Secure Your Future
A good way to help pay for college
Dec 6, 2007 1:29 AM
Named for the section of the Internal Revenue Code that outlines it, the 529 College Savings Program is designed to help families invest assets for future college costs. The investment is made after being federally taxed, but in the New York State college savings plan, the money invested in the program (up to $5,000 per year per contributor) is exempt from New York State income tax. Any growth of investments in the New York State plan is free from federal, state and city income taxes as long as the money is used for qualified higher education expenses such as tuition, room, board and books. The tax-free withdrawals can be applied to college, graduate school and some vocational programs.
Because there are no income limitations, almost anyone can open a 529 college savings plan on behalf of a beneficiary. Parents, grandparents, aunts and uncles can help pay for a child’s education.
This is a great way to “secure your future” by providing for the college education of your children, grandchildren or other loved ones. As educators, we probably recognize this more than most others.
The New York State plan offers a variety of investment options managed by the Vanguard Mutual Fund Company. For detailed information on New York’s 529 College Savings Program, call 1-800-420-2671 or check the Web site, www.nysaves.
org. The New York State plan has been highly recommended by financial experts.
For those of you who want to contribute to this plan through salary deductions, making your contributions as automatic as your tax-deferred annuity contributions, the Department of Education has a salary deduction plan. Like your TDA contributions, your 529 deductions can be deducted from your pay before you receive your paycheck.
Payroll Administration Memorandum No. 20, 2004-05 describes how to enroll in the DOE’s salary deduction program. Ask your school secretary for the memo.
This program has been available since 1998. It is an opportunity that should not be missed by anyone who wishes to save for their loved one’s college expenses. Enroll now!
Millionaires
In Merrill-Lynch’s annual wealth report for 2007, it was reported that there were 3.2 million people in North America (U.S., Mexico and Canada) with more than $1 million in investable assets (excluding primary homes).
The report further states that about 40,000 people have more than $30 million.
It is very difficult for the $1 million or $2 million millionaires with no defined benefit (DB) pension plan, like ours, to retire and make their assets last through retirement.
It is very challenging to invest a lump sum of money to last for an uncertain length of time. A 60-year-old person has an average life expectancy of about 24 years. But of course, that is only an average and some people live longer and some people die sooner, so the first goal is to make sure that the lump sum lasts for an entire lifetime. No one wants to run out of money before they run out of life.
Financial planners suggest taking no more than an initial withdrawal of 4 percent of their assets for the first year’s living expenses ($40,000 if assets equal $1 million) and increase this amount by the inflation rate each year. If inflation is 3 percent, that would mean a $41,200 withdrawal the second year, $42,436 the third year, and so on. In a normal investment climate, a person has a good chance (but not a 100 percent chance) of drawing income for life.
The second part of the equation is maintaining (or improving) one’s standard of living. Does Social Security plus the withdrawal of assets provide you with sufficient income to live at least as well after a career of work (or better) than when you were working?
The problem faced by those who retire without a DB pension is two-sided: withdrawal of assets must be at a rate which will provide money for their lifetime as well as provide a quality lifestyle that has been earned by a lifetime of work.
Luckily, we do not face this dilemma. We have a DB pension that can never run out, Social Security that also lasts a lifetime, plus for those who followed our advice, a TDA account with a lump sum of money to be used for anything you want to use it for.
“Secure your future” is compiled and written by Mel Aaronson, Sandra March and Mona Romain, teacher-members of the NYC Teachers’ Retirement Board. For further information on items discussed, call your UFT borough office or the TRS. BRONX: 1-718-379-6200; BROOKLYN: 1-718-852-4900; MANHATTAN: 1-212-598-6800; QUEENS: 1-718-275-4400; STATEN ISLAND: 1-718-605-1400; Teachers’ Retirement System: 1-888-8NYC-TRS (692-877), www.trs.nyc.ny.us.
