Margaret Is Trying to Decide Whether to Place Funds in a Qualified

question 49

Essay

Margaret is trying to decide whether to place funds in a qualified tuition program. Her son will be attending college in 4 years. She is in the 35% marginal tax bracket and she believes she can earn an 7% before tax return on alternative investments. Thus, $10,000 will accumulate to $11,948 (after-tax) in 4 years. Margaret expects tuition to increase at the rate of 5% each year to $12,155 in 4 years. Her son will be in the 12% marginal tax bracket in all relevant years. Given these assumptions, should Margaret participate in the qualified tuition program?

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