Here’s the rundown: losses on a 529 are deductible to the extent they exceed 2% of your adjusted gross income. To be able to claim the loss, you would have to close all of your 529 accounts (the IRS views all of the accounts of a particular type as being one even though they may be held with different institutions) and withdraw the money and not reinvest it for at least 61 days.

Example: a married couple with an AGI of $100,000 has a $30,000 loss on their 529. $28,000 of that would be deductible ($30k less $100k*2%), resulting in a tax savings of $7,000 assuming a 25% marginal tax rate.

The idea works because 529s are funded with after-tax dollars (unlike 401ks and IRAs), and taxes and penalties only apply to withdrawals of EARNINGS not used for qualified purposes. If your account has taken a loss, there should be no earnings to tax. Because the contributions were previously taxed, you are allowed to deduct the loss on those contributions if they are realized.

Of course if you live in a state where you can deduct contributions from your state income tax return, this becomes a lot more complicated and you should consult a good accountant. You should also consult an accountant if you may be subject to the alternative minimum tax, as this would not qualify as an AMT deduction.

I don’t do resolutions in the traditional sense because I don’t want to waste my time. However, I do like to define specific tasks to complete in the short term to drive my actions. So here is my financial do-to list for 2008:

1. I will get my tax records organized and have my return ready to file as soon as all my source documents arrive. I should be looking at a decent refund this year, so I will put together a checklist of all of the tax documents we are expecting (W-2s, interest statements, etc.) and get my charitable donation support totaled and ready.

2. I will open 529 plans for each of my kids. We live in a state with no state income tax, so there is no incentive for investing in our resident state plan. Therefore, I’ll have to evaluate the plans available and pick one that best meets or needs.

3. Evaluate options for our old 401k plans. Both my wife and I have 401k plans with our previous employers that we have left in those plans. The reasoning has been because we both work for the same firm and the options in our plan, well, suck, leaving the balances in the old plan would allow us to achieve asset diversification that would not be possible in our current employer’s plan alone. Both we each have enough in the other plans would could probably do a rollover IRA and meet the minimum balances for whatever number of plans we would want to invest in.  

4. Organize and scan our financial documents. We have paper everywhere, and I am always afraid of losing something important. I plan to scan in all of our statements and other financial documents, shred the originals where appropriate, and make a couple of backup copies for safe keeping.

5. Catalog all of our financial accounts. We have so many credit and bank accounts, keeping up with it is a rather difficult task. I want to evaluate the accounts we have, close and consolidate where appropriate, and then use the financial records organizer I got from T Rowe Price to create a guide to what accounts we still have should anything ever happen to us.

6. Take and pass the Certified Fraud Examiner exam. As FMF over at Free Money Finance has said many times, perhaps your most powerful financial asset is your earning potential. For me, I can increase that potential through relevant certifications. Not only would passing the exam earn me a nice $1000 bonus from my employer, it would also make me that much more valuable in the job market.

I’m sure there will be others I will add to the list, but these are my initial tasks for 2008. What are your to do tasks for 2008?

• Open an ING Direct account – As current ING Direct customers, we could refer our kids as new account holders and they would earn a $25 bonus and we would get $10. The only catch would be that the minimum to earn the bonus is $250, and they didn’t get that much, meaning we would need to put up the extra money for them.
• Open a WTDirect Savings Account – WTDirect offers a higher interest rate than ING Direct (4.90% APY as of 12/25/2007), and as an affiliate I could earn a $50 commission for each account, which I would add back to their accounts. I have never actually dealt with them before, making me a bit more uncertain about this one. However, it could offer an opportunity to review the account in future blog postings.
• Open a Zecco trading account – Similar reasoning to the WTDirect Savings option. As an affiliate I could get a $35 commission on each account. I could deposit the money and purchase an index fund ETF and hold until they get older. Again, I’ve never actually done anything with them before, so it would be a chance to try out the service and provide a review here later on.
• Open a 529 plan for each of them – I plan to do this anyway, although I still need to do some more research on which plan is best. I would add their gift money to what we were going to contribute anyway.

Anyone have any better ideas? We aren’t talking about a large sum, so nothing crazy please! =)

Can I withdraw company contributions from my Upromise account without transferring them to a savings plan, and if so, how?

You can withdraw your Upromise contributions at any time during your membership. To withdraw company contributions from your Upromise account, submit a letter in writing to Upromise requesting a withdrawal from your Upromise account. The letter must state your full name and exact amount that you would like to withdraw, up to total amount available in your account, pending contributions are not eligible for withdrawal.

For the protection of our members, we require that your letter either be notarized or contain a Signature Guarantee if the withdrawal request is in excess of $200. A Signature Guarantee is a guarantee you can obtain from a financial institution, such as your bank, that your signature is yours and that it is genuine.

Withdrawal letters should be sent to:

Upromise
ATTN: Customer Care
P.O. Box 55555
Boston, MA 02205-5555

Download Withdrawal Request Form

Checks are sent once per calendar quarter, so you should typically receive your check within 12 weeks of your request being received.

To make your savings work for you, you may want to consider transferring your company contributions to an investing plan for a future college student.

The fact you can cash out without using a 529 plan makes the program much more appealing. Remember that for new accounts you can get a $25 bonus for signing up and making a single purchase through their online mall. For details, click here or on the Upromise logo on the left sidebar.

I have used Upromise for quite a while and have been impressed with the service. If you aren’t familiar with the service, it is pretty cool. You register your credit cards and frequent shopper cards with Upromise and when you make a qualifying purchase you earn contributions toward your account. You can earn contributions for various purchases, including:

• Shopping at participating brick and mortar merchants with a registered credit card;
• Dining out at participating restaurants with a registered card;
• Grocery purchases of participating brands at participating grocery and drug stores (yes, CVS is one of the participating drug stores);
• Making purchases online through their online mall.

Although I haven’t changed up my spending patterns or used the online mall, I have still earned $66.21 on my account for purchases I would have made anyway. My favorite rewards have been the 1¢ per gallon earned for Exxon and Mobil brand gas purchases and the up to 8% back at participating restaurants. One of my favorite places in downtown Houston participates at 4%, so a good portion of my rewards have come from that one restaurant. (On a side note, if you are ever in downtown Houston go to Hunan Downtown in the Houston Club building. It’s great stuff – especially the Return of the Phoenix. Yummy!)

You can link to a 529 plan to have your earnings deposited to that account. I believe you can also simply request a check, although the process is said to be somewhat slow and difficult. Overall though, it is a great service and one I would highly recommend.

Enfamil Family Beginnings – I list this one first because we have already received the first big sample pack. We registered with them several months ago and got in the mail this past week a sample pack with a can of powder formula plus a few formula checks (serve the same purpose as coupons.

UPromise $3 Bonus from Enfamil – Using this link, join UPromise with the promo code “DIAPER3″. This is valid only for new users. It is a pretty neat program where you register your frequent shopper cards and credit cards and are given a rebate of sorts when you purchase selected products or dine at participating restaurants. The rebates can then be transferred to your 529 college savings account, or you can request a check for cash. The rebates tend to accumulate slowly (I’ve only accumulated about $50 over 5 years), but it is free money.

20 Free Prints Online from CVS Photo Center – Simply go to CVS Photo Center online and use the promotional code “NEWMOM20″. The flyer also says that you get 10 free prints for registering as a new user, so you could probably end up with a total of 30 free prints.

Doing a Google search this evening, I also found a pretty good listing of freebies for new parents here. It will take a while to get through that list.

In addition to the tax benefits, another attractive feature of the plans is that the account is considered the property of the account owner, not the beneficiary. There is some comfort if you are a parent in knowing that in the case that your child is fiscally irresponsible, they will not have unrestricted access the money you have saved over the years. Another advantage to this arrangement is that when applying for financial aid the student’s assets are weighted much more heavily than the parents’ assets when calculating the expected family contribution.

Even with the advantages, there were still some unanswered questions in my mind, but research has put my mind at ease:

1. What if my child doesn’t go to college? If the child doesn’t go to college, the funds can be withdrawn as a non-qualified distribution in which the earnings would be subject to income tax as well as a 10% penalty. However, you are allowed to change the named beneficiary on the account in hopes another child will be able to use the funds.
2. What if my child gets a scholarship? If your child gets a scholarship, you are allowed to make a withdrawal from the account up to the amount of the scholarship without penalty. However, the earnings are still subject to income tax.
3. So what are “qualified expenses”? Qualified expenses generally include:
   • tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution;
   • room and board for students who are at least half-time; reasonable costs incurred for room and board while attending an eligible educational institution not to exceed the allowance for room and board included in the cost of attendance as determined by the eligible educational institution or, if greater, the actual invoice amount the student residing in housing owned or operated by the eligible educational institution is charged for room and board costs; and
   • expenses for special needs services in the case of a special needs beneficiary
   • which are incurred in connection with such enrollment or attendance.
4. Where can I get more information on 529 plans? Try these links:
   • Investopedia: 529 plans
   • College Savings Plans Network