A 529 College Savings Plan may be an attractive vehicle for
those looking to save for a child's education.¹ If you have already
committed college-earmarked assets to another type of financial vehicle, such
as a Coverdell Education Savings Account or a custodial account for a minor
beneficiary, you may want to investigate transferring those assets into a 529
plan.

Making the Move From a Coverdell

Amounts transferred from a Coverdell account to a
"qualified tuition program" (IRS lingo for a 529 plan) are viewed as
qualified education expenses by the IRS and are therefore tax free as long as the
amount of the withdrawal is not more than the designated beneficiary's
qualified education expenses.

There are several reasons why a college saver may want to take
this course of action.

• Consolidation with a more generous
  contribution limit: Whereas Coverdell accounts limit contributions to
  $2,000 per beneficiary per year, 529 plans typically allow much higher lifetime
  contribution limits in excess of $200,000 per beneficiary in many states.
• No income restrictions: Unlike
  Coverdells, 529 plans generally do not impose income limits that restrict the
  ability of higher-income taxpayers to contribute.
• No taxes or penalties: Moving assets
  from a Coverdell to a 529 does not trigger taxes or penalties.

But there are also some drawbacks. Keep in mind that Coverdells
and 529 plans are still relatively new, so legal and procedural precedents for
specific strategies may not be well established yet. Since the funds in a
Coverdell are owned by the beneficiary, any assets moved to a 529 plan owned by
a parent could be construed as a transfer of ownership from the beneficiary to
the parent. This could raise legal issues down the road if the parent
subsequently changes the beneficiary. What's more, Coverdells can be used to
pay for primary or secondary school costs, whereas 529 plans are limited to
college expenses.

Relocating UGMA/UTMA Assets

Many 529 plans accept rollovers from custodial accounts
established for minor beneficiaries, such as those created under the provisions
of the Uniform Gifts/Uniform Transfers to Minors Act (UGMA/UTMA). Be aware that
the money in an UGMA/UTMA account belongs to the minor, so any subsequent
withdrawals after a transfer to a 529 plan may only be used for that minor.
Also, since contributions to 529 plans must be in cash, UGMA/UTMA assets first
need to be liquidated, with any capital gains taxable to the minor.

Moving Savings Bond Assets

The third option for a transfer to a 529 plan involves cashing
in qualified U.S. savings bonds and contributing the proceeds to the plan, in
accordance with the guidelines established by the IRS and the Treasury
Department's Education Bond Program.² You can find more information
at the Treasury Department's Treasury Direct Web site: http://www.treasurydirect.gov/indiv/planning/plan_education.htm.

Source/Disclaimer:

¹ By investing in a 529 plan outside of the state
in which you pay taxes, you may lose the tax benefits offered by that state's
plan. Withdrawals used for qualified expenses are federally tax free. Tax
treatment at the state level may vary.

² Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely
payment of principal and interest, and, if held to maturity, offer a fixed rate
of return and fixed principal value.

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November 2011 — This column is provided through the
Financial Planning Association, the membership organization for the financial
planning community, and is brought to you by Ronald J VanSurksum, CFP® , a
local member of FPA.

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© 2011 McGraw-Hill
Financial Communications. All rights reserved.

Why Parents Should Give Their College Students the Gift of Professional Financial Planning

In August, the Wall Street Journal reported that student-loan debt now surpasses credit card debt as the No. 1 source of outstanding consumer debt with some $829.8 billion in current federal and private school loans.

For some, those statistics are a good news story – that individuals are finally getting serious about paying off the plastic. For others, it’s more a sign that the rising cost of college is simply becoming a greater albatross around the necks of graduates for years to come.

Maybe the time for a financial education shouldn’t be the moment the new grad gets his first job or rents his first apartment. Maybe it should start earlier – like senior year of high school. Parents might consider introducing their 18-year-old to a financial planner who will instill some critical lessons about debt, savings, investing and planning before they’re off on their own on a campus far from home.

Why pay for advice parents can offer at home? The simple truth is that many parents are struggling trying to understand their own financial circumstances, particularly if they haven’t done much planning themselves. That’s why it might make sense for a parent who seeks out qualified financial advice to extend that planner’s assistance to children on the verge of adulthood. Here’s why:

The average college loan debt now tops $20,000: Whether your child has been forced to borrow heavily or not at the start of his college career, the simple fact is that in four years, a family’s financial circumstances can change substantially. News reports are filled with stories of college students signing their name to private loans that cost them heavily down the line. A financial planner and possibly a tax professional can act as advisors and tutors to teens and young adults so they won’t fall into financing traps that can damage the rest of their financial lives. There’s another reason that debt management for school loans alone is important – based on current bankruptcy law, student debt is virtually impossible to eliminate in a bankruptcy filing. Indeed, it’s another way of saying that student debt is forever.

Young people possess the most valuable asset of all – time: In college, most students are focused on one goal – graduating and getting a good job. But what if students put that goal in the context of affording a home, affording graduate school and eventually affording a solid retirement? A planner could help a student entertain the notion of smart savings and tax planning while they’re still in school so they can focus their thinking about goals and what it will take to pay for them.

Lifetime habits are best built in youth: Don’t you wish you started saving for retirement at age 18? Exactly. The 2010 contribution limit for taxpayers under 50 years of age to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for the year. The contribution can be split between a traditional or Roth IRA, but the combined limit is $5,000. Learning about the need to save independently for retirement is best delivered while someone is young. The moment a new graduate qualifies for an employer-sponsored 401(k) plan, they’ll know how attractive that option will be particularly if it offers matching. If this saving can be done while not accumulating significant debt, that’s obviously a goal.

Financial planning means professional training with budgets and spending decisions: The opportunity to interact with a trained adult on the subject of money – someone who is not the student’s parent – gives a student a chance to learn and ask questions on an adult-to-adult basis.  Planner and student can work together to set and monitor savings, investing and spending goals with proper supervision. Parents and children can also decide how much information they’ll be sharing about each other’s financial situation.

Financial literacy can help students better evaluate career decisions: Students who understand money stand a better chance of choosing careers and employers who will meet their expectations in terms of work-based challenges and compensation. A financial planner can provide a good sounding board with regard to job offers and benefits offered at prospective employers. Students who get this training are destined to be better than many of their peers at negotiating with employers throughout their careers.

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October 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Ronald J. VanSurksum, CFP® , a local member of FPA.

 Planning for a Child’s Privte School Education

Sending your child to private school is an expensive proposition. For most people, it’s made a little tougher by the fact that it’s necessary to save for a child’s college education at the same time.  Some have the income that makes this easier, but for the rest, it’s necessary to create a pay-as-you-go system that will somehow make it all work.

The parents who make it work tend to plan from the time the child is very young. They keep abreast of every possible resource for scholarships, discounts, loan programs and other forms of financial aid.

It makes sense to find a financial advisor such as a CERTIFIED FINANCIAL PLANNER ™ professional who can link a child’s pre-college education planning to the financial planning necessary for college, grad school and beyond. Here are some things to know about the process: 

Start with cost:  The National Association of Independent Schools (NAIS), a national organization representing private pre-schools, elementary and secondary schools, estimates that the median annual tuition in 2009-10 for all grades of private day schools was $17,880.  For boarding school, the average annual tuition was $34,900. 

Is aid available? Definitely, and that’s why it’s important to keep your ear to the ground as part of your overall planning strategy. Just remember that grants and scholarships are the best form of financial aid because they don’t have to be paid back. Financial aid grants for private elementary and secondary schools are awarded on the basis of demonstrated need, just like college. According to NAIS, the average endowment per student during 2009-10 was $19,122. This is why it is important to check the size of the endowment fund at any school you consider – that’s money that the school keeps in reserve to invest so it can extend aid to families in need.

The application process: Most schools use the Parents' Financial Statement (PFS) from the School and Student Service for Financial Aid (SSS). This is a service owned by NAIS that helps schools determine how much a family can afford to pay for school tuition and other educational expenses.  If the school you are considering does not use SSS, be sure to ask what steps you need to follow in order to apply for assistance. The form considers how many children you’re paying tuition for in K-12 or college and how high the cost of living is in your area.

Don’t forget your retirement: Despite the huge challenge of paying for your child’s education, you have to pay yourself first. Talk to a financial planner to see how much you’ll need in retirement and how much you’ll need to save weekly to make that goal. Keep in mind that your greatest potential for a successful retirement comes from starting savings early and you can’t forfeit that in favor of your child’s education.

Consider a Coverdell Account: While the best solution will differ by family, one savings vehicle might be a Coverdell Education Savings Account. Coverdells are trusts created to save money for a child’s primary, secondary or college education. Contributions are relatively small -- $2,000 per beneficiary from all sources during the year. Yet since Coverdells are considered the asset of the account owner, you may want to keep it in your name since an account in the student’s name could adversely affect financial aid eligibility.

Enlist the grandparents: If your grandparents can afford to help, they have several options to help you save for your child’s education without triggering their gift tax obligation. First, each grandparent can give up to $13,000 tax-free to each child. Also, they can give up to $2,000 annually to a Coverdell account you’ve set up for the child. 

Don’t use debt as a Band-Aid: Avoid the trap of being forced to use debt while trying to “do it all.” Stay within your means.  If you find yourself close to using your debt options, enlist the help of a financial planner to talk through ways to adjust your spending or find student aid. 

June 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Ronald J VanSurksum , a local member of FPA.