looking for a way to reduce your estate tax bill, this is a great solution.

Take advantage of $11,000 in annual tax-free gift contributions. If you’re married that means you can contribute up to $22,000 for each beneficiary in one year. This is free from federal gift tax penalties. It is advisable to look into your state laws on gift planning for 529’s as they vary.

If you need to reduce the size of your estate you could contribute up to $60,000 (five years worth of gifts) in year one of a five-year period. Or if you’re married you can contribute up to $120,000. This is a good resource to transfer wealth by reducing the size of your estate and do away with estate taxes.

The account owner is always in charge of the plan’s assets. Even though the monies added are considered gifts, the owner does keep control. The donors can even take back the money for themselves or transfer the account to another beneficiary. If the owner of a 529 account were to die, the value of the account would not be counted in the estate.

The account value would be in the beneficiary’s estate. The exception to this would be if you had made the 5-year election and passed before the 5 years was over. Then, the part of the contribution that was assigned to the years after your death would be included in your federal gross estate.

It is also very easy to move the money in an account through 529 rollovers or by changing your beneficiary. If you have a need to distribute your estate, you can set up 529 plans for a large array of family members. This includes children, siblings, grandchildren, uncles, aunts, stepfamily, cousins and so forth.

If you need to transfer wealth, look into 529 plans as part of your estate planning strategy. At the very least, the 529 college savings plan, as an estate-planning move is something to discuss in more depth with your tax professional. This is an extremely generous gift for your beneficiary. Imagine the reward of knowing you've provided someone with the gift of an education.

What Contributing Grandparents need to know about 529’s

What exactly should grandparents need to know about 529 college plans? Some things just seem to go together like hot dogs and baseball, peanut butter and jelly, and of course, grandparents and 529 plans.

It’s a very lucky family that can depend upon grandma and grandpa to help with college tuition bills. College expenses aren’t exactly shrinking. The best gift that anyone could give could be your grandchild’s education fund and a 529 plan is a great way to get started.

A 529 plan is a state sponsored savings plan that invests money on behalf of beneficiaries. The earnings are tax deferred from federal income tax and most states have programs that will defer state taxes. If your grandchild uses the money from this fund for any qualified education purpose, the withdrawals will be free of tax.

Grandparents are allowed to contribute up to $11,000 per year per grandchild. So if Grandpa and Grandma have two grandchildren could place up to $44,000 in funds for the grandchildren without any gift tax liability. The grandparents would each have to set up 2 funds for each grandchild (a total of 4).

Grandparents will still have control over these funds and can retrieve the money if needed. Of course, there will be taxes and penalties on an unqualified withdrawal but the taxes and penalties will only be on your earnings, not on the amount of the original contribution.

The 529 plans have lots of investment options, which create a big decision for the grandparents to make. Grandparents typically are more conservative than the child’s parents. The most popular approach to 529 investments tends to be the age-based option. This is a simple way to save for college. You do not have to personally adjust your allocations over time.

The fund is managed according to the age of your grandchild. Younger children have more of a stock concentration. As your child gets older, the assets are automatically shifted into a higher ratio of short-term investments and more stable bonds.

Grandparents could also check and see if the 529 plan that your have set up will accept a third party contributions. This will take all of the worry about opening and maintaining your own accounts. State tax deductibility may be an issue if you go this route. Some states allow you a deduction for at least part of your contribution to their 529 plans. As a third party donor you will not be eligible for this deduction.

If you ever need to apply for Medicaid benefits, the state will look at your 529 plans as countable assets. You are eligible to take back the money you’ve invested so the money is technically available to pay medical or nursing home expenses. If you have this concern, it is an issue to discuss with your tax professional or attorney. It might be a good idea to make someone else the owner of the fund.

A big concern for grandparents is what would happen to the money in the 529 accounts if your grandchild chooses not to attend college. A great option is to change the beneficiary to another family member or even yourself. You can change the beneficiary as much as you want.

Another option is to take the money in the fund for your needs. The earnings in the account will be subject to a 10% penalty rate and will be taxable as income.  This is some of what contributing grandparents need to know about 529’s. It is a great way to invest in your grandchild’s future. You have picked an incredible gift to give to your very lucky grandchild.

Wading Through the Financial Aid Options for College Students

The world of financial aid is often one of the most dreaded parts of getting ready to go off to college. Unless you have been offered a full tuition scholarship well ahead of graduation, chances are you will have to do the work of getting financial aid to fund your college years.

Financial aid can definitely be one of the more confusing aspects of going to college. Here are some tips to help you wade through the financial aid options for college students.

Your First Stop – Fill out the FAFSA Form

What is the FAFAS form? As most college students know, the FAFSA should be your first stop on the road to securing financing for your college years. The FAFSA form is the Free Application for Federal Student Aid. It is a federal form that you should fill out roughly a year before you plan to attend college or university.

The FAFSA form will ask you for personal information and information about your family’s income. By filling out the FAFSA in a timely manner, you automatically become eligible for federal student aid, which may include Pell Grants (aka, free money), subsidized student loans, unsubsidized student loans, and financial aid in the form of work-study funds. Pick up the FAFSA form at your local library or college financial aid office. You can even fill out the FAFSA form online.

Seeking Out Private Funding Sources

Another very popular option is to seek out financial aid in the form of private funding sources. Private funding may mean seeking out scholarship assistance from private companies, which can range from the local supermarket chain to a major bank corporation.

Most of these private funding sources require that apply with them directly for a scholarship contest of some kind, which may include an essay competition or simply an application with reference letters. Make sure to follow directions carefully, as each company has different rules and regulations.

Work Your Way to a College Degree – Taking Advantage of Employer Tuition Assistance

Many employers offer tuition assistance as part of your benefits package. Every employer is different, so ask your human resources representative if you think that they may be able to help you with tuition. If you are unemployed and looking for a job, consider seeking out employers who offer tuition assistance as part of their benefits package.

Seek Out Specialty Scholarships

Before you go the route of private lending, make sure to put your best effort forth when it comes to finding suitable scholarship opportunities. Just because you didn’t make straight A’s in high school does not mean that you are not scholarship material.

There are many specialty scholarships out there that target specific majors and industry. Consult the thickest scholarship finding guide you can find for opportunities that suit your situation.

Your Last Stop – The Private Loan Industry

Finding money for your college years is always difficult if you or your parents do not happen to be independently wealthy. However, there are many options available for those who can’t get their hands on a full tuition scholarship, federal, private, or otherwise.

There is a growing private loan industry that is now making many loans available for families and college students. However, if like many college students, you find yourself having to take out a large loan to pay for your studies, you will need to do some serious interest rate shopping.

Always opt for a federal subsidized student loan if possible, as these usually lock in a low interest rate and offer the best rates. However, if this is not possible, shop around with different lenders to find the one with the lowest interest rate and with the most flexibility. Make sure to read all the fine print.

Funding Options for College Bound Students

With so many funding options for college bound students, which one is best for you? Paying for college may be the largest expense a family can have, especially for families with multiple children. There are so many funding options to assist you. Here are some brief descriptions of your options.

A Coverdell educational savings account is a popular plan for college funding. You can contribute up to $2000 per year per child. If you use these funds for qualified education expenses, the earnings are tax deferred and free of federal tax. You select the investments for optimal flexibility.

Section 529 plans are state-sponsored plans that can be used to pay college expenses. This is a tax-advantage plan for approved education-related expenses such as tuition, room and board, supplies and fees. The state generally hires an investment firm as a program manager who provides various investment choices.

You invest in the appropriate portfolios that match your investment time-line and risk tolerance. The two types of 529 plans are prepaid and savings. Prepaid plans (independent) let you purchase tuition credits at member colleges, at today’s rates, for future usage. Savings plans have growth based on the market performance of your investments.

UGMA/UTMA accounts are custodial accounts opened on behalf of a minor. This gift is considered irrevocable with all withdrawals required to be for the minors benefit. The balance of the account is turned over to the minor at the age of majority.

Grants and scholarships are “free money” options that don’t have to be paid back. This is a debt-free way to fund an education. Financial need typically must be demonstrated to receive a grant. Scholarships are usually based on merit.

Work-study programs provide part-time employment from the federal government to earn money for college. This program is not only in place to help to fund college, but a work-study job can provide essential work experience.

Federal student loans are low interest, long-term loans for students. These loans offer attractive repayment options including being able to post-pone payments while attending college and in times during repayment of financial difficulty. There are federal loans for both parents and students. The best know ones are Stafford Loans for students and PLUS for parents.

A lot of people turn to these programs for their funding needs. You can also often find private loans that have low interest rates for college students. Be sure to choose a reputable lender who in knowledgeable on loan choices if using a private lender.

Tuition payment plans are an interest and debt-free way to spread payments over several months. Not all colleges offer this plan. Typically used by families who have income that will cover the gap between the amount they are billed for college and the amount of financial aid received.

Assets of a family are often used to fund college. IRA’s, savings accounts, 401k plans and stocks offer a debt-free way to fund an education. As a word of caution, before you liquidate one of these accounts, consider the earnings you may be missing out on. Use this number as a comparison to the amount of interest you would incur from a student loan plan.

Credit cards are often a popular but poor choice for funding a college bound student. This is for the simple fact that interest rates can be high. Use this funding choice with caution.

It’s important to think about your own situation as you plan to fund your education. Establishing a savings plan at an early age will make a huge difference. There are lots of funding options for college bound students. Which one makes the most sense for you?

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