Saving for college: keep in your reg investments or separate just for college

[Anonymous]

Anonymous wrote:We do "zero coupon bonds" instead of the 529 at the advice of our financial advisor. It's been a pretty good ride so far. She's four and we have $80,000 (value at the time of maturity) in it, and believe me, we aren't rich.

Do you hold these in a 529 account? Otherwise sounds like a tax nightmare waiting to happen.

[Anonymous]

Anonymous wrote:

Anonymous wrote:We do "zero coupon bonds" instead of the 529 at the advice of our financial advisor. It's been a pretty good ride so far. She's four and we have $80,000 (value at the time of maturity) in it, and believe me, we aren't rich.

Do you hold these in a 529 account? Otherwise sounds like a tax nightmare waiting to happen.

You can read about it here; I'm not entirely sure of the logistics but our financial guy worked out a tax structure so we don't get reamed. Worth looking into if you're interested:
http://en.wikipedia.org/wiki/Zero-coupon_bond

[Anonymous]

Right, I got to that part. What I don't understand is how you are purchasing them. Are you purchasing them within a Roth? In your 529? Using a website?

[Anonymous]

Anonymous wrote:We do "zero coupon bonds" instead of the 529 at the advice of our financial advisor. It's been a pretty good ride so far. She's four and we have $80,000 (value at the time of maturity) in it, and believe me, we aren't rich.

I don't understand why zero coupon bonds would be an alternative to a 529. You could buy a bunch of zero coupon bonds within a 529 - or at least bond funds that hold zero coupon bonds. If you are holding them outside a tax-efficient envelope then are you not just creating a large tax liability for yourself?

[Anonymous]

From the wikipedia article linked by PP:

In the United States, a zero-coupon bond would have Original issue discount (OID) for tax purposes.[3] Instruments issued with OID generally impute the receipt of interest (sometimes called phantom income), even though these bonds don't pay periodic interest. [4] Because of this, zero coupon bonds subject to U.S. taxation should generally be held in tax-deferred retirement accounts, to avoid paying taxes on future income. Alternatively, when purchasing a zero coupon bond issued by a U.S. state or local government entity, the imputed interest is free of U.S. federal taxes, and in most cases, state and local taxes, too.

I have no expertise in this whatsoever--in fact, I'm the clueless PP who originally started asking questions about backdoor Roths. But I suspect the tax-free gov bonds were maybe the ones the zero-coupon PP was referring to?

[Anonymous]

Anonymous wrote:We still have not set up college savings for our two kids. My husband argues that there is no difference if college funds comes out of our regular Investments down the road. Meanwhile we are renovating our house, "investment" opportunities come up now and then, his company needs additional money put into it, and/ or an emergency could come up- i would rather have money set aside just for college (ie 529) vs. have money in investment vehicles. What do you do?

We fully funded designated college accounts (eg 529s) for anticipated in state university costs. We put the rest into "regular" investments and 'labeled' it college/ret.

[Anonymous]

Anonymous wrote:23:01 My understanding is the cap on Roth IRA's is now gone. we, too, could not contribute to them because we made too much money. That cap is no longer there so we can now convert our traditional IRAs to Roths but have to pay the taxes so haven't decided what to do anymore. Check with your accountant.

There is still a "cap" initially. However, there is a series of hoops to go through to get to Roth if your income exceed the limit.

[Anonymous]

Anonymous wrote:We do "zero coupon bonds" instead of the 529 at the advice of our financial advisor. It's been a pretty good ride so far. She's four and we have $80,000 (value at the time of maturity) in it, and believe me, we aren't rich.

What is the interest rate on the Bonds? How long do you have to wait until maturity?

[Anonymous]

Bond lady...can you come back?

[Anonymous]

Bond woman -- where are you?

[Anonymous]

We use 529 plans.