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OK, I've read the 4100+ posts on this board. I think the posts have clarified enough issues so that I have slightly modified my still all too rudimentary plan for paying for college for our two daughters (19 months and 2 months old). Let me explain what I think I understand and what I think I want to do and y'all can point out to me any egregious (or small, I suppose) errors in my understanding of the issues and/or my take on financing college.

Some parameters: I want our daughters to go to an (unfortunately) pricey private school K-12. I don't want my daughters to have to work while in college. I understand there are different opinions on this one, but I'm gonna stick with "no work" for now. I don't have a state income tax. Need-based aid just ain't gonna happen.

529 plans
As I undertand it, we're talking about (a) prepaid tuition plans and (b) college savings plans.

Prepaid tuition plans seem to be the way to go if you believe that tuition costs will rise faster than the after tax gain on other investments. If you believe the opposite, there's not much point in a prepaid tuition plan, right?

The upside for college savings plans is tax exempt growth and (currently, at least) tax exempt withdrawl. The downside is a potential hefty tax bite and penalty if the withdrawls are not for educational purposes (overpayment or non-attendance, e.g.) and a hefty tax bite even if the money is withdrawn because it is no longer needed because of a scholarship. Another downside is the uncertainty of rules regarding these accounts in the 18-20 years between now and when I will be able to use them.

The account formerly known as an Educational IRA
Starting next year, $2000 per year per child. Can be used for primary and secondary educational expenses. (Did I really see that computer equipment and internet access that the child uses while in school would be valid expenses here?) Tax exempt in growth and withdrawl for the right kind of expenses. Penalties for the wrong kind of expenses.

Roth and 401(k)
I have no desire to use my retirement money toward college expenses.

Non-tax-exempt/deferred investments
Our 401(k)'s are currently maxed, either by total or contribution percentange. Roth's are maxed at $2000 each, $3000 each next year. Additional investment dollars, to the extent there are any, are going into index funds.

After all that long-windedness, here's what seems to me to be a reasonable plan. Please feel free to rip it to shreds so I can make it better where possible.

Continue to max our 401(k) and Roths. Immediately open ESA's (E-IRA's) for both daughters, funding each to the max until each enters kindergarten. Invest as much as the budget will allow in additional after tax (index fund) investments.

Pay for the private school as an ongoing budget item, supplemented when necessary by the ESA's (E-IRA's). Although I doubt seriously it is an item with which I will have to be too concerned, make sure the ESA's are empty by high school graduation, putting any freed up funds (LOL) into the index funds.

Once college begins, each year gift as much as necessary (or $10K per parent if that is less than what is necessary) to each daughter from the index funds to be sold by her to spend toward college. If I understand things correctly, she will pay the cap gains at her rate. If I misunderstand, it may be time to go back to the drawing board.

My thinking is that I am trying to balance the "sure thing" of paying at least some cap gains along the way against the possibility of a huge tax bite and/or penalties should things not work out as planned if the money were in a college savings 529.

Any shortfall in the index funds will be made up with loans. Not sure in whose name at the moment.

Does any of that make sense? Is it a reasonable way of going about things? What areas should I rethink? What areas are just plain wrong?

Thanks for any help...

-- Mark
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