College Savings Plan
September 22nd, 2007 Categories: Investing
Gov. Jon Huntsman Jr. has declared September as “College Savings Month” from an article in the Salt Lake Tribune, to encourage Utahns to save for their children’s education. You can get information about “The Utah Educational Savings Plan” at www.UESP.org or calling 800-418-2551.
This must be the law of attraction or something like that. I had drafted an article on Real Estate as a College Fund. This is not a new concept but one that is starting to catch momentum, especially among grandparents. Grandparents typically are more liquid and they can benefit from it financially also.
The more I think about this the more it makes sense to me. One set or both sets of grandparents can join forces for more leverage.
They buy rental properties with a large enough down payment to enjoy cash flow with a 15 year mortgage. Using a property management company of course (they don’t want to mess with tenants). They can use the cash flow for themselves or pay down the note faster and have tax benefits too. There are many financial benefits of owning investment properties. The idea is at the end of 15 years the property(s) are paid off and all the rent minus expenses would go toward college expense or the property(s) can be sold at the current market value. We all know no matter what the condition of the current market is in, 15 years from now all real estate will be worth a lot more.
I like the idea of creating some form of trust to own the property and it is passed down generation to generation for education. Please seek advice from tax and estate planning professionals.
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There are now Fannie Mae/Freddie Mac programs available where parents can buy property for their college bound kids without it having to be treated as “non-owner occupied”.
Hi Rhonda, I always would refer the “Kiddie Condo” to FHA because the parents could co-sign and the equity would be in the child’s name. Then as long as they owned and occupied more than two years they would avoid capital gains tax. It is my understanding because the parents were obligated for the loan and they made the payments, they could deduct the interest too.
I am not an accountant. We both recommend you seek the help of a CPA for your taxes.
I am curious to how that property is treated for capital gain purposes.
My article was more to do with paying for college tuition than housing. More on the lines of a family trust, that is past down form generation to generation used just as an education fund.
Each generation could pull the cash out provided that the terms of the note were paid off in time for the next generation. Or simply use the monthly revenue to make tuition payments. However it is structured.
I’ve been included in taxes for longer then I care to acknowledge, both on the personal side (all my employed lifetime!!) and from a legal stand since satisfying the bar and following up on tax law. I’ve provided a lot of advice and righted a lot of wrongs, and I must say that what you’ve posted makes impeccable sense. Please carry on the good work – the more people know the better they’ll be armed to cope with the tax man, and that’s what it’s all about.