Photo courtesy: David Castillo Dominici on

A business entrepreneur with a young, pre-teen daughter wanted to set up an account usable for college funding.  While a 529 account might come to mind, once funds are placed into a 529 account the government stipulates, in return for tax-deferred status, the purposes to which both the capital and the gains can be applied.  I suggested another strategy for this application that had much farther-reaching and beneficial lifetime benefits for this father and daughter.

With the account recommended, we rolled over funds from an existing account through a 1035 tax-free exchange thereby avoiding taxes on previous gains and removing any Wall Street market downturn exposure from the future value of the account.  In addition, I refreshed the father’s knowledge of the benefits of this type of account:  Specifically, he could access funds in the account to assist with education expenses encountered with his daughter’s education, without restriction.  He could even pay rent and buy groceries with it if he chose.  The difference here is that a 529 account is earmarked as tax-deferred for specific educational expenses.  The account the client selected based on my recommendation, while funded with after-tax dollars, reflected his own growing wealth for use for any purpose he chose, at healthy average return rates, and with zero value degradation due to market risk.

Once the daughter is through college and gainfully employed, the father has the option to transfer ownership of this account to his daughter by filling out one form and submitting it to the custodian.  She can then continue to fund the account, building her own tax-free wealth, which is likely to be large enough for her to consider early retirement or the ability to fund serious business aspirations of her own in coming years.

Conclusions:  There are many financial vehicles available to well-informed investors and those interested in growing their wealth.  Not all financial vehicles are popular, simple, or well understood by those who do not regularly consult with financial professionals.  It can be vitally important to educate yourself on types of financial vehicles and accounts that are available for your use that may or may not be the topic of discussion over lunch at work.  Educating clients and prospective clients on the features and benefits of these types of accounts and opportunities is my specialty.  Being better informed so that you can make good financial decisions isn’t difficult, and it’s free.

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