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College-Fund Advice Would Kill Tax Benefit

May 18, 1997

In "A Save Haven" (Money Make-Over, April 29), financial planner Kathleen Stepp recommended that Manny and Celina Cervantes not open separate college savings accounts for their children. She suggested putting the money in the parents' names so the parents don't "lose control of the money" on the children's 18th birthdays.

The Cervanteses would lose a great tax benefit doing this on the slim chance that their children might "buy a Harley-Davidson" when they get control of the money.

I recommend custodial accounts be set up under the children's Social Security numbers. Each child receives a $560 standard deduction every year and is taxed at his or her rate on the next $650 of investment earnings until he or she is 14 years old. Thereafter, everything is taxed at the child's rate. Why give up this special tax treatment?

This family has done an outstanding job of saving and investing money, and it's very likely that the parents are instilling their value system in the children. Therefore, the parents shouldn't have to worry about their children misusing their college savings. Why not think positively and set up accounts in the children's names to take advantage of this tax benefit?

FREDDI HILL

Chartered life underwriter and financial consultant

Altadena

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