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Financial Planning / Paying For College
|Subject: Re: Paying for College and Aid||Date: 7/1/2013 3:56 PM|
|Author: Optomystic1||Number: 8044 of 8174|
VA529 (http://www.virginia529.com/) has pre-paid Tuition plans as well as 'normal' 529 plans. The Pre-paid tuition plans have limited open enrollment periods, but the 'normal' 529s are always open; only the pre-paid tuition option requires either the owner or beneficiary to be a State resident.
The common benefit of both is that each individual owner can deduct up to $4k annually on their state tax requirement for each account - perpetually until fully deducted. Earnings on Virginia529 accounts grow federal and state tax–deferred and are excluded from income tax purposes when used for qualified higher education expenses. You pay no taxes as your contributions grow and no taxes when you use the funds for the beneficiary’s qualified higher education expenses. Pretty significant benefit if you are a VA resident. And you can 'mix and match' your pre-paid tuition/college savings programs as well, i.e. you can own both types at the same time.
The college savings programs are the same as any other, but are eligible only for Virginia residents, with the resulting tax deductions.
If you buy in to the pre-paid tuition option, you are essentially buying a future contract. 4yr, 3yr, 2yr, and 1yr rates are offered (hence why you can mix and match plans), with payment tiers for regular 4yr institutions and 2yr community colleges.
Current 4yr regular college contracts are running about $40k-ish. So approximately $10k/yr for the future tuition cost; if you think about it, this really pays off if your child is at least 10 years out from college and you can afford to pay it in lump sum (thus avoiding the interest charged in the extension payment plans that each plan also has). Considering how much tuition rates are rising annually, I can't find a better interest rate on the current market that can beat this - with the possible exception investing the same amount into a Rule Breaker triple-bagger :-) Difference in investing in a VA pre-paid vice stocks is that the pre-paid is as close to guaranteed as currently possible.
Regardless of what amount you actually have in your contract, if paid- up, when your child goes to school, your contract is guaranteed to cover the PUBLIC 'in-state' college tuition rate for the beneficiary - regardless of what in-state school they attend. If they choose an 'out of state' school, and they use the withrawals for qualified reasons (i.e. designated college expenses) their withdrawal is up to the highest VA state school tuition rate.
Favorable Gift Tax Treatment - Contributions to Virginia529 accounts are treated as a completed gift by the account owner to the beneficiary. This means contributions up to $14,000 a year or $28,000 if married and filing jointly are gift tax free. Additional gifts made to the beneficiary in the same tax year must be taken into account as well. You may also elect to take advantage of a special five-year averaging provision which exists for Virginia529 accounts. This means a single $70,000 contribution or $140,000 if married and filing jointly may be treated as if it were made over a five-year period. Additional gifts are not allowed to the beneficiary within the five year period.
Yes, the accounts are reported on FAFSA - and you can cancel yhem at any time. Keep in mind that earnings that are not used for QHEE are subject to a 10% federal tax penalty (with certain exceptions for death, disability and SCHOLARSHIPS), plus federal and state income taxes on the earnings reportable on the taxpayer’s return, and the recapture of any Virginia tax deduction previously taken on the amount of the cancellation or refund.
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