Any financial types here? Rule 54-something and educational trusts...

[pennypinch]

I heard rumblings about what basically amounts to a traditional IRA that you can set up for yourself to deposit after-tax money into, and use it to pay for educational expenses, capital-gains tax free. Is anyone familiar with this, and if so, could you give me a reference where I can do more research?

EDIT: Aww, crap, I put this in the wrong forum. Please move to Need Deals?, mod. T'ank ya, suh.

[sterg]

It's called an Educational IRA. Formerly a max contribution of $500 per year, but recently got bumped to $2000 per year. There are some other restrictions. I recomend checking out IRS pub. 590 for the details. This can be a good way to save for a childs education expences. Not as effective for your own education because the time value of money is as important as the return on the investments

[pennypinch]

Originally posted by sterg
It's called an Educational IRA. Formerly a max contribution of $500 per year, but recently got bumped to $2000 per year. There are some other restrictions. I recomend checking out IRS pub. 590 for the details. This can be a good way to save for a childs education expences. Not as effective for your own education because the time value of money is as important as the return on the investments

Thanks much, Sterg. I understand I'm probably not looking at a whole hell of a lot of gain for myself, but, hey, every little bit helps.

[Bandito]

I invested in an educational trust plan for my child. I looked into several different things like educational trust funds, and 529 investment plans. One thing is each state governs how their plans are set up.

But even if you are not from same state as the company that originated the 529 investment plan you may be able to still sign up. Coincidentally most invesment companies like Fidelity or Merrill Lynch have some sort of plan so maybe even the company that is handling your 401K through work has a plan already, and will waive certain fees by originating the plan through them.

I was going to add something about my particulars... In my case with the Michigan Educational Savings Program there is no limit on how much I can contribute annually, however there is a fund cap of $125,000. I can contribute money that is state tax exempt of up to $10,000 annually.

On top of that anybody else can set up their own trust with my kid and also contribute up to $5000 per person--so in the case of both of parents being alive they can contribute up to $10,000 each year tax free. So in effect several different people can contribute money to my kid. This money is also exempt state tax exempt and it is exempt from the federal gift tax.

Now on top of this if you income is below a certain amount there is actually state matching funds!!

Here is a site that lists all of the funds available. Keep in mind you may be eligible to sign up with any fund even if you are not a resident of that state.

http://www.savingforcollege.com/



[Edited by Bandito on 05-31-2001 at 02:53 PM]

[TheLoneGunman]

Another good thing about the college savings programs offered by the various states is that many will lock in the amount you pay for college. (Ex. if it costs $3500 a year for the state school this year, you are guaranteed not to pay more when your kid goes there, no matter how young they are)

There is also the ROTH IRA where you deposit money (up to $2000) that you have ALREADY paid tax on and then all earnings are tax free (also you can always withdraw the money (since it has already been taxed)

[pennypinch]

That's a hell of a site! Thanks, Bandito.

[pennypinch]

Originally posted by TheLoneGunman
Another good thing about the college savings programs offered by the various states is that many will lock in the amount you pay for college. (Ex. if it costs $3500 a year for the state school this year, you are guaranteed not to pay more when your kid goes there, no matter how young they are)


Only problem I see there is you're kind of incentivized to go to a (most likely) inferior state school. I mean, unless you're talking about UCLA Biz, Texas, or...jesus, I can't even think of one off the top of my head! You're talking about a handful of really good state schools, and I wouldn't want a locked-in tuition governing where I go, or hell, where my as-yet-unborn/unconceived child would want to go.

[plutarcho]

As an academic with a PhD from a top 20 university (public too), I know far too many people who spent a ton of money to end up where I am (in a very comfortable university position). Most of these people are in debt up to their ears and I never dropped a dime.

State universities are certainly the best deal for the money. If you plan to get any type of post grad degree like a masters, PhD, JD, MBA, save your money for that degree.

Even then, Michigan, Ohio State, Wisconsin, Minnesota, Texas, Virginia, Carolina, Berkeley and Iowa are all in the top 20 in my field.

Ivy league schools and small liberal arts colleges are great, but the best DEAL around is a state college. My significant other and I both have PhD's and while we can afford more expensive schools, we will encourage our children to go to an in-state public school if they don't want to be at the school where mom & dad teach (they will get free tuition here since we are faculty).

Since I teach at a school that will gladly take all your all your money and more, I shouldn't say such things.

Hope I haven't upset too many people.:)

[rootbeer]

For other no-federal contributions, you can also look at http://www.upromise.com

[pennypinch]

Originally posted by plutarcho
As an academic with a PhD from a top 20 university (public too), I know far too many people who spent a ton of money to end up where I am (in a very comfortable university position). Most of these people are in debt up to their ears and I never dropped a dime.

State universities are certainly the best deal for the money. If you plan to get any type of post grad degree like a masters, PhD, JD, MBA, save your money for that degree.

Even then, Michigan, Ohio State, Wisconsin, Minnesota, Texas, Virginia, Carolina, Berkeley and Iowa are all in the top 20 in my field.

Ivy league schools and small liberal arts colleges are great, but the best DEAL around is a state college. My significant other and I both have PhD's and while we can afford more expensive schools, we will encourage our children to go to an in-state public school if they don't want to be at the school where mom & dad teach (they will get free tuition here since we are faculty).

Since I teach at a school that will gladly take all your all your money and more, I shouldn't say such things.

Hope I haven't upset too many people.:)

No, sure, I understand that the best deals going are state schools, but I have to say I think I got my money's worth at one of those prissy little liberal arts colleges.

And by the way, you're not talking about UNC, UMich, and the University of Iowa, are you? Because I understood the state schools in those three to be NC State, MSU, and ISU. The former three are all private institutions. Right or wrong?

[plutarcho]

Originally posted by pennypinch
[QUOTE]Originally posted by plutarcho
[B]And by the way, you're not talking about UNC, UMich, and the University of Iowa, are you? Because I understood the state schools in those three to be NC State, MSU, and ISU. The former three are all private institutions. Right or wrong?

UNC, UMich, & U of Iowa are still considered state Universities even though the word "state" isn't in it. While it varies widely, "xxx state university" and "xxx A&M" are often the same and are usually land grant universities, like Louisiana State University is really Louisiana State University, Agricultural and Mechanical (but it is called LSU). Land grant universities were established by the money and land forked over from the federal government.

NC State and UNC are both public universities run by the state legislature of North Carolina. NC State has most of the hard science and engineering stuff while UNC has most of the Humanities and Social Science stuff. There is usually some effort to not duplicate PhD programs within a state system, but that has changed a lot over the past 20 years (it also depends on the size and need of the state).

Note that there are tons of state schools in each of those states like UNC-Greensboro, UNC-Ashville, NC A&M, NC Central, Eastern Carolina just to name a few in North Carolina.



[Edited by plutarcho on 05-31-2001 at 04:58 PM]

[pennypinch]

Well, ya learn something new every day. A whole new class of graduates towards whom I can act elitist! :D

[plutarcho]

Good rule of thumb is if you have heard of their football or basketball team, they are probably a public institution. There are some notable exceptions like Duke, Notre Dame. On the other hand, if they are better known for Lacrosse or Crew, they are probably a liberal arts or Ivy League program.

[teoulmoon]

i am a financial planner that specializes in college planning for children so maybe i can shed some light on this for you. it sounds like you are thinking about one of two things. first is a Roth IRA. that is post tax money that is contributed to an account. this money grows tax deffered and when it is withdrawn it is tax free, as long as it has been in the account for five years. this money can also be used for one's children education. again as long as the money has been there for 5 years you may take out up to 10,000 for qualified educational expenses.
the educational IRA works in a very similar manner. it is also post tax money that is withdrawn tax free. the max here is $500 a year. it seems that the limit was bumped up to $2000 but we'll have to wait and see whether or not that actually happens. but something that is negative about this plan is that it counts against your child for financial aid. what i mean by that is financial aid is typically (excluding scholarships) based on some sort of income whether child or parent. and the more money there is in the childs name the less financial aid they may recieve. this is also true about the 529 plan as well as UTMA/UGMA. i hope this sheds some light on the matter. if you have any more questions email me.
as far as the 529 plans go there is a contribution limit on every states. it is a max of $100,000 every 5 years. Rhode Island has the original 529 plan and thier cap is the highest at $246,000. many other states are raising the cap also. sorry just had to correct some information



[QUOTE]Originally posted by pennypinch
[B]I heard rumblings about what basically amounts to a traditional IRA that you can set up for yourself to deposit after-tax money into, and use it to pay for educational expenses, capital-gains tax free. Is anyone familiar with this, and if so, could you give me a reference where I can do more research?