Helping Clients With A Key Goal: Planning And Paying For College

He warned, however, that the plan balances for these programs have a dollar for dollar reduction in the amount of student aid available, having an adverse effect on the amount of aid a student may qualify for. "If youre going to go with a prepaid tuition program, youd better fund it well," he said.

But when most people think of 529 plans, they usually think of qualified tuition savings programs, he said. And because of the 2001 tax law, public or private institutions can sponsor plansin addition to the states, he said.

"We can expect a lot of other folks to jump into the plan sponsor business," Cusick predicted.

Under the qualified tuition savings program, contributions are made by a donor on behalf of a designated beneficiary, he said. Some of the other benefits of these 529 plans include donor control of the account, no income limitation for participation, and the asset's being considered a parental asset when performing the student aid calculation.

Contributions to 529 plans qualify for the annual gift tax exclusion, he said, adding this gift can be averaged forward over a five-year period, resulting in a current available gift of $55,000 into the plan.

Since these rules allow such a large immediate contribution into the plan, Cusick said, "This is one of the programs that lets you save enough to make a difference."

This increased gifting opportunity also lends itself to integration within your clients estate plan, he said. "This is a great tool to shift assets out of your estate right now," he said.

Cusick noted that in the event of a death in the next five years, a pro rata portion of the gift would be included in the estate.

One of the other strategies that has seen some changes over the past year is the use of the Education IRA. The 2001 law expanded the Education IRA to include elementary and secondary school expenses, religious, public or private schools, he said.

"Eligible expenses have been expanded beyond tuition, room and board," said Cusick, and now include computers and equipment, as well as Internet access, as long as it is used for educational purposes.

Contribution limits for education IRAs have been bumped up to $2000 per year, and the income limits have been expanded for joint filers, allowing participation at the $190,000 to $220,000 annual joint income level.

"They really tried to loosen the reins," he said.

However, like many of the other benefits found in the new tax law, "the rules that cover this program are due to sunset in 2010," he said.

Reproduced from National Underwriter Life & Health/Financial Services Edition, April 1, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.