SHARMA ASSOCIATES, INC.

Hans R. Sharma, MBA, CFP
President, Registered Investment Advisor
Phone: 610-828-8253 Email: hans@sharmah.com

Investment advisory services offered through Sharma Associates, Inc.
Securities offered through Resource Horizon Group, L.L.C., Member FINRA,SIPC
1350 Church Street Ext. NE3rd. Floor, Marrietta, GA Phone: 770-319-1970
Sharma Associates, Inc. and Resource Horizons Group, L.L.C. are not affiliated.

Options and choices for saving for College Education:

529 College savings plan
Improved Education IRA
UGMA /UTMA Accounts

What is a 529 plan?

It's an investment plan operated by a state designed to help families save for future college costs. As long as the plan satisfies a few basic requirements. The federal tax law provides special tax benefits to you, the plan participant. (Section 529 of the Internal Revenue Code.)

It's up to each state to decide whether it will offer a 529 plan (or possibly more than one), and what it will look like. Every state now has at least one 529 plan available. 529 plans are usually categorized as either prepaid or savings, although some have elements of both.

New improved 529 Plans:

There are four major advantages of 529 plans:

You get some nice income tax breaks. Investments grow tax-free as long as your money stays in the plan, when withdrawal is taken to pay for the beneficiary's college costs. New law grants tax exemption on qualified withdrawals beginning year 2002.
You the donor stay in control of the account. With few exceptions named beneficiary has no right to the funds. You are the one who calls the shots. You decide when withdrawals are taken and for what purpose. Most plans even allow you to reclaim the funds for yourself any time you desire, no question asked. Each state is required to assess a penalty.
Provides very hands off way to save for college. Only you decide which 529 plan to use. You complete a single enrollment form and make your contribution or sign up for automatic deposits. Then you can relax and forget about it, if you like. The ongoing investments of your account is handled and managed by the plan and not by you. Plan assets are professionally managed either by state treasurers office or by an outside investment company hired as a program manager. You would not receive even a 1099 to report income until the year you make withdrawals.
Every one is eligible to take advantage of 529 plan and the amounts you can put for one child can be substantial around 250,000 dollars depending up on the state plan.

TAP 529 is Pennsylvania's 529 investment plan that allows the money invest grow tax deferred.

The TAP 529 Investment Plan allows you to invest in nine professionally managed mutual fund portfolios based on one or more of three factors:

The age of the Beneficiary - Age based option.
Your tolerance for investment risk - Risk Based option.
Your prederence for socially reponsible investing - Socially reponsible option.

The investment Plan options are each very different, and are structured to meet specific investment needs. You may choose to invest in only one option, or you may choose to split you savings among all three.

CollegeBoundfund is a 529 plan.

Sponsored by the state of Rhode Island is a flexible college saving plan, managed by Alliance Capital, a mutual fund company and maximum contribution is $265,620 per child per year, which is revised as on need basis and also have age based portfolios.

There are no income limitations or age restrictions.

Thinking about going back to college or graduate school in the future?, the setup a plan for yourself. There is no reason why you cannot be the beneficiary or your own account.

529 Plans affect on qualifying for financial aids.

529 plan assets are treated as an asset of the parent or other account owner in determining eligibility for federal financial aid.

If parents are the participants then, they should mentioned that in their estate planning documents such as "will" that these funds are gifted to the child and belong to the child and should not be included in their estate.

Other benefits:

Child could be participant as well as beneficiary.

UGMA funds could also be transferred to 529 plans. Such funds will stay in a separate account, where owner will be the child not the participant. Funds transferred from UGMA account will be accounted for the maximum contribution made into the 529 plans.

Only negative is:

529 funds can only be used for college education not for primary or secondary private schools. UGMA and Education IRA funds can be used for private schools.

(For details about each state plan, please visit www.savingforcollege.com)

Improvement in Education IRA:

Contribution amount will be increased from January 2002, from $500/= to $2000/= per year per child.
Income phase out range will be increased from $150,000-$160,000 to $190,000-$220,000.
Tax free withdrawal, if used for child's education.
Funds can be used for school as well as college education.
You can only contribute to education IRA or 529 programs in any given year, but not both programs.
You can contribute to UGMA account and to 529 or Education IRA.

UGMA Accounts: ( Uniform Gift Under Minors Act)

Parents can gift up to $11,000/= per child for year2002.
Funds can be invested any where in any kind of portfolio.
Income will be taxed at child's rate and then parents rate.
Once child becomes adult, these funds belong to the child and he / she has full control over those funds.
Funds can be used for child for any purpose; there is no restriction as long as they are used for the beneficiary.