Saving for College: UTMAs and 529 Plans

/24-7/ -- With the costs of attending college increasing every year, many parents wonder what is the best way for them to save for a child's education. While there are several different options for saving for college, two of the most popular choices are UTMA accounts and 529 plans.

UTMA Basics

UTMA (Uniform Transfers to Minors Act) accounts are custodial accounts that can be set up at any financial institution. One parent generally serves as the custodian over the account. UTMA accounts allow parents to put securities, bonds and other investments in a child's name. Once their child reaches the age of majority, the assets in the account become the child's property. In Illinois, the age of majority under the Act is 18 for most types of investments and 21 for gifts.

The investments placed in the UTMA account can be used to pay for college or for anything else, so long as it benefits the child. Any assets placed into the account are forever the child's - the parents may not transfer them back. This is known as an "irrevocable gift." Once the child reaches the age of majority, however, the custodian loses control over the account and the child can use the assets for whatever he or she wants, which may or may not include education expenses.

529 Plans

Parents looking for a way to save for college also have the option of opening up one of the many state-sponsored 529 plans. These plans are offered by each individual state, so there is variation in the types of 529s available and the benefits offered. However, there are some common denominators for all of the plans, including federal tax benefits. The money placed in 529 plans grows tax-free and may be deducted without federal tax consequences so long as it is used for educational expenses.

Unlike UTMA accounts, a child does not gain control over the funds in a 529 account once he or she reaches 18. Instead, the parents always retain control over the assets in the account. Additionally, the parents can use the funds in 529s for other purposes besides the child's education, although they will have to pay taxes on the money and a penalty for doing so. The account also is transferable and can be transferred to another child if the intended child beneficiary decides not to go to school.

Pros and Cons of the UTMAs and 529s

There are benefits and drawbacks to UTMAs and 529 plans. Some of the factors parents should consider before opening either type of account include:

Tax benefits

UTMAs used to provide a significant tax shelter, but the rules have since been changed. Now, any assets in the account valued at more than $1900 are taxed at the same rate as the parent's income.

The money placed into a 529 plan is tax-free and can be taken out of the account tax-free, so long as it is used for qualified educational expenses. The money can be taken out for non-educational expenses, but it is then subject to federal taxes as well as a 10% penalty. States also may offer state income tax benefits to their residents who invest in their 529 plans.

Financial aid eligibility

Assets in a UTMA account are attributed to the child for purposes of determining financial aid. Depending on the value of the account, this can have a profound effect on the child's ability to get need-based financial aid.

Assets in 529 plans, on the other hand, are considered the parents' assets. While they still will be considered when determining financial aid eligibility, it will have less of a potential impact on the child's ability to obtain federal financial aid.

Limits on contributions

There is no limit on the amount of contributions that may be made each year to a UTMA account. However, parents who give more than $13,000 individually or $26,000 jointly may be required to pay gift taxes on the transfer.

Most 529 plans will have either an annual cap or a plan cap on the amount of money that may be placed in the account. As with UTMA accounts, parents who contribute more than the federal limits for gifts may be subject to gift taxes.

Degree of involvement in investing

In UTMA accounts, the custodian has complete control over the types of investments that are made. 529 plans do not offer this type of control. Instead, an administrator is selected by the institution sponsoring the plan, who then determines how to invest the money. 529s also limit the amount of times that parents can change the plan's portfolio, which is generally only once per year.

With the current uncertainty in the market and the losses many suffered to their retirement accounts and 529 plans, parents may be uncomfortable relinquishing control over the account's investments. For those who want complete control over how the funds are invested, UTMA accounts are a better choice.

Control

The custodian only has control over UTMA accounts until the child reaches the age of majority. At that time, title to the assets goes to the child, who then is free to do as he or she pleases with the assets.

In 529s, the parent retains control over the account and how the assets are used at all times.

Flexibility

While the custodian still has control over a UTMA account, the assets can be used for anything so long as it is for the child's benefit. This may include paying tuition, but also could include purchasing a car. Once the child reaches the age of majority, the assets can be used by the child for any purpose, educational or otherwise.

The assets in a 529 plan should be used for education expenses to maximize the tax benefits of the account. However, the account can be used for other expenses, but will be subject to income tax and a penalty.

Legal Issues With UTMA Plans

It is important for parents considering setting up a UTMA plan to remember that any contributions they make to this plan are irrevocable gifts that belong to their child. This means that while the parent has custodial authority over the account, the investments and funds in the account must be made for the child's - not the parent's - benefit.

Thus, a parent falling on hard times cannot sell, transfer or otherwise use the assets in the UTMA account for his or her own purposes. Likewise, the parent cannot transfer the assets back to him or herself. Moreover, a custodian who does not act in the best financial interests of the child beneficiary may have legal liability for his or her acts.

Conclusion

Deciding how best to save for your child's future is an important decision. For more information on UTMA and 529 accounts, contact an experienced attorney today.

Article provided by Van Schwab, Attorney at Law

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Back to Basics: CornerCap's 10 Investment Principles to Follow, Whether Times Are Tough or Lush

/PRNewswire/ -- With so much volatility in the market and fears about the economy's outlook as the nation moves into a period of new national leadership, CornerCap Investment Counsel President James C. Carr outlined 10 Commandments of Investing he believes should ensure success, whether the times are 'tough' or 'lush'.

The full text of Carr's 10 Commandments, along with additional commentary on each, is published in the Winter edition of the firm's news letter. It is also available online and may be downloaded at no cost from www.cornercap.com/library/Newsletters/n2009win.pdf .

The 10 Commandments of Investing

1. The minimum investment horizon is 10 years. "If you don't stay in the market for 10 years, don't get into it at all," Carr says.

2. Have a disciplined and consistent investment philosophy and process.

3. The asset allocation in an investment portfolio controls most of the volatility in your investment returns. According to Carr, asset allocation has everything to do with personal goals, income needs, risk profile and the ability to accept risk. It has nothing to do with stock selection, market timing, or strategy to vary with market conditions.

4. Do not attempt to time the market or strategically allocate your investment mix because of what you think the market might do. "One thing is absolutely certain," Carr notes, "the market is dominated in the short term by hope, greed, and fear! There is commonly a disconnect between a company's valuation and the current market jawboning."

5. Don't tinker. "Stay with the plan once you have established your asset allocation and your investment horizon," Carr counsels.

6. Have a clear view of what financial success means to you.

7. Control your emotions. "Human emotions can cause you to do exactly the wrong thing at the wrong time," Carr advises.

8. The home repair industry gets most of its revenue from those at home who try to fix it themselves. Carr recommends getting an expert to help you implement your investment objectives. Know the four critical P's for selecting an investment advisor. They are People, Process, Philosophy and Performance.

9. Do not retain an investment advisor who doesn't fully agree with and implement the commandments set forth here.

10. Having done all of this, the key to success thereafter is benign neglect.

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Weathering Tough Financial Times: Nine Tips For 2009

(NAPSI)-The financial crisis of 2008 battered the wallets of many Americans, leaving them unable to make ends meet. While saving and investing may be difficult, it's critical to weathering tough financial times. These nine tips from the Financial Industry Regulatory Authority (FINRA) can help:

1. Pay down credit card debt. Banks are increasing interest rates and late fees, leading to higher borrowing costs. They're also reducing limits on credit cards, which can lead to lower credit scores if you don't pay down your balance.

2. Check your credit report. With credit becoming harder to get, make sure your credit history is accurate-and correct problems that may hurt your credit score. For your free credit report, call (877) 322-8228 or visit www.annualcreditreport.com.

3. Create a rainy-day fund. One in three Americans has no emergency savings. Aim to save at least one month (preferably three to six months) of your current salary in a federally insured savings account.

4. Open account statements. Although you may be tempted to avoid the trauma of seeing losses in your portfolio, ignoring your 401(k), IRA or brokerage accounts can blind you to problems in your accounts other than performance.

5. Avoid raiding your 401(k). One in five workers over age 45 stopped saving for retirement in 2008 because of economic conditions. Before cutting contributions or borrowing against your 401(k), reduce spending wherever possible.

6. Diversify. If your portfolio declined more than broad market indices, make sure you are well diversified. Spread your risk by distributing your investments both among different asset classes-stocks, bonds and cash-and within each class.

7. Know that fees matter. Find out what each investment costs. The higher the fees and expenses, the less real return you make. Compare mutual fund costs using FINRA's Fund Analyzer at www.finra.org/fundanalyzer.

8. Protect yourself from identity theft. Phishing attacks surged in October 2008 by 103 percent following stock market drops. To avoid taking the bait, visit FINRA's Identity Theft resource at www.finra.org/identitytheft.

9. Invest for the long term. Investors with a short-term outlook often jump ship just as a bear market bottoms out or jump in as a bull market peaks. Investing incrementally, in good times and in bad, is a tried-and-true way of bearing up in a bear market.

As you start the New Year, take time to set fresh financial goals and stick with your long-term plan. For more resources and tools, visit www.finra.org.

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Financial Planner’s Advice: Don’t Tap Your Retirement Account!

(BUSINESS WIRE)--Don’t make a costly mistake with your retirement money in today’s turbulent financial markets, says Sarasota financial planner Phil Couture.

“Do everything you can to avoid making withdrawals from your retirement accounts to meet immediate cash needs, and take steps to safeguard your long-term investments,” said Couture, CFP, president, Couture Financial, Inc., www.couturefinancial.com. “Otherwise, you put your financial future in serious jeopardy.”

Taking money from an Individual Retirement Account (IRA) or employer’s 401(k) plan can also have serious tax consequences. For instance, the Internal Revenue Service (IRS) typically imposes a 10 percent penalty, in addition to the deferred income tax, on funds withdrawn from a retirement account before age 59.5.

As a Certified Financial Planner who has helped thousands of clients since 1977, Couture has several suggestions for protecting your retirement funds:

• Diversify your investments. Don’t put everything into “safe” investments like certificates of deposit (CDs) or other fixed-income investments that do not keep up with inflation. Keep some stocks, real estate and other assets in your portfolio to preserve future purchasing power.

• Don’t take out a loan from your IRA or 401k plan. That’s tempting when faced with overdue mortgage payments or other immediate debts. But any loan from an IRA must be paid back in full in 60 days. If you have a loan from your 401k and you lose your job, it must be paid back immediately. Otherwise IRS considers the loan as taxable income.

• Be sure your IRA accounts held at a bank are insured. The Federal Deposit Insurance Corporation (FDIC) currently covers up to $250,000 in retirement accounts at any one bank, but any additional funds are at risk. If necessary, move some of those dollars to an insured account at another bank.

• Don’t let your bank or other plan custodian give you a credit card or checking account tied to your retirement funds. You could wind up withdrawing excessive amounts, and those funds will count as taxable personal income.

• Be very careful when transferring or “rolling over” your IRA funds to avoid tax penalties. The IRS will only allow you to move the funds “in a rollover transaction” from one custodian to another just once in any 12-month period.

“Remember that retirement accounts are meant for long-term investments,” said Couture. “Keep that perspective and sleep better at night.”

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Heritage Financial Group Reports Ownership of Freddie Mac Securities

BUSINESS WIRE --Heritage Financial Group (NASDAQ:HBOS), the mid-tier holding company for HeritageBank of the South, today announced that it currently holds approximately $1.5 million par value of Freddie Mac preferred stock in its available-for-sale investment portfolio. The Company has no additional equity exposure to Fannie Mae or Freddie Mac equity securities. Following the U.S. government's actions earlier this week to place Freddie Mac under conservatorship and eliminate its dividends on preferred stock, the Company has seen a dramatic decrease in the value of this investment.

Management currently is examining tax issues and accounting treatment related to the decline in value of this investment. The Company is uncertain if it will be able to recognize a tax benefit if this investment is written down to market value. As of September 10, 2008, the fair value of the Company's investment in Freddie Mac preferred stock was approximately $150,000. As of June 30, 2008, the fair value of this investment was approximately $1.3 million.

At the end of the second quarter of 2008, Heritage Financial Group reported that its total risk-based capital ratio was approximately 17% – significantly above the 10% level required to be considered "well capitalized." The Company will remain well capitalized at the end of the third quarter, even if the Freddie Mac investment is written down to its fair market value, or if deemed worthless, with no corresponding tax benefit.

Heritage Financial Group is the mid-tier holding company for HeritageBank of the South, a community-oriented bank serving primarily Southwest Georgia and North Central Florida through seven full-service banking offices. As of June 30, 2008, the Company reported total assets of approximately $487.6 million and total stockholders' equity of approximately $63.3 million. For more information about the Company, visit HeritageBank of the South on the Web at www.eheritagebank.com, and see Investor Relations under About Us.

Heritage, MHC, a mutual holding company formed in 2002, holds approximately 74% of the shares of Heritage Financial Group. The remaining 26% of Heritage Financial Group's shares are held by public stockholders following the Company's June 2005 initial public offering.

Except for historical information contained herein, the matters included in this news release and other information in the Company's filings with the Securities and Exchange Commission may contain certain "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995 and include this statement for purposes of these safe harbor provisions. Further information concerning the Company and its business, including additional factors that could materially affect our financial results, is included in our other filings with the SEC.

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Arcapita Profits Increase by 90 Percent to $362.2 Million

BUSINESS WIRE --Arcapita Bank B.S.C.(c), a leading international investment firm headquartered in Bahrain, with Atlanta-based subsidiary Arcapita Inc., today announced record profits of $362.2 million for fiscal 2008, the year ending June 30, 2008, representing a 90 percent increase on the annualized figure of $190 million recorded in fiscal 2007.

Overall since inception, Arcapita’s net income has grown at a compounded annual growth rate of 40.6 percent. Total operating revenue for fiscal 2008 was $648.5 million, an increase of 59.1 percent compared to the figure of $407.5 million achieved in fiscal 2007. Arcapita’s balance sheet footing at the end of June 2008 was $5.1 billion, up 35 percent on the $3.8 billion at the end of fiscal 2007. Worldwide, the bank now employs more than 300 people, a third of whom are located outside of the bank’s headquarters in its offices in Atlanta, London and Singapore.

Arcapita’s Chief Executive Officer, Atif A. Abdulmalik stated “We have witnessed considerable economic turbulence in much of the world’s economy during the last 12 months, but Arcapita’s international network of resources has allowed us to move quickly and with flexibility to maintain a good flow of attractive investment opportunities for our investors. We made 13 new investments during the year with a total transaction value of more than $8 billion, bringing our funds under management to almost $5 billion.”

Arcapita Executive Director Charlie Ogburn, head of the Atlanta office, added, “Each of our markets has experienced challenges in the last 12 months, and this has been most pronounced here in the United States. Nonetheless, we have made several substantial investments, as well as a number of successful exits, and we continue to see value opportunities in each of our business lines of private equity, real estate, asset-based investments and venture capital.”

During the year, Arcapita exited from six investments, and together with recapitalizations during the period, was able to return more than $1.1 billion to investors.

Significant transactions overseen by Arcapita’s Atlanta office during 2008 include the acquisition of Varel International Energy Services Inc., PODS Inc. and the Bosque power facility in Texas. The Arcapita venture fund completed new investments in Intelleflex Corporation, Fidelis SeniorCare, Inc. and Aspen Aerogels, Inc., as well as their first exit, with the sale of Navini Networks. In addition to the new investments, there were three exits from the US portfolio, with the sale of Transportation Safety Technologies, Inc., Working Rx and TLC Health Care Services, Inc.

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