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So You Want to be A Veterinarian
by Rick Amrhein (Father of 3; oldest being 16)As soon as you announce you are expecting a child, people insist on cheering you up by reminding you how expensive a college education can be. You will be eating ground meat and macaroni and cheese until the child is 22, or if you are real lucky 25, if she goes to grad school. So how is a parent supposed to save for the ever rising expense of college education? Play the lottery??? Parents have several choices. The old standby was to buy Savings Bonds. They are readily available at banks without administrative cost or the need to open a brokerage account. But the interest rate is low and fixed and care must be taken in naming the owner since income tax will ultimately be due on the income. Several alternatives, some new, are available. You might consider establishing a brokerage or mutual fund account or savings account pursuant to the Pennsylvania Uniform Transfers to Minors Act (UTMA). This law (adopted by most states), establishes "statutory trusts". You open an account naming "Zoro" as Custodian for Little Zoe pursuant to the UTMA. The Probate Code will tell Zoro that he must use the money for Zoe's health, welfare, benefit and education until Zoe turns 21 or 25 (at the choice of the donor) and what he can and cannot do with the funds. When Zoe reaches that age, she is entitled to receive outright whatever remains. Zoro should be aware that a UTMA account is a completed gift. So if Little Zoe doesn't go to school, she still gets the money at the age 21 or 25. She could take the money and sail to Zanzibar to visit the Zanzibarians. There also is the Pennsylvania Tuition Account Plan (TAP). These monies are invested with the Treasurer of the Commonwealth of Pennsylvania. As originally drafted the plan allowed you to buy college credits for community colleges, state colleges and state related schools for your daughter at today's rate for tomorrow's education (this is now called a "Guaranteed Savings Plan"). You can also buy credits for the "average tuition charged at private institutions." Regular additions (including payroll deductions) and occasional deposits are accepted into a TAP account. If your daughter gets a full scholarship, or joins the circus, you can move the money over to the second child or cash out (subject to a penalty) and buy your spouse the 1964 1/2 Mustang convertible she always wanted. For more flexibility, a §529 Savings Account might be the ticket. §529 accounts have been approved by the IRS to encourage saving for post secondary education. Pennsylvania has added a TAP §529 option "Investment Plan." PA residents are free to invest in plans sponsored by other states. Unlike a traditional TAP account, which focuses on buying college credits, a §529 plan is more similar to a 401(k) plan where you pick and choose funds and stocks for saving toward education, rather than retirement. It also allows you to move money around to different beneficiaries or even withdraw it if need be. The appreciation and income are not taxed if used for educational purposes. The §529 account works especially well where a large sum is available for investment and flexibility is desired. Parents/grandparents have choices when it comes to planning for a child's education. Each choice has certain legal and tax consequences. You must decide whether the gift is to be limited for educational purposes. Do you want to retain control and the right to revoke the gift? Is the gift to be available for several beneficiaries? Should it be limited to state or state-related schools? What if the child doesn't have the aptitude for college? When in doubt, discuss your options with your attorney, your financial planner and accountant. Good luck! |
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