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xavier67
Citizen
Username: Xavier67
Post Number: 345
Registered: 6-2002
| | Posted on Wednesday, February 11, 2004 - 4:02 pm: |     |
Given that New York's plan offers up to $5,000 in deductions ($10,000 married filing jointly) for NYS taxpayers, including non-resident taxpayers (like many of us commuters), why would I go with any other state's plan?
What am I overlooking? |
sac
Citizen
Username: Sac
Post Number: 946
Registered: 5-2001
| | Posted on Wednesday, February 11, 2004 - 4:17 pm: | |
For every reduction in your NYS taxes you will have a proportionate (not necessarily equal) increase in your NJ tax. That's because the NJ credit for taxes paid to another jurisdiction will be reduced accordingly.
It may still be a good choice, but a good chunk of the deduction may well just get added back to your NJ taxes instead. At least that is what I have observed with other changes to the NY side of the equation in our family's tax situation. |
xavier67
Citizen
Username: Xavier67
Post Number: 347
Registered: 6-2002
| | Posted on Thursday, February 12, 2004 - 11:31 am: | |
Thanks, sac. I knew I was overlooking something. Given that I would pay most of what I'd save in NY taxes to NJ, it seems like the final tax savings would be negligible.
Time to look more closely at other states, like Iowa, Michigan, and NJ.
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shoshannah
Citizen
Username: Shoshannah
Post Number: 375
Registered: 7-2002
| | Posted on Thursday, February 12, 2004 - 11:41 am: | |
Let me know what you find. Although highly competent in just about every area of life, I am quite incompetent when it comes to this sort of thing. |
sportsnut
Citizen
Username: Sportsnut
Post Number: 916
Registered: 10-2001
| | Posted on Thursday, February 12, 2004 - 10:05 pm: | |
Like most things concerning taxes you have to run the numbers to see if it makes sense. I just ran my return and it turns out that we benefit about $3 for every $1,000 adjustment to our NYS liability. However, our NJ return is unaffected by the amount of tax we pay to NY because our credit for ny taxes paid is capped at a certain amount. Therefore, we do benefit.
I suggest you do the math xavier67 to be sure. But rest assured the amount of tax you save will not be significant. A 10K deduction is only worth a savings of around $30. |
CageyD
Citizen
Username: Cageyd
Post Number: 76
Registered: 6-2003
| | Posted on Thursday, February 12, 2004 - 11:22 pm: | |
I am not a tax person but here is some information given to me by people who have kids in college. They tell me to stay away from 529 plans because when your kids apply to college if the school is inclined to give your scholar a scholarship or other aid, the amount of money in your kids 529 is deducted from the scholarship/aid amount. Only when the 529 account is empty does the school give your kid financical assistance. I was advised to put my kids college money (or at least some of it) in a regular investment account and then three years before junior goes to college, take the money out of the account and hide it (I don't know if this is literal or figurative) until the tuition bills arrive. THen you can take advantage of the school's generosity. Does anyone know if this is accurate information? |
xavier67
Citizen
Username: Xavier67
Post Number: 352
Registered: 6-2002
| | Posted on Friday, February 13, 2004 - 10:04 am: | |
Thanks for that useful info, sporty. I did do the math, and if I had gone with the NYS plan my savings in taxes (for tax year 2002) would have come out to $38 for a $10K 529 contribution! On the other hand, NYS plan is very good in all other fronts: low fees (via Vanguard), flexible plans, etc., so I may go with NYS afterall.
One question for you: what are the pros and cons of opening the acount in your name as opposed to your child?
CageyD: I do not expect my child (actually, me) to qualify for financial aid given our current income bracket, so that's not an issue. And I suspect that if you can afford a house and property taxes in Maplewood, chances are you won't quality for most financial aid either! Merit scholarship, however, is a different matter. NYS plan (and other states?) allows you to withdraw money from your plan WITHOUT paying the 10% penalty up to the amount of scholarship your child receives. The earning portion of that withdrawal, however, is subject to fed and state income tax.
Besides, what your friend advised sounds a tad unethical. |
sportsnut
Citizen
Username: Sportsnut
Post Number: 917
Registered: 10-2001
| | Posted on Friday, February 13, 2004 - 10:43 am: | |
xavier67 you sound like you're in the same boat as us. I currently have a step-son in college and when he was a senior in HS we consulted with a financial aid advisor about how to pay for his college. Basically my wife was a single mom barely scraping by. Saving for college was not an option for her. We were basically told there was not much we could do for him except borrow money. We are probably typical of many families in Maplewood. Our income is too high to get any aid yet we didn't have significant assets (didn't own our home at that time). Fortunately, many schools permit a low cost payment option. We paid for the first year by paying $1,000 per month for ten months. He took out a stafford loan, received a small award and the rest we borrowed using a plus loan for parents. And to top it all off we get no benefit from any of the tax laws passed to offer asstance (but that's another thread in and of itself).
For my little guy we will be prepared. We have a 529 plan which we opened when he was 2 and make regular contributions to. I also set up a UTMA account for him (bad financial aid planning, I know) and I buy him stocks in there.
To answer your question: I am not 100% certain but I believe you need to be at least 18 to open an account. Also the person who "owns" the account has the power to control how the funds are invested. Furthermore if you were able to open up the account in the child's name I would think that the "owner" of the account would be the child. In that case you wouldn't qualify for the NYS deduction:
Contributions made during the taxable year by an account owner to one or more family tuition accounts established under the New York state college choice tuition savings program provided for under article fourteen-A of the education law, to the extent not deductible or eligible for credit for federal income tax purposes, provided, however, the exclusion provided for in this paragraph shall not exceed five thousand dollars for an individual or head of household, and for married couples who file joint tax returns, shall not exceed ten thousand dollars. (Sec. 612(c)(32), NY Tax law).
As for CageyD's suggestion, there is nothing wrong with doing a little financial aid planning. To me its no different from doing estate planning, medicaid planning etc. Its just in our case we could hide all of our assets and still not qualify for any aid. Basically, we came to the conclusion that any family that earns over $125K per year will get either nothing or very little in aid. |
xavier67
Citizen
Username: Xavier67
Post Number: 354
Registered: 6-2002
| | Posted on Friday, February 13, 2004 - 11:15 am: | |
Thanks, Sporty. Given its paltry benefits, I've given up on tax deduction as a criterion for choosing a plan. In NYS, a minor can be an account owner--and the beneficiary. Contributions must be made in his/her name, which is not a big deal since my child already has a savings account., though which I can make contributions. Even though a child's assets are calculated differently from parents' assets by colleges' financial aid offices, since we won't quality anyway so that's not an issue.
I didn't mean to criticize any financial planning strategies. Being a financial neophyte, I just didn't know exactly what "hiding your assets" meant.
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sportsnut
Citizen
Username: Sportsnut
Post Number: 919
Registered: 10-2001
| | Posted on Friday, February 13, 2004 - 11:23 am: | |
There is actually a very in depth article on how colleges determine the amount of financial aid a student qualifies for in the most recent edition of The CPA Journal. The article is in two parts the first of which appears in this months edition.
Despite the lack of tax benefit I still think the NYS plan is a good one. That is where our is.
As a CPA, I usually try not to use the word "hide" or any derivative thereof in the same sentence with assets.
Did you attend xavier in NYC? |
xavier67
Citizen
Username: Xavier67
Post Number: 355
Registered: 6-2002
| | Posted on Friday, February 13, 2004 - 11:48 am: | |
Boy, isn't talking about finances more fun than arguing over the decline of Columbian civilization? Or the BOE budget? Feel free to chime in anytime, Fringe, Nan, Crohn et al. [Sporty, I went to Stuyvesant in NYC.]
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nan
Citizen
Username: Nan
Post Number: 1157
Registered: 2-2001
| | Posted on Friday, February 13, 2004 - 9:30 pm: | |
Thanks for the invitation xavier67!
As you noticed, I'm way out of my element here, so I'm grateful to anyone who knows something on this topic. We do have a 529, but I don't even remember which one we ended up choosing--I think it was the Iowa plan managed by Vanguard (or some other state that recently changed to management by Vanguard). We looked at the New York plan but we don't work there so there was no benefit and the NJ plan was managed by NJ and that made me nervous.
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