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Author: bretsharon Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121599  
Subject: Why is no one looking at State Prepaid Tuition P Date: 1/24/2000 10:25 PM
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According to an article in Forbes, 2/22/99, page 142, certain state prepaid tuition programs, such as Iowa's, qualifying funds transferred to its program are:

i) invested in Bonds and Stocks about 50/50;

ii) deemed to be a present interest gift, so there is no gift tax;

iii) earnings taxed when removed from the account;

iv) funds can be returned to the Grantor if not used, but generally have to be kept on account for 5 years;

v) if the Grantor dies, these funds are not included in the gross taxable estate of the grantor;

vi) are protected from grantor's creditors;

Why isn't there more interest in this §529?? Tell me what I'm missing

Thank you
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Author: boochkin1 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 25939 of 121599
Subject: Re: Why is no one looking at State Prepaid Tuiti Date: 1/24/2000 10:52 PM
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Why isn't there more interest in this §529?? Tell me what I'm missing

I asked this question the other day, but from what I've seen how is it any different than making an outright gift in the form of UGMA account, in trust or outright for that matter?

You point out:
(i) invested in Bonds and Stocks about 50/50;

No difference here.

(ii) deemed to be a present interest gift, so there is no gift tax;

This is true but only up to $10,000 per individual and $20,000.00 per married couple same as annual exclusion limits for outright gifts or any other form of transfer.

(iii) earnings taxed when removed from the account;

This is true, but depending on the investment this may be a red herring. If you invest in stock that appreciates but pays little or no dividend and you do not actively churn the account then this feature doesn't help as far as I can see.

(iv) funds can be returned to the Grantor if not used, but generally have to be kept on account for 5 years;

Are you sure about this? This would tend to eliminate the present status of the gift. Typically any type of transfer that has a possibility of reverting to the transferor is not viewed by the IRS as being a completed gift for purposes of the annual exclusion.


(v) if the Grantor dies, these funds are not included in the gross taxable estate of the grantor;

(vi) are protected from grantor's creditors;


Same as outright gift, gift to irrevocable trust or Gift held in the UGMA format.

Would love to hear more opinions on this topic. To me these accounts don't seem to hold a whole lot of benefit?? What am I missing?










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Author: bretsharon Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 25942 of 121599
Subject: Re: Why is no one looking at State Prepaid Tuiti Date: 1/24/2000 11:38 PM
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Read the Article or pull §529 of IRC


>>ii) deemed to be a present interest gift, so there is no gift tax;

>>This is true but only up to $10,000 per individual and $20,000.00 per married couple same as annual exclusion limits for outright gifts or any other form of transfer.<<

Your Statement is true, but not applicable, with regard to State Plans. Read the Forbes article or the §529. It provides for a five year carryforward in order to use up the annual exemption. Also, why not use up the Unified Credit as well!

Interestingly, extending the custodianship beyong the donee's age 21 (some states permit) will disqualify the gift for the annual exclusion!!!2503(c)!!!!!

>(iii) earnings taxed when removed from the account;

>>This is true, but depending on the investment this may be a red herring. If you invest in stock that appreciates but pays little or no dividend and you do not actively churn the account then this feature doesn't help as far as I can see.<<

Income from any custodial property will be taxed to the minor whether distributed or not. Have you looked at the compressed tax rate structure on Trusts lately?

The value of property trsnferred will generally be included in the estate of a deceased monor-donee, upon his death.

Custodial property will generally be included in the estate of the donor if the donor appoints himself or herself as custodian and dies while serving in that capacity. Rev rul 59-357


Of course, you have to have a decent manager!! The portfolio investment by the funds varies from state to state, but of course they use income producing funds and interest paying bonds!! They invest to pay tuition!! While your at it, check the management fees!

>>(iv) funds can be returned to the Grantor if not used, but generally have to be kept on account for 5 years; <<

>>Are you sure about this? This would tend to eliminate the present status of the gift. Typically any type of transfer that has a possibility of reverting to the transferor is not viewed by the IRS as being a completed gift for purposes of the annual exclusion.<<

Yes. Read the Code and the Article. in Forbes

Good Luck





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Author: BookmFool Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 25953 of 121599
Subject: Re: Why is no one looking at State Prepaid Tuiti Date: 1/25/2000 7:56 AM
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Or check this website: http://www.savingforcollege.com , this is Joseph Hurley's site (or known on the Paying For College board as 529fan, appropriately), a CPA and an expert on these plans. Or you can just go to that message board and eventually he'll look in and answer any question you have.

Hey, he's a good guy, who's helped many Fools over there, and he doesn't have to, since he's got a book about 529 plans, and just gives the info away.

"Go check it out, Wendy!" (The Shining)

Rick

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Author: criser Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 25958 of 121599
Subject: Re: Why is no one looking at State Prepaid Tuiti Date: 1/25/2000 9:20 AM
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I think that the reason Section 529 plans are not as popular as one might expect is that investment options are generally very limited, and a many parents would rather have more investment control. I'm not saying that makes the plans bad or unattractive - it's just my observation on why some aren't using them.

Chris Riser
criser

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 25983 of 121599
Subject: Re: Why is no one looking at State Prepaid Tuiti Date: 1/25/2000 1:04 PM
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boochkin1:

<<<<Why isn't there more interest in this §529?? Tell me what I'm missing.>>>>

"I asked this question the other day, but from what I've seen how is it any different than making an outright gift in the form of UGMA account, in trust or outright for that matter?"

<<<<You point out:
(i) invested in Bonds and Stocks about 50/50;>>>>

"No difference here."

<<<<(ii) deemed to be a present interest gift, so there is no gift tax;>>>>

"This is true but only up to $10,000 per individual and $20,000.00 per married couple same as annual exclusion limits for outright gifts or any other form of transfer."

<<<<(iii) earnings taxed when removed from the account;>>>>

"This is true, but depending on the investment this may be a red herring. If you invest in stock that appreciates but pays little or no dividend and you do not actively churn the account then this feature doesn't help as far as I can see."

<<<<(iv) funds can be returned to the Grantor if not used, but generally have to be kept on account for 5 years;>>>>

"Are you sure about this? This would tend to eliminate the present status of the gift. Typically any type of transfer that has a possibility of reverting to the transferor is not viewed by the IRS as being a completed gift for purposes of the annual exclusion."

<<<<(v) if the Grantor dies, these funds are not included in the gross taxable estate of the grantor;

(vi) are protected from grantor's creditors;>>>>

"Same as outright gift, gift to irrevocable trust or Gift held in the UGMA format.

Would love to hear more opinions on this topic. To me these accounts don't seem to hold a whole lot of benefit?? What am I missing?"


You may wish to peruse the Paying for College Board here on TMF, and especially look for posts by "529fan" a/k/a Joe Hurley, IIRC. He is also the force behind another web page - www.savingforcollege.com , IIRC, and seems very kowledgeable about these plans.

These plans are relatively new, which is one reason, IMO, that we do not here much about them. IIRC, there is a one-time (and maybe available only for a limited time) exception to the $10,000 annual gift tax limit that allows for a gift of $50,000 without gift taxes or use of the unified credit, BUT PLEASE VERIFY BEFORE USING! In addition, as I understand 529 plans, the donor owns the funds, unlike an UGMA or UTMA account, so junior cannot take the proceeds at majority (18 or 21, as the ase may be) and buy a Porsche or fly to Rio for Carnival. In addition, for those interested in finacial aid for college, the students funds, i.e. UGMA or UTMA, are required to be expended in much greater proportion than the parents' funds (and rightly so IMO).

Hope this helps. Regards, JAFO











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Author: boochkin1 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26027 of 121599
Subject: Re: Why is no one looking at State Prepaid Tuiti Date: 1/25/2000 8:11 PM
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Your Statement is true, but not applicable, with regard to State Plans. Read the Forbes article or the §529. It provides for a five year carryforward in order to use up the annual exemption.

You're right thanks for pointing that out. I never bothered to read the Code.

Also, why not use up the Unified Credit as well

Why? Seems like an amount in excess of 50/100k is a lot to put in a College Savings Plan if there is any time for it to grow? and if there is no time for it to grow why not pay the expenses directly to the insitution in which case there are exempt from gift tax?

Thanks for the corrections.

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