What can I do for my nieces?

[dh003i]

I have two nieces, the oldest of whom is 7. I'd like to look into some ways to put away some money for their college education. Are there some plans that I can do this with, which won't penalize my nieces when it comes time to apply for financial aid?

[GBurns]

I suggest some research first, then you might consider using the services of a good planner and a good insurance agent (2 different areas of expertise).

Aside from a Google search, here is a good place to start:

http://www.elderlawanswers.com/resources/s7/r36437.asp

Consider using a Universal Life policy that has low death benefit amount but high cash values and high guarantees e.g Transamerica TAC$aver. If you "over fund" this type of policy, it might serve you better than a mutual fund alone. Although it could be even better if used as a supplement to a state 529.

[Bird]

My search would probably begin and end with a 529 plan. if you're the owner, it won't affect their financial aid.

[GBurns]

If the start and end is a 529, How can a comparison be made between a Pre-paid Tuition Program and a 529?

Unless of course that nothing else needs to be looked at because "one size fits all" regardless of State, resources, facts and circumstances of this individual.

[Bird]

I said probably, and remain open to other ideas. There might be reasons to use something else, but I haven't been convinced of anything that is much better, if better at all.

Of course, there are probably some lousy 529 plans out there but from a generic standpoint of tax benefits, flexibility, and financial aid, I doubt that an investor would have cause to be disappointed. Especially this one, as I understood the scenario.

[AndyH]

Why would you recommend a universal life insurance policy, Mr. Burns? I am extremely skeptical, but perhaps I can be convinced.

[GBurns]

Not just any Universal Life plan, but 1 that is structured with low death benefit and high cash accumulation. Might even need more than 1 policy so as to avoid MEC. This will need someone other than a run of the mill agent since not many companies have such a product.

Reasons:

1. Death Benefit to ensure that the money is there from day 1 just in case there is premature death of this uncle.

2. High cash accumulation. Might not be as good as some 529 plans might perform but better than many.

3. Guaranteed cash value. Better than the 529s etc.

4. Tax free withdrawals to basis.

5. Loans.

6. Possibly tax deductible.

7. No limits as to eventual useage.

8. Ability to change purpose etc. The child might get a great scholarship and need the money for something else. Or decide not to go to college and need the money for something else.

It is not perfect but it offers thinngs that should be considered.

[AndyH]

Well, thanks for the response. I happen to disagree with each point.

[GBurns]

It should be interesting to many readers to hear why.

[AndyH]

You would argue that a life insurance policy would be the best way to save towards college for a 7 year old?

That merits further comment?

[GBurns]

Yes, it does merit further comment.

Life insurance is a very broad term, that is why I pointed out that that a special universal life policy should be used.

To have an objection to having guarantees such as the death benefit and loans, without being willing to state why, suggests a lack of reasons or reasoning. That is why further comment is suggested.

However, you might just want to wait and see if anyone else chips in, especially to ask for your reasons. If no one chips in then it might either be a lack of interest in the subject matter or a lack of interest in the possible reasons.

Who knows?

I originally advised that some research needs to be done. Here is what Smart Money has to say:

http://smartmoney.com/college/investing/in...ry=variablelife

The article points out that Variable Life is not best and gives what they consider a better variation. I do not like VUL or VWL and think that a better case can be made for use of a special UL which has better guarantees, less expenses and lower (or no) early withdrawal penalties.

Simple research will show that there are many who think that at least some consideration should be given to the use of Life Insurance especially since one size does not fit all in financial planning. And that is all I advised.

To make statements without having any reasonable basis seems unreasonable.

[AndyH]

I have never heard even an insurance agent say with a straight face that a life insurance policy is the best long term investment when accumulating funds is the objective. Not to mention for a 7 year old's future college tuition!

The reasons are quite simple:

1. Part of the money is going towards death benefits, not college savings.

2. The insurance company wants to make money.

3. The agent wants to make money.

And this assumes all the other barriers are removed such as surrender charges, conservative investing, and gargantuan commissions.

You listed 8 reasons why it makes sense. None of them fly, IMO.

[GBurns]

I was amending my post while you were responding.

I never said that life insurance was the best, I only suggested that a special UL might be considered.

The fact that you "never heard even an insurance agent say with a straight face that a life insurance policy is the best long term investment when accumulating funds is the objective" is simple. You never heard them addressing this particular issue with a specialized product. That is why I pointed out that it needed not only a special UL but also a good agent (in other words 1 who knows of this type of UL).

The 3 reasons that you listed are just as applicable to sellers of 529s and Pre-paid Tuition PLans. Every provider has expenses and needs to make a profit. 529s have sales reps who get paid whether commission or salary, which has no other place to come from but from the person contributing. It does not matter whether it is a salesload, 12(b)1 or whatever, it is still a reduction of the contribution. No one sells 529s for free, those agents are paid.

[mbozek]

LI is only needed when it is a replacement for a loss of income of an immediate family member who supports the neices. One can assume that there will be sufficient LI on the income earning parents of the neices to provide for necessities such as college ed or the amount of LI can be increased. Therefore, the amounts placed into a 529 plan by a relative would be better used to increase the value of the fund instead of purchasing death benefits. Finding a LI policy that has low charges and good invesmtnet returns is an ardious task at best and the time could be better spent finding a low load mutual fund to invest the accounts in.

[AndyH]

Well stated.

And, Mr. Burns, you do have a point that you did say "consider". But I still don't understand why it should be considered under these circumstances.

Would you advocate an annuity purchase for a 7 year old?

[GBurns]

"Would you advocate an annuity purchase for a 7 year old?"

What does an annuity have to do with this issue? Assuming that there is some relevance to the isuue, What is the purpose, For accumulating college funds or for holding a lump sum settlement or award until college age?

[Effen]

Is it possible for an "insurance guy" to have a conversation with a "non-insurance guy" on this board without it degrading to smearing "insurance guys"? I, like Andy, am generally anti-insurance because of all of the stereotypical reasons. Most of the insurance salesmen I have come in contact with are fairly slimy.

That said, I think GBurns presented decent arguments. Andy's response

Well, thanks for the response. I happen to disagree with each point

is not a counter argument. I for one would be interested in a more concrete response. Just saying "I disagree" doesn't help those who are interested in why you don't agree.

The insurance industry is a multi-billion dollar business that can't be totally founded on crooked salesman (current Marsh & McLennen thing notwithstanding). There must be some situations where it is merited and I would like to know when.

[AndyH]

I am not opposed to insurance or life insurance. I just think there are investments and there is insurance and the two are for two entirely different purposes. And when an insurance guy tries to advocate insurance as an investment I get cynical (obviously).

What happened to "buy term and invest the rest"? Was that before universal life was invented? What is the average rate of return on equities since the early 20th century? What is the average rate of return on universal life insurance?

I admit to being dumbfounded that someone is advocating life insurance as a college tuition savings vehicle for a 7 year old. I am having trouble giving it serious consideration.

Effen, do you think that universal life merits consideration under the circumstances? Do others?

Teach me something. "High cash accumulation", "guaranteed cash values", "tax fee withdrawals" equal sales gimmicks IMO. What information do such comments provide? If a product performs at 1%, what good does it do to have that "guaranteed"? Or are we feeding off stock market fear? Is that it? The guaranteed positive return. Is that what is being sold for a 7 year old?

[Belgarath]

I've refrained from commenting because discussion on these boards involving insurance tends to get a little heated. However...

First, I don't sell anything!!! And I have a long standing belief that insurance is not generally suitable as an "investment." Insurance should only be sold to someone who needs insurance. That having been said, I'm certainly open minded enough to consider that there may be situations where an insurance or annuity policy might be a reasonable choice.

Assuming for the moment that the parent does in fact need life insurance, and also wants to save for a child's college education commencing in 11 years, you'd then have to crunch the numbers. Term insurance for 11 years would cost you (x). The rest of the money invested in various investments alternatives would net you out several different numbers. If the same number of dollars paid into the insurance policy, when surrendered in 11 years, net you out a number of dollars that falls within the normal range of the competing investment alternatives, then I'm not sure where the harm is? Now, will this happen? Is such a policy or policies available? I can't possibly say.

I'll also say this. Yes, some policy commissions are grotesque. Some surrender charges are absurd. But some mutual funds or stocks stink, and some policies provide a "reasonable" return. There are some people who simply do not want to invest in stocks, mutual funds, whatever. It's their money, and they have the right to invest as they feel comfortable. Lots of them put it into bank CD's. I don't hear much bad talk about them, but they generally pay a relatively low rate and are currently taxable. And they have a surrender charge. Want to talk about "commissions?" The same bank that pays you 3% on your CD charges loan rates a whole lot higher. Isn't this comparable to a commission? My point is not to bash banks and CD's, because they serve a useful purpose, and are the right choice for many investors.

My parents purchased a deferred annuity a few years ago. It had a 7 year decreasing surrender charge, and a 4.5% guaranteed interest rate. They are people with low risk tolerance, and they can sleep nights with this investment. And they are mighty happy to still be receiving 4.5%. It was a good investment for THEM. My in-laws prefer CD's. Both of them receive a positive rate of return, with low risk. This is what they WANT. So there you have it - beauty, and good investments, are sometimes in the eye of the beholder.

Would I ever advise anyone on an investment? Absolutely not, because I'm no expert. But I do believe it is in my best interests as a TPA to remain open minded - I, for example, don't like variable annuities, particularly in qualified plans. But I'm certainly willing to consider other reasonable viewpoints.

[AndyH]

All good points. But consider the age difference between your parents and a 7 year old. Those are two different sets of risk tolerance and perhaps liquidity requirements.

So, Mr. Burns, I submit to you that the child's investment should be able to perform at least at 8%-10% if properly invested in equities over a 13 year horizon based upon past history. I challenge you to show me a life insurance product that should be considered instead.

[GBurns]

Aside from the fact that you are still evading the issue and still not presenting any reasoning, you still misunderstand the issue and seem to have very limited knowledge of the issues.

A reasonable and rational person looks at the facts before making a decision. Since the poster is starting from scratch, then every possible thing should be looked at and evaluated so that an informed decision can be made. To make a decision without rationale, as you have done, is neither prudent nor rational.

In addition I never advocated selling anything for a 7 year old. I advocated looking at all that might be available.

By the way, what has been the rate of return on the 529 that the poster might buy? And What will the future returns be? Since you do not know which 529 the poster might be limited to, you also do not know how limited the investment choices of that particular 529 will be. Since you do not know which 529 etc you cannot even guess at what the performance of that fund has been.

I am curious to know which 529 this poster would have chosen if 529 was the choice. Then we could see how good that 529 has been so far.

Here is an example ofwhat can be very easily found out about 529 performance so far:

http://www.smartmoney.com/taxmatters/index...?story=529plans

Here is how 1 of best as rated by Kiplinger's, has performed:

https://uii.s.upromise.com/displayServlet?s...1&d.px=upromise

Here is Fidelity:

http://personal.fidelity.com/planning/coll...rch&kw=529_Plan

Not all that impressive are they?

Just as you hypothecated a 1% return on UL, the same can be done on any mutual fund or 529 plan also. But by doing so you have evidenced ignorance of life insurance especially UL. UL and many insurance products have a minimum guarantee which is more than 1% anyhow.

Since you do not even have the basics of UL understood, How in heavens name can you feel free to make such comments without feeling foolish?

[AndyH]

Well, there you go again (yes, credit to Ronald Reagan).

Here is a message board on the subject. Let's see if anybody else is advocating insurance in such a situation. Only one "insurance" thread:

http://www.savingforcollege.com/messageboa...TML/008594.html

I'm not even necessarily advocating a 529. I think a low or no load equity or balanced mutual fund would do just fine. I just happen to think that life insurance is for death benefits. And there is nothing wrong with that.

[GBurns]

There you go still evading.

Anyhow, if you want anumber of threads that deal with insurance, I can give you some, not just 1. In fact, if you had read the previous posts you would have noticed that I also previously gave an insurance thread and it was evaluating the use of Variable Life from John Hancock, a well respected name. The thread from Smat Money was :

http://smartmoney.com/college/investing/in...ry=variablelife

I would put much more stock in an article in Smart Money, however if you read the thread you will see that no one dismissed the possible use of Life Insurance as you do with no thought. Also note that each poster gives suggestions for evaluating along with what they think might be appropriate and why. Quite different to your irrational unreasoned statements.

Here is the general outlook of College Funding from the "Industry of Life Insurance" as a whole:

http://www.life-line.org/life_life_planningc.html

I have suggested nothing more except to limit the insurance product to 1 with special features that are more applicable than the standard run-of-the-mill street products.

[Bird]

Since there has been talk of evading, I'm going to take GBurns' original list head on for discussion.

First, let me clarify that a 529 plan is just a wrapper that gives certain tax benefits to the underlying investment; namely, gains become tax-free if used for college. Depending on the options in the plan, you could use anything from a money market fund to a foreign growth fund. I would suggest an equity fund of some sort for a 7 year old; 10 years is enough time to minimize downside risk. Probably a growth and income fund.

Here goes:

"Not just any Universal Life plan, but 1 that is structured with low death benefit and high cash accumulation. Might even need more than 1 policy so as to avoid MEC. This will need someone other than a run of the mill agent since not many companies have such a product."

By its nature, any UL policy could be set up with a low death benefit and you can just throw a bunch of money in it, to the point of being a MEC, or rather just short of it. I can't imagine how using two policies would help and frankly can't make any sense of the paragraph above.

"1. Death Benefit to ensure that the money is there from day 1 just in case there is premature death of this uncle."

The uncle has indicated no desire to provide a death benefit so this is conjecture. If that's a stated goal, then that's a different story (probably best served by term insurance, since we're looking at a relatively short [10 year]) time period).

"2. High cash accumulation. Might not be as good as some 529 plans might perform but better than many."

"High" cash accumulation? By whose standards? This whole statement is meaningless.

"3. Guaranteed cash value. Better than the 529s etc."

After paying mortality and other expenses, you have a guarantee, true. Odds are that at the end of the day you'd get as much or more, guaranteed, with a CD. "Better" than 529s, etc? Youre making an invalid value judgment, IMO, that a guarantee of principal is better than an expected return of, say 10% or so (the average for large stocks over the 80 years) with a downside of maybe 4% (that's the greatest loss over ANY 10 year period in the last 80 years;) and an upside of 18% or so. (Returns cited are actually after-tax, so nominal returns were higher...that just happened to be the study that fell open...and it's actually a 1926-1994 study. I have no concerns that the last 10 years changed any cited returns for the worse.)

"4. Tax free withdrawals to basis.

5. Loans."

I'd say both of these are weak rebuttals to what is really a negative, that you can't get your money out as freely as you could with a 529 or a plain old after tax investment.

"6. Possibly tax deductible."

Huh? "Almost certainly not" tax deductible, maybe.

"7. No limits as to eventual useage.

8. Ability to change purpose etc. The child might get a great scholarship and need the money for something else. Or decide not to go to college and need the money for something else"

These are the same arguments so if you're going by the fallacy that the number of reasons given somehow proves a point, then they should be reduced to 1. But it's a weak argument anyway; the odds of not using the money for its intended purpose is unlikely, given the total cost of college. The owner can re-direct to different beneficiaries in a 529 plan without penalty, and the worst-case scenario is pulling money out for some other purpose and paying taxes and a 10% penalty, but only on the earnings. Sorry, but that doesn't equate to the end of the world.

FWIW.

[GBurns]

AndyH

I see that Bird had to answer for you.

Bird,

In my last post I gave some links to some of the major 529 plans. These links show the returns. In your you have cited returns for large stocks rather than returns for funds. The historical return for large stocks is irrelevant. The use of historical returns for mutual funds would also be irrelevant since you would be comparing "regular" funds to the special restricted funds that are used by most 529 Plans. If you compare what the 529 funds have managed to do you will easily see that their performance has been dismal.

The cash accumulation of the special UL to which I referred will be known when he gets an illustration based on age, contributions etc. Whether is is high or higher than the projection on whatever 529 is selected cannot be known beforehand. We can only wait to see what he finds. Which is exactly my point. Look and See what is available.

Death Benefit is a given. Why would you think that any uncle would keep the fact that he has set up a College Fund for his neice. Once he has told the child, Do you think he would want to disappoint the child with a pre-mature death? Or do you think that he would prefer to leave a legacy? The choice is his, and it would be ridiculous of me me presume to tell him what he must do. So once again, All that I have done is to tell him what is available so that he can Look and See what is available.

I have covered in a simple way that:

1. Your comparison on rate of return is flawed.

2. Your comparison of cash accumulation is flawed.

3. Your opinion on Death Benefit is irrelevant.

In addition, Your comment on Withdrawals to basis and loans is irrelevant and flawed. It does not matter which is freer ( and it is questionable as to which is but that is based on facts and circumstances not yet known), it matters which gives him more money, when and how. We do not know Why, When or How much he will need, nor his tax rate at that time of need. All of which are relevant in considering "accessibility".

The rest would need that you look at such a policy and he does not yet have 1 to use to explain to you. But that might not even matter, because you are not familiar with such a policy or its possible application in this situation. Why you want to make vague unbased comments about a policy that you have never seen and know nothing about, is frightening. Why you would want to tell him not to look at it to see if it fits is disturbing. In the end it does not matter what you or I think, it only matters what dh003i thinks suits him and meets his needs. To find out what suits his needs, he will have to Look and See.

All I can do is tell him what is out there and suggest that he take a Look and See. It is up to him tio decide what to do. Why would you want to stop him from Look and See?

[Belgarath]

This is an interesting thread.

Just to toss out another thought, speaking as a neophyte in these matters. What about a Roth IRA? Don't know if original poster is eligible, or how much he can contribute each year, but assuming he is eligible and his desired amount to put away each year doesn't exceed the Roth limits, how would this be? Provides a lot of flexibility and tax free growth. Total control in case kids decide not to go to college, or receive a full scholarship, etc..

Is this a reasonable possible approach, or are there reasons why it is either bad or something else like the 529 is much better?

[AndyH]

Bird's comments are right on.

Belgarath's questions are good and appropriate and constructive; I'll leave that to others more knowledgeable than me in such areas to answer, although I'll say that the tax deduction opportunity is a 529 plus.

I wish my vocabulary was larger so I could think of another wizard name to give Mr. Burns. He challenges Bird to compare some vague theoretical policy which he admits does not exist. Just throw a little pixie dust and a special UL appears:

The cash accumulation of the special UL to which I referred will be known when he gets an illustration based on age, contributions etc. .

So some Wizard puts together an illustration. And then the cash accumulation is known, per Mr. Burns' quote above. And just what is illustrated, some guess at a cash accumulation rate? Some guess at an interest rate? Some guess at a an expense charge? What a wonderful wise wizard that must be.

But then Mr. Bill chirps in: "Oh, no"; there is a slight hedge

Whether is is high or higher than the projection on whatever 529 is selected cannot be known beforehand. We can only wait to see what he finds. Which is exactly my point. Look and See what is available

So we buy from the insurance wizard on the faith of his projection?

Didn't that game get exposed decades ago? Once he gets that illustration he becomes instantly enlightened with the all-knowing's knowedge based upon the look-see of the wizards's projection skills. Unguaranteed of course.

Mr. Burns, you did in fact teach me something based upon one of your links. Apparently you are not alone in advocating these schemes. That surprises me. I guess it's just another example of repackaging old schemes.

[GBurns]

"So we buy from the insurance wizard on the faith of his projection?"

BOTH the UL illustration and the 592 illustrations are projections made by the sales rep.

Have you ever seen a mutual fund or 529 projection that was anything other than speculation and "pixie dust"?

It seems apparent that you have either never seen an illustration/projection for either a mutual fund, a 529 or cash value insurance, or you did not understand nor read that they all state that they are ALL projections except that in the CV insurance illustartion there is also a guaranteed column. It is usually referred to as the Guaranteed Cash Surrender Value.

All assumptions are clearly disclosed even more so than in a 529 or mutual fund projection. Just Look and See.

I guess that since you could not support your own unbased bias, you are now resorting to snide remarks.

By the way, any financial planner or CPA etc will tell you that tax deductibility is not the criteria for selecting a good investment. Net return is what counts even if there is no tax deduction.

[Bird]

Belgarath, a Roth IRA could serve just as well from a tax standpoint if the uncle is old enough so that withdrawals are tax and penalty free. As with the 529, it's just a wrapper for an underlying investment. This also assumes the uncle isn't already funding a Roth IRA. We don't know how much money we're talking about but the 529 allows for greater deposits. And, the 529 will have the nieces' names on it/them, which I think has some emotional benefit, even thought the Roth could be used for their education and the 529 beneficiary could be changed, or could actually revert to the uncle.

GBurns-

The historical return for large stocks is irrelevant. The use of historical returns for mutual funds would also be irrelevant since you would be comparing "regular" funds to the special restricted funds that are used by most 529 Plans.

Irrelevant? I used that because I didn't want to be accused of cherry-picking funds with good returns. So you want to use the actual returns for 529 funds, which have what, a 3 year track record in a down market? That's just plain stupid. I will not waste any more time on this discussion. As you noted, different arguments have been laid out and the original poster can make his own decision.

[jquazza]

Hey Mr. Baker,

Can Benefitslink provide a room for AndyH, Gburns and Bird? We might throw them in there and you know, see what happens...

That may be a good opportunity for a PPV special...

All jokes aside, I think the only good advice the original poster received was to consult a qualified investment professional.

I don't think you can ever give investment advice without taking into consideration all the individual's objectives and means. We have no idea if the uncle (or aunt for that matter) wants to give few hundred dollars a year or 1/2 million, will it be a one-time thing or will it be recurring every year.

Personally, I am biased against insurance products, but I do recognize that they are valuable for certain individuals.

[dh003i]

Thank you everyone for your responses. I'd like to apologize for not giving much background information, which may have led to alot of heresay and back-and-forth. Some background...

I'm 23, and am maxing out Roth IRA contributions and 403(b) contributions. Right now, the 403(b) is split between Fidelity Low Priced Stock and New Markets Income. I plan on moving what's in New Markets Income into an International investment fund (either Diversified International, East-Asia, maybe some Canada). My Roth IRA is currently split between Select Electronics and Fidelity Low Priced Stock. My next move in my Roth IRA will be into Tocqueville Gold, and I may move Select Electronics into a long position in Select Energy.

I'm going to be establishing either a Self Employed 401K (Keogh) or a SEP IRA with Fidelity, and may be contributing a significant amount to that (I expect to make an extra 12-18K a year as an independent contractor). My invesments in these will be in hard assets and mtual funds investing in companies that deal with hard assets (gold, silver, oil, water, etc).

Because of my outlook on the future, I'd like to have some degree of control over what my money is invested in. A guaranteed return is meaningless if dollars are devalued to worthlessness.

So far, regarding the possibilities for helping my nieces out in college, here's what seems to be available...

Question regarding 529's: if I setup an account on my older nieces' behalf, and it is not completely needed, can I transfer the remainder to my younger nieces' account without penalty? From Fidelity.com

The new beneficiary of 529 assets must have one of the following relationships to the original beneficiary: 1) a son or daughter; 2) stepson or stepdaughter; 3) brother, sister, stepbrother, or stepsister; 4) father or mother or an ancestor of either; 5) stepfather or stepmother; 6) first cousin 7) son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law and 8) son or daughter of a brother or sister. The spouse of a family member is also considered a family member. However, if the new beneficiary is a member of a younger generation than the previous beneficiary, a federal generation-skipping tax may apply. The tax will apply in the year in which the money is distributed from an account.

Insurance with low death benefit, high cash value

• Have to admit, I'm a little bit confused about doing this.
  
• I'm 23 years old, and don't plan on dying anytime soon, certainly not before my nieces are in college.
  
• Why should I bet on my own death?
  
• These kinds of things don't really seem to be insurance, but insurance bundled with savings. Insurance is essentially grouping of risks -- among equal-risk people, or weighted for risk -- into a money-pool. The death-benefit part of these plans is that, but the cash-value part of the plan isn't insurance. It's been combined with insurance for tax-benefits.
  
• Since my greatest concern as an investor is a likely coming inflation (or even hyperinflation), having investments that can offer some protection from inflation -- and hedge against it -- is important. A guaranteed return of 4% can become meaningless really fast. There's no limit to how much money can be devalued. Do any of these insurance plans offer investment options that stack up well against inflation, such as various hard assets?
  
• Would any such cash-basis insurance policies offer me control over what the money's invested in? I seem to have some vague recollection that for it to get the tax-benefits of insurance, the policy holder can't control the investment.
  

529 Plans

• Earnings grow tax-deferred and qualified distributions are federal income tax-free, EXCEPT, my nieces will not be in college by 2010. After 2010, unless the Economic Growth and Tax Relief Reconciliation Act of 2001 is extended, distributions will be taxed at the income tax bracket.
  
• $55K per Beneficiary in a single year.
  
• Beneficiary can be change.
  
• I maintain control over asset-distribution.
  
• Contributions not limited by my income.
  
• No age limit for beneficiary.
  
• Low impact on financial aid; account is considered my asset, thus financial aid calculations only consider 5% of it.
  
• Choice of portfolios managed by professional fund managers.
  

Coverdall Education Savings Account

• Earnings grow tax-deferred and qualified distributions are federal income tax-free.
  
• $2,000 annual account contribution limit.
  
• Beneficiary can be changed.
  
• I maintain control over distribution of assets.
  
• Restrictions based on income: Phase out AGI over $95K (single) or 190K (joint) filers.
  
• Beneficiary must be under 18 years old.
  
• Low impact on financial aid; account is considered my asset, thus financial aid calculations only consider 5% of it.
  
• I can choose what account is to be invested in: mutual funds and individual securities, including stocks and bonds (as available through the sponsoring institution).
  

Roth IRA

• I am contributing the max to my Roth IRA.
  
• However, I'm funding my Roth for retirement, not for education expenses.
  
• Furthermore, 4,000 a year for 10-13 years is only going to put a small dent in college expenses 13 years from now -- furthermore, it wll have to pay for both my nieces. (I say 4k a year, because your contributions, but not earnings, can be taken out tax-free).
  
• Thus, I don't think this is the way to go.
  

What's wrong with Coverdall's, at least for the first 2k a year? I have more complete conrol over the investment options there, and they're not uncertain beyond 2010 with regards to tax-free withdrawals, like 529's are. It seems to me like I'd only contribute to a 529 after I'd maxed out Coverdall IRA conribs. Any opinions?

[WDIK]

Please tell me that I'm not crazy and the author of the prior post used to be anarchocap.

Is there a way to change the post's author, or did you just cut the text, delete the original, and post it under the currently listed name?

[dh003i]

Sorry about that. A long time ago, I created another account, for some reason which I forget. On one computer in the lab, it logs in automatically under that one; when I realized that, I deleted that post, and reposted the same thing under this user-name (which is the one I use). I've got to e-mail BenefitsLink and ask them to delete the anarchocap account. I apologize for the confusion.

[joel]

dhoo3i,

Just a little bit nosy...would you please tell us why you are preoccupied with funding college for your neices? Do they not have parents? At 23 are you not planning a personal relationship with a significant other with all the expenses (including college funding for your own children to be) associated with such a partnership?

Peace and Hope,

Joel

[dh003i]

joel,

A little bit nosy indeed. They do have parents, however, there's no way that their parents (nor any parents that aren't very well off or wealthy) alone can fund all of college at a good university. I don't have a significant other -- really, don't have time for one at the moment -- and am not planning on, nor do I want to have, children. However, should I have children in the future, this is beneficial to me, as I can change the beneficiary, thus will have had a longer time for asset-buildup and compounding.

[Bird]

dh003i, you have obviously researched this enough that whatever decision you make will be well-informed; one option might prove better in hindsight but it seems you have narrowed it down to "good" options by yourself.

A quick comment - I thought Coverdells counted as the student's assets for aid purposes; I could be wrong and I will assume so, but at the same time, if they are in fact "your" assets I don't think they count at all unless you're a parent. I think the financial aid considerations are VERY important; a lot of people probably saved money in UGMA/UTMA accounts, saved a couple of bucks in taxes but lost thousands in aid because of the ownership.

[joel]

Question regarding 529's: if I setup an account on my older nieces' behalf, and it is not completely needed, can I transfer the remainder to my younger nieces' account without penalty?

===================================================

How many nieces are we talking about? It appears that you have at least four, insofar as you place the ' mark after the letter s in neices. Please confirm.

Joel

[dh003i]

I have two nieces. I used " nieces' " to refer to the fact that the money would be for my nieces, hence would be their's.

[Guest quinn the car fixer]

gburns said:

"I see that Bird had to answer for you."

"...... you still misunderstand the issue and seem to have very limited knowledge of the issues."

why can't you just argue the facts and not take personal shots at people? I ahve been reading these boards for 2-3 yrs and half the time with your replies are similar to the above.

ok, so now you can take a shot at me.

[GBurns]

There is no need to take a shot at you. Your post says it all.

If you find that my posts show a lack of knowledge, Why not say so whenever the lack of knowledge is exhibited? Taking pot shots is easy Why not make a post ever so ofeten to enlighten me with your level of knowledge on a few subjects?

I will leave it to those who really do read the posts, to make comments if they think any are warranted or to just let the thread die since all has been said.

[Guest Bean]

Wow, what a thread! As usual, when someone asks for financial advice the gloves come off and the insurance sales pitch is in full gear. Does the NAIC pay $$ for every plug on this board?

My advice as someone who is both a registered rep and an employee of an insurance company is simple - seek professional help! Go to an experienced financial professional, who is not affiliated with an insurance company, and partner with them to achieve your goals. If you don't have someone in mind, ask around. I have a great person I use to bounce ideas off and have recommended him when asked.

There are numerous ways to save for higher ed. I personally use a combination of mutual funds and stocks. I have a Coverdell IRA, UTMA (my child's chances of getting financial aid are zero, but a scholarship is a very real possibility), Roth IRA and individual accounts. I looked into a 529 but decided to pass. I don't know how much money I'll need and don't have any younger family members to pass the funds on to. With this plan, what I don't need I can keep.

I think it's wonderful that you are helping your family. You have certainly done your homework and are on the right track. You just need to sit down with someone you can trust and work out a plan that's right for you.

As for jquazza's idea of a room, I think it's an option worth looking into. After that Holyfield fight, pay per view needs something actually worth $39.95.

GBurns, I don't think anyone will be able to enlighten you with a level of knowledge up to your high standards. Your command of insurance products is impressive however, your trying to fit them for every need is why the industry has its "reputation. "

[Guest quinn the car fixer]

hey burns

lack of knowledge is not the same as lack of manners, civility.....

my post does say it all. you are a self important, pseudo intellectual whose OPINION is fact and everyone doesn't have a clue. I wasn't even challenging your post on it's content only your attitude when it comes to other's opinions.

i have seen 2-3 threads where the moderators have to tell you to take a knee and relax --it is you who take pot shots at andyh as per my previous post.

taking pot shots? thats the pot calling the kettle black. that is all you do.

here's a pot shot-- you must be some no-life 300 yr old bitterman whose only interaction with people are these boards b/c you are such a miserable know it all nobody can stand speaking to you--at least here you have a captive audience.

[GBurns]

Bean,

The amusing thing is that I have not sold a life insurance product or annuity (other than for a 401(k) in over 6 years.

I never advocated that life insurance should be used in every situation. If you look back at the posts you will see that all I said was that it was an option worth looking into, with the caveat that it should be not regular UL but a special UL which is more suited for the stated purpose than the regular UL.

And I do get enlightened by others very often.

[Lame Duck]

Has this post degenerated so much that we aren't even attempting to provide guidance to the original poster? In a preceding post, dh003i mentioned that he is 23 years old, and is fully funding a Roth IRA and a 403(b). He also intends to open a owner only 401(k) or SEP IRA for some self-employed earnings. It should be noted that any salary deferrals to the 401(k) will be offset dollar for dollar by his deferrals into the 403(b). If he is funding that at a $13,000 level (for 2004), he would not be able to make any deferrals into his own 401(k) plan. In that case, the SEP might be a better bet since it has none of the filing requirements of the 401(k). Additionally, in some cases, the 403(b) could be considered to be his own plan and would need to be taken into account for purposes of the annual addition.

dh003i, the only real advice you've gotten here is to sit down with a qualified professional and set out your entire situation to them. The advice you get there will be a lot more valuable, since it is specifically tailored to you.

[dh003i]

Lame Duck,

Thanks for the advice, and thanks for the tip on the Self-Employed 401k, which'll offset my 403(b) contribs. I was wondering that in the beginning. Someone told me they offset, then I asked Fidelity, and they said that they didn't offset (that I could stack one atop the other). I guess I need to call up my legal firm

[WDIK]

here's a pot shot-- you must be some no-life 300 yr old bitterman whose only interaction with people are these boards b/c you are such a miserable know it all nobody can stand speaking to you--at least here you have a captive audience.

Bad form!

[Guest quinn the car fixer]

maybe. but i will not attack you personally for disagreeing with your opinion, unlike some on these boards