To achieve increased transparency between public retirement funds and private equity partners, the National Association of State Treasurers endorses the use of the Institutional Limited Partners Association’s Fee Reporting Template.
Treasurer Deb Goldberg has her eyes set on Worcester as one of the state’s most under-banked cities and she won’t rest until incoming kindergartners start seeing dollar signs.
Goldberg’s $eedMA program, overseen by her newly-formed Office of Economic Empowerment, aims to increase the percentage of public school students who graduate from college in the city of Worcester, while subsequently combating the distrust and stigmatization of banks. The program will provide a $50 deposit in a tax-advantaged investment plan for any Worcester Public Schools kindergartner who chooses to participate. The 529 plan, managed by Fidelity Investments, requires no broker fee and provides a selection of investments that parents may choose from.
When asked about her decision to establish this initiative in Worcester, Goldberg said she recognized the city’s passion and commitment to its residents.
“Working together with partners from every sector, the city is more than ready to handle the task of leading the charge on college savings,” she said. “Each and every group has embraced their role as ambassadors for $eedMA, and the response has made us confident in the program’s success. This collaboration will ensure that every eligible family in Worcester will have the opportunity to take advantage of this exciting program.”
It seems implausible that Worcester residents would turn up their noses at the notion of a hassle-free college savings account complete with a $50 investment, free of charge. However, between 15-20 percent of Worcester residents remain under-banked or unbanked, meaning they either do not maintain a balance in their checking account or they rely on check cashing services that charge fees running upwards of 5 percent.
Dangers of falling into one of these two categories come full throttle for young families when faced with the reality of college savings. According to the Corporation for Enterprise Development, “Low and moderate income children with $500 or less in savings were three times more likely to enroll in college than children with no savings, and four times more likely to graduate.”
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Melissa Byers and Rich Rauh began stashing away money in 529 college savings accounts for their sons not long after they were born.
When their older son graduated from the University of California, San Diego, a public university, he still had money available in his account. But their younger son, who elected to go to Chapman University, a private and much costlier school, needed more than what was in his 529.
So the couple, who live in Lake Forest, California, took advantage of the flexibility they initially admired in 529 plans: They simply changed the beneficiary on the account from one son to another – without facing any taxes or penalties.
“You can’t give it to your next-door neighbor, but it is tremendously flexible for your immediate family,” said Young Boozer, the Alabama state treasurer and chairman of the College Savings Plan Network, a clearinghouse for information among state-administered college savings programs.
Money socked away in a 529 plan grows tax-free if the proceeds are used for to pay for college and other educational pursuits.
A lesser-known feature is that the owner of a 529 plan can change the beneficiary once a year, as long as the new designee is a family member.
Money in a 529 plan, which is authorized under the U.S. Internal Revenue Service Code, can be used not just to pay for tuition, but also for room and board, mandatory fees and even books and computers if they are required.
Some states allow tax deductions for investments in a state-sponsored 529 plan. State agencies and educational institutions also are sponsors of 529 plans.
The owner of a plan does not have to be a parent of the beneficiary, and money accumulated in a 529 can be transferred not just to other children of the owner, but to other family members – siblings, parents, spouses, aunts and uncles, nieces and nephews, even cousins.
But if the owner of the account is a godparent or someone else who is not related, the new beneficiary must be related to the previous beneficiary.
MAKING YOURSELF THE BENEFICIARY
It is unclear how frequently 529 plans change beneficiaries. But Loreen Gilbert, president and founder of Irvine, California-based WealthWise Financial Services, says she frequently discusses the ease of transfer with her wealth management clients.
“There is a lot of interest, especially from the grandparents,” Gilbert said. “Many want to give their grandchild the $14,000 they can give without gift taxes, and the 529 is a beautiful way to do that.”
Choosing among the more than 100 plans available can be daunting, though. In fact, while 529 plans have existed for 20 years, just 2.5 percent of all families owned one in 2015, down from 3.1 percent in 2007. The average balance in the country’s 12.3 million accounts is just $21,000, according to the Federal Reserve.
Boozer and Gilbert both recommend considering the 529 plan offered by your home state as a first step because some states offer tax benefits to residents. For example, Colorado allows plan owners to deduct the full amount of their contributions from state income tax. Some states, such as Michigan and Alabama, limit the tax deduction, and still others, such as California, offer no tax benefits.
There are different ways to evaluate 529 plans. Performance of the plan should be a key consideration. Ditto for the tax benefits and cost, Gilbert said. “Then we look at the fact that some states offer bankruptcy protection because that’s just another level of security,” she added.
Of course, planning for a child’s education can feel like making a blind bet on the future. What happens if nobody in your family needs the money in a 529 plan?
If that’s the case, you can declare yourself as the beneficiary of the account you own and use the money to take college or vocational courses.
“There are even cruises you can take,” Gilbert said. “As long it’s through an accredited institution, you have lots of ways to legally use the money.”
As for Byers, she is just happy that both sons are almost finished with school.
Her younger son, Brian, is preparing for his senior year, something he put off for five years because he was drafted to play minor league baseball with the Washington National’s organization. (Older brother Jeff also played minor league, for the St. Louis Cardinals system.)
But once he is done, Brian will have a bill come due – from his parents – just like his big brother.
“Our philosophy was that we were going to front the money for college, but they were going to pay half of it back,” said Byers, who is a veterinarian.
What will she do with the repayment income?
“Save for our retirement,” Byers said.
(Editing by Lauren Young and Leslie Adler)
As many in the regulated community were enjoying some well-earned time away from the office last week, California State Treasurer John Chiang was hard at work in Sacramento announcing new policies aimed at curbing the ability of municipal bond counsels, underwriters, and financial advisors to participate in local bond election campaigns. These policies are part of a new enforcement initiative launched July 27 that requires municipal finance firms seeking California state business to certify that they will no longer make contributions to local bond election campaigns.
As detailed in Treasurer Chiang’s letter to law firms, underwriters and financial advisors currently in the California state bond pool, continued participation in the underwriter pool will now be contingent upon the making of “an affirmative statement that the firm, or any officer, director, partner, co-partner, shareholder, owner, or employee of the firm, will not make any cash or in-kind service contributions … to promote or facilitate any bond or ballot measure in California.” Additionally, access to the underwriter pool will also be premised on a concurrent certification by covered entities and officials that they will not provide “bond campaign services” in connection with California municipal bond campaigns or ballot measures.