Independent 529 question

[lotsofquests]

<p>I am not sure where to go to ask this question. I called the Independent 529 help number but they are switching administrators and were not at all helpful. I posted on the saving for college site that used to be run by joe hurley but have not gotten any answers. It is not really a financial aid question but I did check CC FA forum just in case. Parents on here tend to have a lot of knowledge, so I will try.</p>

<p>Over 10 years ago, my H transferred some stock to our son in a UGTMA. After doing that, he started to worry that S would have control of the money and decide to buy a motorcycle and travel the western hemisphere. Five years ago, I used part of the $$$ to open an account in the Independent529. S applied to 5 schools that are members of the Ind529, and 1 that is not. He, of course, decided he liked the nonmember school the best. Although he will not get the benefits of the Ind529, he will be receiving merit aid that will pay about 40% of his expenses and he will get $5000 per year from the Pittsburgh Promise that he wouldn't get at the other 5 schools. </p>

<p>Our accountant doesn't know much about the Ind529, so he is no help. We decided to pay the first semester tuition without withdrawing any money for the remote chance that son will transfer to a member school or his chosen college will decide to join. I think that we can also transfer the money to a traditional 529 but I don't know the advantages/disadvantages of that.</p>

<p>Yes, I know that we sound very disorganized and indecisive and that we gambled that he would attend a member school. We can't go back and change those decisions. On the plus side, our investment didn't go down with the stock market.</p>

<p>I hope that someone on here can steer me in the right direction.</p>

[vballmom]

<p>I think that during this transition of the i529 program from TIAA-CREF to Oppenheimer, chaos is going to reign. I had to call the plan administrators a couple of months ago, and they pretty much admitted as much. However, the person I talked to was quite helpful. You might try calling again.</p>

<p>At any rate, if you can wait it out until Oppenheimer gets its act together, you should have no problems getting a refund of your money.</p>

<p>Here’s from the current (TIAA-CREF) website:</p>

<p>

What is the refund policy?</p>

<p>You may receive a refund at any time after the one-year (12 calendar months) anniversary of purchase, adjusted for fund performance. As with any 529 program, if you do not use the money for qualified higher education expenses, any increase in the value of your initial purchase amounts (the difference between your contribution amount and the amount refunded) will be subject to federal income tax as well as an additional 10% tax. If you take a refund, rather than redeem your certificate for its intended purpose, the refund will be adjusted based on the net performance of the Program Trust, subject to a maximum increase of 2% per year and a maximum loss of 2% per year.

</p>

<p>Once your son figures out where he’s going to spend the next 4 years, assuming it’s a non-i529 school, you should be able to transfer the i529 funds to a regular 529 account and use it for your son’s qualified expenses. It sounds like you don’t urgently need the money, so you should be fine waiting till next year to make the transfer.</p>

[swimcatsmom]

<p>I have never heard of the independent 529 plan but by googling it and downloading the disclosure booklet I found this.

REFUNDS
If you cannot or do not wish to use your Tuition Certificates to pay Tuition, you may request a refund on all or a portion of the Tuition Certificates you purchased. Refunds are available at any time following the first anniversary of the initial payment for the Tuition Certificate, or before the first anniversary if the Beneficiary dies. Upon refund, you will be entitled to receive the Refund Amount, which is the amount paid in under the cancelled portion of the Tuition Certificates, adjusted by the net investment performance of the Program Trust, subject to a
maximum return of 2% per annum and a maximum loss of 2% per annum (in each case, compounded annually). When the refund has been paid from the Program Trust, your Account
will be appropriately adjusted to reflect the refund. The Refund Amount will be paid from the Program Trust only, and no other person, including the Program Manager, TPC or any articipating Institution, will be liable for any payments, including those that are greater than the amounts in the Program Trust. If you request a refund of only a portion of your Tuition Certificates, you cannot elect to cancel and/or seek a refund on a particular Tuition Certificate; rather, the value of each Tuition Certificate will be reduced proportionately to reflect the amount requested. Accordingly, if you purchased a Tuition Certificate for a single Beneficiary in more than one Program Year, a refund of less than all of the Tuition Certificates will be applied on a pro rata basis to all of the Tuition Certificates so each one will purchase less Tuition in the future.
In most cases, if your Refund Amount is not used to pay for Qualified Higher Education Expenses, the earnings portion of that amount will be subject to U.S. federal income tax and a
10% additional tax. To avoid this treatment, you may elect to directly transfer or roll over the Refund Amount into another qualified Section 529 tuition program. If you receive the Refund
Amount directly, you must send a like amount to another qualified Section 529 tuition program for the account of the Beneficiary (or a Family Member) within 60 days after you receive the
refund to avoid U.S. federal tax on the refund. Not more than one tax-free rollover may be made for the same Beneficiary during any one 12-month period. For a discussion of the U.S. federal income tax consequences of refunds and rollovers from the
Program Trust, see “Certain Tax Consequences – Refunds” and “Certain Tax Consequences – Refund Transfers and Rollovers” below. Please contact the Program Manager for more information regarding receiving refunds.

The advantage of paying it into another 529 account (within 60 days) is that you will not be charged tax and penalties on it as long as you use the funds to pay qualified education expenses. Qualified education expenses for 529 accounts include room and board and also a computer for the student (currently the computer deal is for 2009 and 2010 tax years only).</p>

[sacchi]

<p>I’m a Ind529 customer myself, but got lucky and S will attend a member college. (The accounts are transferable within a family, so I hedged my bets by having an Ind529 account for S, and regular 529 for D.) I also considered all of the options in case neither kid attended an Ind529 member colleges.</p>

<p>You can either leave the money in the Ind529 until you actually need it, or you can transfer to a regular 529 plan at any time. I don’t think the tax consequences will be any different between keeping it or moving it. As to which one will be better, it all depends on what happens in the stock/bond markets, which is impossible to predict. </p>

<p>If you bought 5 years ago, the investment performance is probably negative so you are limited to the 2% per year loss (which is actually quite good, given the circumstances). I suggest that you call the administrators and ask them how the investment performance return has been, so you could know exactly how much money you will get out. </p>

<p>If you expect further losses in the stock/bond markets, better to leave the money where it is with the I529, since you know it won’t be any worse than a 2% loss per year. If you expect big gains in the stock/bond markets, it would be good to move the money now, to have more upside market potential. However, given that your S will be using the money soon, you would probably pick relatively safe options for the money, which means relatively small up/down-sides, so I actually don’t think it would make much of a difference. </p>

<p>Also, it might be worth lobbying S’s college for them to join the plan. It is also worth looking into if the college has a pre-payment plan where you can lock in the current year’s tuition. If a pre-payment plan does exist, if I were you I would pull out the I529 plan money and pre-pay tuition. If it doesn’t, I would suggest to pull out the money and put it in a regular 529 plan, in a very conservative fund choice.</p>

[lotsofquests]

<p>Thanks for your responses. This seemed like such a good idea five years ago; there were many good LACs that would have been good fits for son. I am happy with his choice of colleges and it will not be a huge loss of money. He is an only child so holding on to it for a sibling won’t work.</p>

<p>I guess the best thing to do right now is wait until Oppenheimer takes over (I think next month) and call them again. I did check and Lafayette does have their own pre-pay tuition plan so I will consider that. Assuming that he keeps his scholarship, we have about 1.5 years in the I529.</p>

[vballmom]

<p>No need to kick yourself - it’s possible that if you end up with a 2% compounded rate of return you’ve outperformed most of the other age-based 529s plans that are out there for the same time period. And if you took advantage of PA’s state tax deduction on 529 contributions, your real return is even higher.</p>

[rodney]

<p>one other choice with the ind529, you can pay non-member colleges directly from the fund without refunding…there is a form on their website for non-member college redemption; then you don’t have to worry about the tax implications and paperwork necessary with the refund method…</p>

<p>yes, you could also rollover into a reg 529 but if your child is already in college, you don’t want to gamble with investment risk; may as well just leave it in ind529 and pay from there…imo</p>