Money Reasons

Smart Reasons to Save, Use and Invest Money

Archive for the ‘College’ category

Seeing Opportunities That Others May Miss

May 29th, 2010

Two years ago, my son’s soccer team didn’t have a coach for 1 particular season, so our soccer organization asked the parents of my son’s team if one of us wanted to become the coach for that season. I wanted to do it, but my wife talked me out of it because of my lack of experience.

So instead another dad took over, but he knew less that I did. Now two years later he is the coach and unfortunately not the best choice. I missed my opportunity, but it’s my own fault and although it’s a small regret, I kn0w that I will regret it for the rest of my life. Believe in yourself, even if others don’t… they don’t know your capabilities and passion!

So today when I was reading an article at www.freemoneyfinance.com called Would You Waste a Year of Your Life for $100k?, I saw an incredible opportunity, but not for me at my current stage in life. The deal was the coupon site Groupon would pay a person $100,000 if they try and live on coupons only (no cash) for a year.

Now personally, with me having two kids I couldn’t do that, but if I were a college student, this would be a great challenge! Especially if the student could take a few classes online. The company payed for the person to stay in a hotel for a year, so living accomadations was taken care of.

Most of the freemoneyfinance commenters shot this down, but I think this opportunity requires a 2nd look, and below is a list of reasons why:

This person (a male) would learn to be an frugal expert via saving with coupons!
The company might pay him after the fact as a spoke person
TV show might find him appealing and so he might get paid interviews after the experiment.
He would write a book about what he learned since he would be the ultimate coupon using expert!
He might even develop a seminar that taught others his tricks.
He gets $100,000 and free living conditions!!!
The limited contact with others would enable him to concentrate on his studies (this would be like getting payed to study… a win win)!
Did I mention that he gets $100,000? That’s a lot of money for a college student!
Fame!!! This is definitely a feather that you could put in your hat. At the very minimum, it would be a great family story!!!

So, I think this would be a great opportunity for a college student, especially if he could do that college year via online classes! I would take some of my hardest classes that period, since I couldn’t do much else!

Yes, while I couldn’t do it now (wife, kids, etc), I would definitely do it as a college student.

What I make of it after the experiment is over and I have $100,000 in my pocket…, would depend on how ambitious and creative I was…

So, do you think this is a hidden opportunity, a diamond in the rough so to speak?

-MR

5 comments »

Posted in College, Ideas

Tags: creating opportunities missed opportunities

529 College Savings Plans vs Coverdell ESAs, My Choice

May 1st, 2010

I’ve reviewed both options as saving plans for college, see the links below:

I personally went with the 529 plan instead of the Coverdell ESA!

Why: The Coverdell ESA at one time only allowed an incredible small amount ($500.00) to be the maximum that you could contribute to the plan per year. I thought that was crazy, so I chose my state 529 plan. Now they have bumped up the maximum contributions amount to $2,000.

With a 529 I also like the fact that since I opened the plan, I’m in control of it. With an ESA, the beneficiary gains control once they turn 18.

I do like the ESA’s investment options! Basically it’s like having a brokerage account that you can trade investment vehicles in it. With 529s, you are limited to the mutual funds and investement options identified within the plan.

So the question is, if I were to choose today, which would I choose? It’s a harder decision, but I would probably still go with the 529! Another perk is the deductibility of the 529′s contributions from my state income taxes.

If you have some real investing skill, you might do better with a ESA. However, I would still consider contributing some money to a 529 plan, because contributing only $2,000 a years (especially if you start contributing late), just doesn’t seem like it’s enough. The important thing is to start though, every little bit helps! Who knows, you may suprise yourself.

2 comments »

Posted in College

529 College Saving Plans – Part 2

April 30th, 2010

Today, I decided to expand on the discussion about 529 college saving plans which was in an earlier blog post. In my post called “My 529 College Savings Experience“, I covered that basics that the average person would need to know. If the beneficiary decides not to use the money, and wants to cash out the plan instead, they will have to pay tax on the earnings and a 10% penalty

The list below are additional ways to get the money tax and penalty free.

The potential student (beneficiary) dies, and the distribution goes to another beneficiary or the estate of the other beneficiary
The designated beneficiary becomes disabled.
If the beneficiary received any of the following:
- a qualified scholarship excludable from gross income.
- veterans’ educational assistance
- employer-provided educational assistance
- any other nontaxable payments (other than gifrs, bequests or inheritances) received for education expenses.

As you can see many of the ways to avoid the tax are pretty dark reasons, and depressing, so I didn’t include them in the initial post.

TheEliminateTheMuda blogger “Learn Life Coach” has a few kids with 529s. But they are bright, and the Coach explained that he thinks they might get scholarships! The good news is that you can get your money back without paying tax or the penalty, if they get a qualified scholarship! So this is the one positive reason out of the bunch above where you can get your money back if you child/student gets a scholarship.

The Everyday Tips and Thoughts blogger “Kris“, also commented that you can transfer the 529 fund to another beneficiary if the original beneficiary decides not to go to school.

The less than obvious feature of a 529 plan is the level of control that the creator of the 529 has. You control the plan, and have much control over it. You can even take out your contributions tax and penalty free! Of course that would undermind the entire idea of your 529 plan… You can even change the beneficiary to yourself or anybody at any time.

My intent was just to introduce that it’s possible to avoid the taxes and penalty on the earning within the 529 plan by the above various means.

One of the biggest negatives, is that the amount of funds you have in the plan could effect the amount of financial aid available to the beneficiary student, when the apply. But if the parent of the beneficiary owns it, the financial aid office will only take into consideration 5.46% of the value (not too shabby!!!)

What vehicle are you thinking about using for college cost? If you current are the beneficiary of a 529 and using it, please tell your experiences with it!

-MR

4 comments »

Posted in College

Tags: 529 529 extra 529 plan collage savings plan college account college costs college savings

My 529 College Savings Experience

April 29th, 2010

First, what is a 529 plan and what are it’s benefits!

What is a 529 plan?

These are college saving plans that are operated by state or educational entities. The “529” numeric element refers to the IRS code with created these types of plan in 1996. There are typically 2 types of plans:

Prepaid Tuition – You buy credits at today’s prices for future use! The logic is that it will be cheaper to buy it today at the current prices rather than in the future after cost have skyrocketed (and historically this has typically been the case).

Savings – Typically you put money in investments such as mutual funds, bond funds, fixed income, etc. These vary vastly with respect to what is offered…

What are the Benefits?

Distributions from these plans used for qualified educations expenses are exempt from federal income tax.
Contributions to a 529 grow tax free while in the plan.
With some states (including mine), the contributions to state 529s are deductible from state income taxes. This varies in detail from state to state!
As long as the student is a half-time student, the distributions are tax free when used for room and board.

*For an excellent Wiki at Wikipedia click here!

My Personal Experience:

When I started the 529 for my son, the market was very high because of the tech bubble, so I lost money the first few years. To make matters worse, I went with an Age based mutual funds in my plan. I didn’t lose money but each year they rebalanced the portfolio for me, putting more in bonds and fixed income as my son aged. So it’s been just a fair investment for my son.

My daughter has done considerable better, at least until this last downturn. Her balance (since it’s has a higher proportion in equities) lost more money than my sons, but she’s coming back too.

So, in a nutshell, I’ve done okay with the plans, but not as well as I hoped. Such is life though, I still think it’s worth have them, after all, the important point is to be prepared for the high college cost in the future (which should be substantial, private college may be higher that $200,000)…

If you child decided not to go to college, then the 529 earnings is tax and a 10% penalty will be applied (you might even have to replay the deductions from your state income tax back too)…

So reader, how are you preparing for high future college costs?

-MR

8 comments »

Posted in College

Tags: 529 plan college savings

Considering A Coverdell Education Savings Account?

April 27th, 2010

This Account use to be called “Education Individual Retirement Account“, which I always thought was a poor naming choice for a college savings account!!! The plan is sometimes called an “Educational Savings Account” or an ESA.

So what are the properties of an ESA?

The money put into an ESA is NOT tax deductible. So you can’t take a deduction from you taxes that year that you make the contribution.
A child can only have a maximum of $2,000 from all sources!!! By this I mean if I had an ESA from my son and put $2,000 into it, that’s all the money for the year that can go into the account. So nobody else can contribute to any ESA for that child once it hit the $2,000 mark!
The account must be started and all the contribution made before the child (beneficiary) is 18 years old.
Earning are not taxed if they are used for qualified educational expenses (elementary school, high school, or College)
The amount that you can contribute starts to phase out if you make more that $95,000 if you are single, and $190,000 if you are married.
Once a single person make over $110,000 or a married person makes over $210,000, they are no long alonger allowed to contribute to an ESA.
You can contribute up to $2,000 for each child.
Distributions from ESA’s earnings that are used for qualified education expenses* are tax and penalty free.
***Distributions of contributions, is always tax and penalty free because no tax deductions are allowed for amounts contributed to an ESA.

*qualified education expenses are expenses such as tuition, fees, books, supplies, equipment, tutoring, uniforms, room & board, transportation, computer equipment, supplemental items and services (including extended day programs).

If you have a balance in the ESA when the beneficiary turns 30 years old, it must be distributed within 30 days. The earnings in the account will be taxable, and a 10% penalty will hit the account too.

While this sounds like a good option, I think there might be some better options out there… Still, it’s not bad if nothing else was out there…