Higher Education Savings Plans
Abstract
This paper is about the Section 529 higher education savings plans that allow family members to receive certain tax breaks while investing for a child’s higher education. The data used in this study is the historical rate of return on a Connecticut 529 plan versus the benchmark, the S&P 500. The time period covered was the inception of this plan starting in 2002 up to the start of research on this study, the end of September, 2004. The tests show that although this particular 529 plan offers tax benefits that could help in investing for higher education, that this particular plan failed to outperform the market during the period observed. Therefore it is my conclusion that there are better investment options on the market to invest in a child’s higher education than this Connecticut 529 savings plan. This study may lead to further observation of other Connecticut 529 plans as well as 529 plans managed nationwide to figure out if 529 plans are as effective as advertised.
“529” college plans have become greatly debated in recent years as a tool for investing for college. The plan, which takes its name for the provision of the tax code that sanctioned them, is a college savings account which allows parents or grandparents to give gifts to children that will be later used to obtain a college education. Although some 529 plans have been around since 1988, the Economic Growth and Tax Relief Reconciliation Act of 2001 made sweeping changes to Section 529, most of which became effective in 2002. These changes offer substantial tax benefits to families seeking to finance the cost of college expenses. 529 plans offer families, regardless of income, the opportunity to generate tax-free earnings on funds specially set aside for higher education. These plans, which are run by individual states, can be of great benefit to children by allowing their family members to give money to them in advance to save for college. It can also be detrimental to not only the people who invest but the children who are receiving these gifts. I became aware of these 529 plans by reading “A Random Walk Down Wall Street” by Burton Malkiel. My motivation was to see if these 529 college saving plans are as effective as advertised and to look at the upsides and downsides of investing in them. Since there are tax deduct...
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... 881.69 935.11 840.31 855.7 -2.74%
2-Dec-02 941.55 954.4 869.42 879.82 -6.03%
1-Nov-02 885.76 941.85 872.02 936.31 5.71%
1-Oct-02 816.3 907.49 768.58 885.77
Education comes at a high price for this generation and not just financially. Going to college can give students plenty of debt with no promise of a job in return, which can set a student father back on their course of life. Young adults trying to start their lives by going to college encounter many setbacks. Today the average cost for a private university is $25...
This paper explores the characteristics of traditional and Roth IRAs, as well as the similarities and differences between both. The main characteristic of both IRAs is that both are considered tax shelters—a way for individuals to receive reduced tax liability by decreasing one’s taxable income. Traditional IRA’s are called “deductible” because contributions made with earned income, up to specified limits, are fully or partially deductible from income depending upon factors such as adjusted gross income and filing status. Upon withdrawal, the money is then taxed as ordinary income. Roth IRAs are the antithesis—the money that you contribute here is already taxed at your marginal tax rate and the withdrawals are generally not taxed. Only money that is considered investment income is taxed. Because of the income limits of Roth IRAs, some individuals choose first to contribute to traditional IRAs or employer-sponsored programs and subsequently convert to a Roth IRA. For younger individuals with lower incomes, Roth IRAs seem to be the better choice based on the below research. The money is taxed at a lower rate and then contributed. As one ages, tax rates are probable to rise and the cost of contributing increases as a result. Saving in full measure, below the legal limit and beginning this process at a young age seems the best option for a enjoyable retirement in years to come.
Personal Differences. In this case, Dan Richardson, a partner in Educational Pension Investments (EPI), founded EPI with a philosophy of maintaining low-risk investment portfolios with moderate income; a philosophy that has been in place for 50 years. This risk adverse philosophy found Dan considering the merits of a more aggressive investment approach to offset the fact that EPI’s growth has not kept pace with other investment opportunities. (Whetten & Cameron, 2011)
... We want to give tax deductions to post high school students, where the first two years of college are free at any State or City University. This will result in a stronger economy and nation because as a whole society, we are strengthening the knowledge of our youth. A substantial amount of Americans are without health insurance.
For the purpose of this paper, the American Dream will be defined as the idea that you can achieve financial stability through hard work, which often means going to college. The term “college” refers to any undergraduate or graduate program at a secondary institution. This paper aims to examine the relationship between attending college and one’s ability to achieve the American Dream. Attending college is thought to be an important step in obtaining the American Dream, primarily because receiving a higher level of education tends to lead to a higher paying job and furthermore a financially stable future. However, this isn’t always the case due to an increase in the need for students to take out loans and increase their debt in order to afford college expenses.
With more companies each year offering tuition reimbursement as part of their employee benefits package, they too see the value and investment pay off for helping their valued employees further their education. Some employers might cover all expenses up to a certain amount, while others pay a percentage of the total costs (Tucker). However, it is important to note that only well established companies have the necessary resources available to fund a tuition reimbursement program. In addition to having the adequate funds, employers ask that a tuition assistances program participant maintain high grades to receive the maximum amount of tuition reimbursement. Although this varies from compan...
McArdle, Megan. "Is College A Lousy Investment?". The Daily Beast, 2012. Web. 16 November 2013.
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Although a college education grows more and more expensive every year. People begin to question whether college is a good idea to invest in or not. “As college costs continue to rise, students and their families are looking more carefully at what they are getting for their money. Increasingly, they are finding that the college experience falls short of their expectations”(Cooper. H Mary). Many people believe that the cost of a college degree has outstripped the value of a degree.Studies show that a college degree will increase your earning power. A lot of people say that a college degree now is worth what a high school diploma was wor...
Collecting funds from the state’s taxes is an effective solution because students get more academic support programs, which decreases dropouts. In Discounted Dreams, journalist, John Merrow interviews Kay McClenney who explains, “I do think it's a concern students tell us year after year that the most important service is academic planning and advising”....
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