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How To Protect College Funds In Bankruptcy
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The cost of a college education has skyrocketed in recent years and there appears to be no end to tuition increases. For the 2009-2010 school year, the average cost of a private four-year college was $26,273, up 4.4 percent from the previous year. The percentage of increase was even greater for public schools, which rose 6.5 percent over the previous year to $7,020. What that means is on average, the cost of a four-year private college education would be more than $100,000. Unfortunately for parents who want to provide the best education possible for their children, it doesn’t look like this trend is turning around any time soon. Estimates put the increase in college tuition at double the inflation rate, which is currently between 5 and 8 percent.
Most states offer incentive programs that bring relief to parents and enable them to begin saving money from the time that their children are born. One of these options, the 529 College Savings Plan, is operated by a particular state or educational institution and helps families set aside funds for future college costs. These savings plans are beneficial for three reasons. First, they offer a targeted way to budget for your child’s college education. Secondly, they are tax sheltered assuming the funds aren’t withdrawn early. Finally, they offer safe interest-earning growth of the money. Unfortunately, they aren’t always guaranteed to get into the hands of your kids.
For individuals struggling with personal finances and debt from a job loss, personal injury, death, or divorce, repayment of debt can be nearly impossible. It can be tempting to tap into a child’s college fund to deaden the calls from creditors. Fortunately, there is a way to keep the creditors at bay without using any child’s college fund. By filing for bankruptcy, individuals can shelter debt from creditors. No other method of dealing with debt has this availability. Here’s how:
First, individuals can protect college fund money from creditors by moving the money from a 529 College Savings Plan into an account under the Uniform Gift to Minors Act or the Uniform Transfers to Minors Act. These funds are then placed under the management of a parent until a minor turns 18. From there, minors can use the funds for college without the threat of having creditors confiscate the funds to reconcile debts.
If you are seriously considering filing for bankruptcy in the Los Angeles area and want to find out more about how to protect your investments from creditors, contact the firm that focuses exclusively on California bankruptcy laws: Borowitz and Clark. Every day, the Los Angeles bankruptcy lawyers at Borowitz and Clark help people save their homes, their cars, and wipe out their debts. Not all bankruptcy attorneys are the same. While the process appears complicated, the Los Angeles bankruptcy lawyers at Borowitz and Clark will be able to help you understand your options and avoid making bad decisions. You get one chance to file bankruptcy right the first time. They know what they’re doing, because bankruptcy is all they do. Unlike many firms, they never leave a paralegal or secretary in charge of a case. That’s why their cases succeed at such a high rate—even higher than many other bankruptcy firms. For a free consultation, contact a qualified Los Angeles bankruptcy lawyers at Borowitz and Clark toll-free at 800-509-3200, or visit www.blclaw.com.
529 Lesson Plan: High Scores for 529 College Savings Program
0Looking for a tax-advantaged college savings plan that has no age restrictions, no income phaseout limits, no residency requirements — and one you can use to pay for more than just tuition?
Consider the 529 savings plan, an increasingly popular way to save for higher-education expenses, which have more than tripled over the past two decades — with annual costs of more than $30,000 per year for the average private four-year college.1 Named after the section of the tax code that authorized them, 529 plans (also known as qualified state tuition programs) are now offered in almost every state.
Most people have heard about the original form of 529, the state-operated prepaid tuition plan, which allows you to purchase units of future tuition at today’s rates, with the plan assuming the responsibility of investing the funds to keep pace with inflation. It’s practically guaranteed that the cost of an equal number of units of education in the sponsoring state will be covered, regardless of investment performance or the rate of tuition increase. Of course, each state plan has a different mix of rules and restrictions. Prepaid tuition programs typically will pay future college tuition at any of the sponsoring state’s eligible colleges and universities (and some will pay an equal amount to private and out-of-state institutions).
The newer variety of 529 is the savings plan. It’s similar to an investment account, but the funds accumulate tax deferred. Withdrawals from state-sponsored 529 plans are free of federal income tax as long as they are used for qualified college expenses. Unlike the case with prepaid tuition plans, contributions can be used for all qualified higher-education expenses (tuition, fees, books, equipment and supplies, room and board), and the funds usually can be used at all accredited post-secondary schools in the United States. The risk with these plans is that investments may lose money or may not perform well enough to cover college costs as anticipated.
In most cases, 529 savings plans place investment dollars in a mix of funds based on the age of the beneficiary, with account allocations becoming more conservative as the time for college draws closer. But recently, more states have contracted professional money managers — many well-known investment firms — to actively manage and market their plans, so a growing number of investors can customize their asset allocations. Some states enable account owners to qualify for a deduction on their state tax returns or receive a small match on the money invested. In 48 states, earnings are exempt from taxes.2 There are even new consumer-friendly reward programs popping up that allow people who purchase certain products and services to receive rebate dollars that go into state-sponsored college savings accounts.
Funds contributed to a 529 plan are considered to be gifts to the beneficiary, so anyone — even non-relatives — can contribute up to $13,000 per year (in 2009) per beneficiary without incurring gift tax consequences. Contributions can be made in one lump sum or in monthly installments. And assets contributed to a 529 plan are not considered part of the account owner’s estate, therefore avoiding estate taxes upon the owner’s death.
These savings plans generally allow people of any income level to contribute, and there are no age limits for the student. The account owner can maintain control of the account until funds are withdrawn — and, if desired, can even change the beneficiary as long as he or she is within the immediate family of the original beneficiary. A 529 plan is also extremely simple when it comes to tax reporting — the sponsoring state, not you, is responsible for all income tax record keeping. At the end of the year when the withdrawal is made for college, you will receive Form 1099 from the state, and there is only one figure to enter on it: the amount of income to report on the student’s tax return.
The 529 plan is a great way for grandparents to shelter inheritance money from estate taxes and contribute substantial amounts to a student’s college fund. At the same time, they also control the assets and can retain the power to control withdrawals from the account. By accelerating use of the annual gift tax exclusion, a grandparent — as well as anyone, for that matter — could elect to use five years’ worth of annual exclusions by making a single contribution of as much as $65,000 per beneficiary in 2009 (or a couple could contribute $130,000 in 2009), as long as no other contributions are made for that beneficiary for five years.3 If the account owner dies, the 529 plan balance is not considered part of his or her estate for tax purposes.
As with other investments, there are generally fees and expenses associated with participation in a Section 529 savings plan. In addition, there are no guarantees regarding the performance of the underlying investments in Section 529 plans. The tax implications of a Section 529 savings plan should be discussed with your legal and/or tax advisors because they can vary significantly from state to state. Also note that most states offer their own Section 529 plans, which may provide advantages and benefits exclusively for their residents and taxpayers.
Before investing in a 529 savings plan, please consider the investment expenses, risks, charges, and expenses carefully. The official disclosure statements and applicable prospectuses, which contain this and other information about the investment options and underlying investments, can be obtained by contacting your financial professional. You should read this material carefully before investing.
By comparing different plans, you can determine which might be available for your situation. You may find that 529 programs make saving for college easier than before. The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. Sources:
1. The College Board, 2008 2. SavingForCollege.com 3. If the donor makes the five-year election and dies during the five-year calendar period, part of the contribution could revert back to the donor’s estate.
To ensure compliance with requirements imposed by the IRS, we inform you that, unless specifically indicated otherwise, any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any tax-related matter addressed herein.
Your Child’s College Education Savings Plan, Discover 4 Great
0With higher education costs increasing at double digit
percentages an effective college savings plan for your kid’s
education is becoming much more critical. Most parents will find
that their kid’s future college costs will be much more than
they have planned. This leaves many kids to be faced with
obtaining financial aid to compensate for a portion of their
higher education costs. This article will explore the pros and
cons of 4 common college savings options. This article will also
seek to show which of these 4 options are a better option if
part of your kid’s higher education costs are to be funded by
financial aid.
529 College Savings Plan: Since January 2002, 529 college
savings plan have become a new option for achieving tax free
college savings. These plans are state sponsored investment
programs that offer special tax treatment. It allows just about
everyone to save for their kid’s college education. While there
are many benefits of a 529 college savings plan, perhaps the
most important is that your investment earnings are tax deferred
if you use the funds for qualified education expenses.
Additionally, another big advantage is that the maximum amount
you can contribute to a 529 savings plan can go as high as
hundreds of thousand dollars but be aware these are based on
your States specific guidelines. If for some reason you do not
use the investment funds for college, you can still withdrawal
your investment earnings, but you will have to pay a federal
penalty of 10% and federal income taxes on your earnings. The
penalty can be waived if your child receives a college
scholarship, or in the event your child becomes disable or
dies.
A 529 plan can typically be easily purchased through an
investment broker or mutual fund company like Vanguard or
Fidelity. Please be aware that one of the biggest disadvantages
of a 529 plan is that investment options can sometimes be
limited. However, as 529 plans become more popular it is likely
that more plan options will open. For instance, the State of
Ohio just announced the option for bank CDs and saving accounts
for 529 plans. One last main advantage of a 529 college savings
plan is that the money in the plan is classified as a parents
assets so less that 6% of the value counts against your kid’s
eligibility for financial aid.
Coverdell Education Savings Account (CESA) (formerly known as an
Educational IRA): A Coverdell Education Savings Account is a
savings account created as an incentive to help parents and
students save for higher education expenses. A Coverdell
Education Savings Account is easy to set up at most financial
institutions and banks. A Coverdell Education Savings Account is
similar to a 529 college savings plan, but different in the
contribution limits. With a Coverdell Education Savings Account
you can only contribute $2000 per child per year and to qualify
your adjusted gross income must be less than $110,000 if you are
single and less than $220,000 if you are married filing jointly.
For financial aid eligibility a Coverdell Education Savings
Account is classified as a parent’s asset so less that 6% of the
value counts against your kid’s financial aid eligibility.
UGMA/UTA Custodial Account (Uniform Gifts to Minors Act/Uniform
Transfers to Minors Act): A UGMA/UTMA account allows someone to
make gifts to a minor without setting up a trust. While there
are benefits to a UGMA/UTMA account the first limitation is that
these types of accounts offer very little federal tax advantage.
Secondly if your child is 14 or under only the first $800 of
income is tax free, the next $800 is taxed at your child’s tax
rate and after that there is no tax benefit at all. The other
big disadvantage is that an UGMA/UTA Custodial Account has to be
set up in your child’s name. This can create a big problem if
your child needs financial aid since all of the assets will be
reviewed at a 35% rate. As a result, a UGMA/UTA Custodial
Account is not advisable for those who may need to qualify for
financial aid eligibility.
The main advantage of a UGMA/UTA Custodial Account is that there
is no limit on the investment contribution and it is very easy
to set up at most major financial institutions including some
insurance companies. However, as can be seen above the
disadvantages of a UGMA/UTA Custodial Account far outweigh the
benefits.
Taxable Investment Accounts: Taxable investment accounts can be
a broker account, a mutual fund, a certificate of deposit or
just a regular savings account. Essentially it is just a regular
account that earns taxable interest, or investment income. A
benefit of a taxable investment account if set up in the parents
name is that the assets are classified as a parent’s asset so
they do not count as a negative in the financial aid formula.
Additionally, taxable investment accounts offer lots of
flexibility, and are easy to set up at any financial
institution. However, the big limitation to taxable accounts in
saving for college is that they offer no tax advantage for
college savings.
In summary, a solid savings plan for college is a very important
undertaking for parents to consider. The above 4 education
investment options can be highly useful in the college planning
process. Furthermore since some of these investments offer
substantial federal tax advantages and do not count against
financial aid eligibility they can maximize parent’s investment
resources.
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Is College Still an Option?
0Has times ever been this difficult? For those born well after the Great Depression, the current economic recession is probably as low as it has ever been.
From upper middle-class families who once gave to the needy now receiving free meals to single mothers choosing welfare over work because the cost of transportation and child care would be more than their paycheck, the recession is forcing many out of their normal lifestyles and forcing them to reassess their financial future.
With families struggling to stay in their homes, many parents have had to make the difficult decisions of delaying their child’s college education or forcing them to narrow their choices to those that fit into their current budget.
However, what about the parents that are determined to send their child to college despite their economic circumstances? Where should they go to began preparing in advance for their child’s higher learning?
Alex Brown has recently launched a website, Zadoodie.com, which will assist children in finding funds for their college education.
”Many children and young adults are faced with the problem of not having enough money to attend or complete college,” said Brown. “The earlier you start to save the less you have to worry about when the time comes to pay for a college education.”
Zadoodie.com is designed to help parents begin saving funds early in their child’s maturation so they can avoid the economic uncertainties that many are facing today. The website is working with a United States government 529 college savings plan and offers information to parents who are unfamiliar with the 529 college savings plan and/or have not set up an account.
According to the Securities and Exchange Commission (SEC) government website, “A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs.” Legally known as “qualified tuition plans,” 529 plans are funded by states, state agencies, or educational agencies and are commissioned by Section 529 of the Internal Revenue Code.
The two types of 529 plans are pre-paid tuition plans and college savings plans. Each state, including the District of Columbia, commissions a 529 plan. Furthermore, some private institutions of higher learning sponsor a pre-paid 529 plan.
Furthermore, loved-ones can donate funds to a student’s personal account by visiting Zadoodie.com, who in turn transfers the money to the student’s fund. The website also allows members to earn 10 dollars annually for each new member they bring to the site. Furthermore, Zadoodie.com shares up to 50% of the adverting revenue from the site with active members and offers weekly scholarships to those members.
Before launching the site, Zadoodie.com had already helped students earn up to $1,000 for their college education.
In spite of the current economic conditions, it is still imperative that the leaders of tomorrow be offered the same educational advantages of previous generations, and that journey for knowledge begins with the financial preparation of their elders. As Malcolm X said, “Education is our passport to the future, for tomorrow belongs to the people who prepare for it today.”
Saving For College is Easy With 529 Plans
0Saving for college has never been a cinch, but the U.S. Congress has made it a little easier. Congress has made the tax benefits of 529 college savings plans permanent, which is great news for parents saving for their child’s college education.
529 plans are tax-advantaged savings accounts for saving for college. A 529 account is opened on behalf of a beneficiary, usually a future college student. You invest money in the account over time and your returns grow tax free. The money is then withdrawn to pay for college or other education expenses and you don’t pay income tax on the growth when you withdraw it. If you withdraw the money for an expense other than qualified education expenses, there’s a 10% penalty plus you have to pay taxes. However, 529 plans are usually transferrable between beneficiaries. So if you child gets a scholarship, you can move the rest of the money in the 529 plan to a sibling, cousin, etc.
All 50 states and Washington D.C. have 529 plans, and they each have slight differences. For example, some states offer state tax deductions or credits in addition to the federal tax benefits. They also have various minimum investment requirements and maximum amounts you can invest over the life of the account. Most of these minimums are small — sometimes only $15. Maximums refer to how much you can invest in the 529 savings plan over time. This number is typically enough to cover even the most expensive colleges, and most states increase the maximum as college costs increase. The maximum amount you can invest in a 529 typically does not include your earnings. For example, if the cap is $300,000 and you invest $295,000 but the earnings are $50,000, you will not have hit the maximum even though you have $345,000 in your account.
Although your state offers a 529 plan, it’s smart to consider other states’ 529 plans as well. Some 529 plans underperform the market and others have high fees. If you decide to invest in another states’ fund, keep in mind that you won’t get the state tax benefits. Some states, such as Texas don’t have income taxes, so residents of these states should shop around for a better deal on a 529 plan. Utah is an example of a state that has low fees for its 529 plans for both in-state and out-of-state residents.
Also, some 529 plans are “direct funds” whereas others are “advisor funds”. A direct fund means you can invest directly with the state or the 529 manager. An advisor fund requires you to use a qualified financial advisor to purchase the fund.
Some states also offer a variation on the traditional 529 plan called a pre-paid plan. A pre-paid tuition plan lets you effectively “lock in” the future cost of a college education.
Regardless of which 529 plan you choose, investing in 529 plans is a smart move to invest for college. Between the low minimum investment amounts and the tax-free returns, a 529 is a great way to save for college.