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Posted by on June 24, 2008, 5:25 am
Is anyone aware of any other firm besides the Vanguard group that
permits you to self direct your child's education fund. Vanguard
limits you to $2000 annually.
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Posted by kastnna on June 24, 2008, 10:02 am
On Jun 24, 4:25 am, aristotl...@hotmail.com wrote:
> Is anyone aware of any other firm besides the Vanguard group that
> permits you to self direct your child's education fund. Vanguard
> limits you to $2000 annually.
Please be more specific with "self-direct". 529 plans allow you to
self-direct from a limited pool of investments, but you don't have
free reign over any investment out there. They also allow at least a
$12k annual contribution and you can even invest 5 years worth of
contributions at once. Perhaps you are referring to a Coverdell ESA.
That does have much lower limits. And state treasury sponsored pre-
paid college tuition plans often do not allow any investment choices.
Throw us some more details, and we'll see what we can come up with.
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Posted by kastnna on June 26, 2008, 3:08 pm
Aristotle sent the following in an email, to which I was unable to
respond:
> Vanguard has a college education program that allows one to invest a
> maximum of $2000 per year. One can request the funds be used to buy
> any stock, bond or savings program. You can even select penny
> stocks. Are there other funds with similar provisions.
What you refer to is a Coverdell ESA. It's federally mandated and the
contribution amounts are controlled by the government (similar to an
IRA or Roth or HSA). More importantly the Coverdell ESA isn't specific
to Vanguard. Almost every brokerage house in the country offers it.
It's very common.
Another (better?) option is a 529 plan. The 529 isn't income tax
deductible, but it grows tax deferred and the earnings are NEVER taxed
if used for higher education expenses. It's kind of like a Roth IRA
for education. Most importantly, you can contribute $12,000 per year,
per child. You can even put in $60k today (but you have to wait 5
years before you can contribute again). Some states also allow you to
deduct the 529 contribution from STATE income taxes if you use the
plan that state sponsors. Sometimes the deduction is worth it; other
times it is not.
You may want to read this:
http://collegesavings.about.com/b/2008/04/20/morningstar-ranks-the-best-worst-529-plans.htm
529 plans don't allow you to invest in ANYTHING, but each provider
offers numerous investment choices from multiple asset classes. Bottom
line is that regardless of the investment choices, you likely aren't
going to be able to save enough in an ESA to fully pay for a 4-year
undergrad degree. In my experience, the 529 is far more commonly
used.
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Posted by joetaxpayer on June 26, 2008, 3:49 pm
kastnna wrote:
> Another (better?) option is a 529 plan. The 529 isn't income tax
> deductible, but it grows tax deferred and the earnings are NEVER taxed
> if used for higher education expenses.
The Coverdell (ESA) is not taxed if used for higher education, either,
but there are some other differences. ESA account must be used by age
30, and may be used for any level of education (even private grade or
high school). ESA has income limits, about $200K MFJ, while 529 has no
limit,
The 529s I've seen add a layer of expense, the Fidelity Account I have
starts with a decent S&P index, but tacks a .5% adder when it's in the
529. However you do the math (11 yrs average or 22 yrs start to finish)
it's an extra 5-10% which offsets the 'tax free' growth. The kiddie tax
allows $900 tax free, and then $900 at the child's rate. This makes a
case for some money in a UGMA, although that money in a child's name may
reduce aid. Again, nothing is simple.
Joe
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Posted by kastnna on June 26, 2008, 4:16 pm
> kastnna wrote:
> > Another (better?) option is a 529 plan. The 529 isn't income tax
> > deductible, but it grows tax deferred and the earnings are NEVER taxed
> > if used for higher education expenses.
>
> The Coverdell (ESA) is not taxed if used for higher education, either,
> but there are some other differences. ESA account must be used by age
> 30, and may be used for any level of education (even private grade or
> high school). ESA has income limits, about $200K MFJ, while 529 has no
> limit,
>
> The 529s I've seen add a layer of expense, the Fidelity Account I have
> starts with a decent S&P index, but tacks a .5% adder when it's in the
> 529. However you do the math (11 yrs average or 22 yrs start to finish)
> it's an extra 5-10% which offsets the 'tax free' growth. The kiddie tax
> allows $900 tax free, and then $900 at the child's rate. This makes a
> case for some money in a UGMA, although that money in a child's name may
> reduce aid. Again, nothing is simple.
A UGMA is also a completed gift that the child can spend on "hookers
and beer" whether or not they ever attend college (although college is
probably where most of the hookers and beer are:-)). In practice, this
may not happen often, but that is officially a possibilty.
For the record, I'm not opposed to the ESA, I just happen to believe
that its contribution limits make it a less effective vehicle.
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to keep the conversations on-topic for financial planning. Other posting
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