529 plan for niece?

**zetta** · 11-22-2008, 05:19 AM

It would not save you anything on your income taxes now, but the money would grow tax-free. If you put $390 per year in your own account you would pay taxes on interest and capital gains each year and when you sell the investment. If you put $390/yr in a 529 plan for her, you wouldn't have to pay taxes on the interest or capital gains.

**poundwise** · 11-22-2008, 05:36 AM

Originally posted by ScrimpAndSave View Post

I wanted to know if opening up a 529 plan... would be a tax advantage for me.

Originally posted by zetta View Post

It would not save you anything on your income taxes now, but the money would grow tax-free.

Actually, depending on your state's program, and your eligibility, you may be able to deduct contributions on your state income tax return.

This is in addition to the fact that earnings are tax free.

**jIM_Ohio** · 11-24-2008, 09:44 AM

The tax deduction would depend on the state and the tax rate. Post more specifics for a specific answer.

Example if state taxes 5%, then you get 5% of the $390 back.

**ScrimpAndSave** · 11-24-2008, 03:29 PM

Yes, I am in PA and I found out that I can claim the money that I put in a 529.

**jIM_Ohio** · 11-24-2008, 04:13 PM

Originally posted by ScrimpAndSave View Post

Yes, I am in PA and I found out that I can claim the money that I put in a 529.

It's a good deal for the niece.

$390 for 10 years would be around $4000 for college. Might pay for one course.

If memory serves me correctly you are getting married and saving for a house... I would change the priorities.

You could probably put the $390 to the student loan debt and equal the return of the 529 plan.

Then 10 years down the line make a single $4000 529 contribution when you need the larger tax deduction (because your income is higher). Or make a $4000 tuition payment then claim a tax deduction or tax credit for the payment if you can interpret the tax laws to allow yourself to take the deduction.

An aunt/uncle CANNOT claim the tuition/fees deduction or the hope/lifetime learning credits for the fees they paid (based on 2008 tax law). If the person you paid for qualified as a dependant then the answer changes to YES you can claim the credit or deduction.

I point this out because there is little TAX incentive to pay for education ahead of time. You are better off using the money you would invest for future education to shore up other parts of the financial situation to claim the deductions or credits in the year the costs were incurred.

Generally speaking, anyway.

**ScrimpAndSave** · 11-24-2008, 06:17 PM

Jim,

Thanks so much for your answer. I had to read through it 4 times to understand it - but it is greatly appreciated! Haha...I'm still really new with this financial stuff...right now all I am trying to do is stay out of consumer debt and save everything I can for the time being (which is approx. 80% of my salary - $2,000 a month).

My fiance is getting out of law school in May...and I don't believe he will be going through anymore schooling. Also, I finished my master's and I am not planning on going for anymore schooling...I get a few credits here and there to move on the payscale...but it is reimbursed by my district.

I guess I should forgo the whole 529 thing. Just trying to figure out what is best for us. Not sure how aggressively we should attack the student loans. There is about 65k as a govt loan at 6.2% and 65k is a private loan around 8%. At least I will have some savings on the side...not a ton...but some.

**jIM_Ohio** · 11-25-2008, 05:11 AM

Look at the monthly payment on the larger loan and once paid off make a single 529 contribution- you get a much higher tax deduction and it will be easier to afford.

**Like2Plan** · 11-25-2008, 06:34 AM

ScrimpAndSave,
I agree that you need to think over your goals in order to get the right synergy going for yourselves.

But, I also assume that you will be giving gifts to your niece over the years. You could make a contribution in lieu of a gift. I think the minimum contribution level is $25. " The initial minimum and subsequent investments to your account is $25. "

Here is another sticking point:
The GSP has low fees. A one-time enrollment fee of $50 is charged. But a discount to just $25 is available with the coupon enclosed with the Enrollment Guide or by enrolling online . Additional discounts may be available through your employer or your child's school. And, the enrollment fee is waived if an account is opened within six months of a child's birth or adoption. There is an annual $25 account maintenance fee that is waived for accounts with automatic payroll deduction or automatic deduction of at least $25 per month from your bank account.
You could do the $25.00 monthly EFT from your bank account, but that would amount to a $300.00 annual gift...
link to FAQs

PA's 529 has a really cool savings option. "When you invest in the GSP, your savings are guaranteed to keep up with rising tuition costs. The GSP is unique because you save for tomorrow's college expenses at today's lower rates." Link to Pennsylvania Guaranteed Savings Plan/

In addtion, as a PA resident you can take a State tax deduction-Pennsylvania taxpayers can deduct contributions to the GSP from their Pennsylvania taxable income up to $12,000 per Beneficiary per year. link to tax advantages

Participation in the PA 529 also qualifies your niece as a sage scholar:
Earn tuition discounts with SAGE Scholars Tuition Rewards
Like "frequent flyer miles" for college tuition, the SAGE Scholars Tuition Rewards (SAGE Rewards) is a free scholarship program available to families saving for college through the GSP. Based on the value of your GSP account, you earn SAGE Rewards that can be applied to undergraduate-level tuition at over 200 participating colleges and universities.

Link to Sage scholar info

You can also sign up for uPromise, where you get added $$ money added to your nieces' account (some folks have had great sucess with uPromise, though, I have to say that in many cases the rewards don't add up very fast)

One final note is if you are the account owner, you maintain control over the savings. You know it will be there for your niece when the time comes for college. If the current rules stand, money saved in a 529 with you being the account owner will be totally out of the equation for student loan eligibility for your niece. (Although this could change it in the future).

529 plan for niece?