How to fund education for grandchildren: various strategies? Help?

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Sandtrap
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How to fund education for grandchildren: various strategies? Help?

Post by Sandtrap » Sat Sep 22, 2018 10:38 am

Status:

I have 2 very young grandchildren (one brand new) . . . so far.
I would like to establish a college fund or education fund for them.
All of my assets are in "taxable".
Assets and income stream are somewhat "substantial".


Questions:

What are my options to best benefit them and myself?

1. Educational provision in my existing trust?
2. Fund "529 (s)" from my income (tax benefit?) (How much per year is the maximum?)
3. Give the money to my sons and have them establish something for their children? (What if a son becomes irresponsible with the funds?)
4. Other?

New to this.
Thanks everyone for your help.
mahalo,
jim :D

billfromct
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Re: How to fund education for grandchildren: various strategies? Help?

Post by billfromct » Sat Sep 22, 2018 11:37 am

I will give the money to my son or daughter-in-law to open a 529 for their children so they can take advantage of the state income tax reduction.

I will probably give him the maximum $15,000 gift. You can also give the daughter-in-law $15,000 to open a 529 for the other child.

If my son or daughter-in-law is not financially responsible, I wouldn't give them any money.

bill

delamer
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Re: How to fund education for grandchildren: various strategies? Help?

Post by delamer » Sat Sep 22, 2018 12:01 pm

First step is to consilt with your sons to see if they have preferences. You can certainly limit their options, but it is unfair to set up any investments for their children without giving them a chance to weigh in.

Your decisions can have tax implications for them and/or affect how they invest any money they are saving on their own for their kids.

My in-laws set up UTMAs for our kids with my husband as trustee.

My parents gave each kid money at birthdays which we deposited into 529 accounts for which I was the account holder.

In each case, we had control over the assets. Unless you have reason to think your kids will misuse the money, give them that benefit. A UTMA accounts means the money must be used for that child’s benefit (at least in theory, it can’t be raided to pay the mortgage).

There was a thread on the forum a few months ago about a grandparent who had pronounced for many years that there was money set aside for the grandchildren’s education. The grandchildren were in high school and the grandparent refused to share information on amounts, how it was invested, and when it would released to the grandkids. Which put the parents in a very difficult position. Don’t do that.

livesoft
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Re: How to fund education for grandchildren: various strategies? Help?

Post by livesoft » Sat Sep 22, 2018 12:09 pm

Yes, ask the parents. You can tell them that you heard that 529 plans funded by grandparents and owned by grandparents is great because no tax interference with their own tax returns nor the child's tax returns. UTMA/UGMA have tax return consequences. Also warn them of overfunding in case others get involved in fund college for these children.

Otherwise, add these kids to your estate plan.
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Broken Man 1999
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Re: How to fund education for grandchildren: various strategies? Help?

Post by Broken Man 1999 » Sat Sep 22, 2018 12:24 pm

I chose a prepaid tuition plan for our four grandchildren. I had done the same for my daughters, and I was involved with a niece's prepaid tuition plan my father had set up when her father died.

I like prepaid plans because the pretty well lock in at least the tuition portion of a college education. The plans can be used at private institutions, public institutions, and even in other states. I am referring to Florida's plan only, but other states have similar plans.

I am also funding 529 plans for all four, but not that generously, as all the other sets of grandparents are contributing to the grandkids via 529 plans as well.

One thing I like about the prepaid plans is the tab for tuition is known, and it has been paid. At the worst they can attend the most expensive (tuition-wise) public university in our state (assuming they can get in). Certainly more $$ could/would be needed to many private and even out of state public universities.

Much better in the sense IMHO of simply contributing to a 529 plan having no idea what the amount needed will actually be. Obviously a good choice if state taxes make a 529 plan attractive. Florida has no income tax, so it wasn't a factor to me.

Finally, giving money to parents is no guarantee that the money will be used by the parent as the grandparent (or other donor) hopes. Indirect gifts, those given to one person with the hope the money will be passed along just seems risky to me.

My thoughts on activities such as funding education, or even making legacy gifts, is I very much prefer to give the individual I'm gifting the funds directly (or in trust for minors / very young adults), rather than funneling it through others hands. I have come to this not because of lack of trust, but simply observing life around me and the crap that happens sometimes.

Broken Man 1999
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Sandtrap
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Re: How to fund education for grandchildren: various strategies? Help?

Post by Sandtrap » Sat Sep 22, 2018 2:07 pm

delamer wrote:
Sat Sep 22, 2018 12:01 pm
First step is to consilt with your sons to see if they have preferences. You can certainly limit their options, but it is unfair to set up any investments for their children without giving them a chance to weigh in.

Your decisions can have tax implications for them and/or affect how they invest any money they are saving on their own for their kids.

My in-laws set up UTMAs for our kids with my husband as trustee.

My parents gave each kid money at birthdays which we deposited into 529 accounts for which I was the account holder.

In each case, we had control over the assets. Unless you have reason to think your kids will misuse the money, give them that benefit. A UTMA accounts means the money must be used for that child’s benefit (at least in theory, it can’t be raided to pay the mortgage).

There was a thread on the forum a few months ago about a grandparent who had pronounced for many years that there was money set aside for the grandchildren’s education. The grandchildren were in high school and the grandparent refused to share information on amounts, how it was invested, and when it would released to the grandkids. Which put the parents in a very difficult position. Don’t do that.
This is really good stuff!!
Thanks for posting it for me.
I'll talk to my son about it.

What is a UTMA Account?
j

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Sandtrap
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Re: How to fund education for grandchildren: various strategies? Help?

Post by Sandtrap » Sat Sep 22, 2018 2:10 pm

Broken Man 1999 wrote:
Sat Sep 22, 2018 12:24 pm
I chose a prepaid tuition plan for our four grandchildren. I had done the same for my daughters, and I was involved with a niece's prepaid tuition plan my father had set up when her father died.

I like prepaid plans because the pretty well lock in at least the tuition portion of a college education. The plans can be used at private institutions, public institutions, and even in other states. I am referring to Florida's plan only, but other states have similar plans.

I am also funding 529 plans for all four, but not that generously, as all the other sets of grandparents are contributing to the grandkids via 529 plans as well.

One thing I like about the prepaid plans is the tab for tuition is known, and it has been paid. At the worst they can attend the most expensive (tuition-wise) public university in our state (assuming they can get in). Certainly more $$ could/would be needed to many private and even out of state public universities.

Much better in the sense IMHO of simply contributing to a 529 plan having no idea what the amount needed will actually be. Obviously a good choice if state taxes make a 529 plan attractive. Florida has no income tax, so it wasn't a factor to me.

Finally, giving money to parents is no guarantee that the money will be used by the parent as the grandparent (or other donor) hopes. Indirect gifts, those given to one person with the hope the money will be passed along just seems risky to me.

My thoughts on activities such as funding education, or even making legacy gifts, is I very much prefer to give the individual I'm gifting the funds directly (or in trust for minors / very young adults), rather than funneling it through others hands. I have come to this not because of lack of trust, but simply observing life around me and the crap that happens sometimes.

Broken Man 1999
Great information here.
I agree that it makes sense to gift the funds directly or in trust.
Questions:
1. If the tuition is prepaid, what happens if the grandchild doesn't go to college?
2. What are the tax benefits to myself as a grandparent?
3. Are the 529 funds setup for "each" grandchild or as a "pot" for all to tap into?

j

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Sandtrap
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Re: How to fund education for grandchildren: various strategies? Help?

Post by Sandtrap » Sat Sep 22, 2018 2:12 pm

livesoft wrote:
Sat Sep 22, 2018 12:09 pm
Yes, ask the parents. You can tell them that you heard that 529 plans funded by grandparents and owned by grandparents is great because no tax interference with their own tax returns nor the child's tax returns. UTMA/UGMA have tax return consequences. Also warn them of overfunding in case others get involved in fund college for these children.

Otherwise, add these kids to your estate plan.
Thanks for the terrific help.
I do have an educational provision in my trust for grandchildren and future "hares" but it will be under the discretion of the trustee on a case by case basis by merit vs entitlement.

What do you mean by "overfunding"?

j

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Re: How to fund education for grandchildren: various strategies? Help?

Post by Dottie57 » Sat Sep 22, 2018 2:21 pm

Sandtrap wrote:
Sat Sep 22, 2018 10:38 am
Status:

I have 2 very young grandchildren (one brand new) . . . so far.
I would like to establish a college fund or education fund for them.
All of my assets are in "taxable".
Assets and income stream are somewhat "substantial".


Questions:

What are my options to best benefit them and myself?

1. Educational provision in my existing trust?
2. Fund "529 (s)" from my income (tax benefit?) (How much per year is the maximum?)
3. Give the money to my sons and have them establish something for their children? (What if a son becomes irresponsible with the funds?)
4. Other?

New to this.
Thanks everyone for your help.
mahalo,
jim :D
My dad bought savings bonds for my nephew when he was born. The bonds matured in 17 years and were ready for college expenses. The bonds were held in my brother’s name.

Good Listener
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Re: How to fund education for grandchildren: various strategies? Help?

Post by Good Listener » Sat Sep 22, 2018 2:32 pm

I am one of those who uses the expression "man plans and God laughs". If you could afford it I just think it's best to pay for it when the time comes. You can write the check directly to the educational Institution.

delamer
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Re: How to fund education for grandchildren: various strategies? Help?

Post by delamer » Sat Sep 22, 2018 2:52 pm

Good Listener wrote:
Sat Sep 22, 2018 2:32 pm
I am one of those who uses the expression "man plans and God laughs". If you could afford it I just think it's best to pay for it when the time comes. You can write the check directly to the educational Institution.
But this gets back to my point about allowing the parents to plan.

“I’ll write a check for college for the grandkids if I can afford it at the time” sounds generous, but is fraught with issues.
Last edited by delamer on Sat Sep 22, 2018 2:54 pm, edited 1 time in total.

delamer
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Re: How to fund education for grandchildren: various strategies? Help?

Post by delamer » Sat Sep 22, 2018 2:53 pm

Sandtrap wrote:
Sat Sep 22, 2018 2:07 pm
delamer wrote:
Sat Sep 22, 2018 12:01 pm
First step is to consilt with your sons to see if they have preferences. You can certainly limit their options, but it is unfair to set up any investments for their children without giving them a chance to weigh in.

Your decisions can have tax implications for them and/or affect how they invest any money they are saving on their own for their kids.

My in-laws set up UTMAs for our kids with my husband as trustee.

My parents gave each kid money at birthdays which we deposited into 529 accounts for which I was the account holder.

In each case, we had control over the assets. Unless you have reason to think your kids will misuse the money, give them that benefit. A UTMA accounts means the money must be used for that child’s benefit (at least in theory, it can’t be raided to pay the mortgage).

There was a thread on the forum a few months ago about a grandparent who had pronounced for many years that there was money set aside for the grandchildren’s education. The grandchildren were in high school and the grandparent refused to share information on amounts, how it was invested, and when it would released to the grandkids. Which put the parents in a very difficult position. Don’t do that.
This is really good stuff!!
Thanks for posting it for me.
I'll talk to my son about it.

What is a UTMA Account?
j
Here is a description: https://fairmark.com/kids-college/utma/

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Sandtrap
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Re: How to fund education for grandchildren: various strategies? Help?

Post by Sandtrap » Sat Sep 22, 2018 2:55 pm

Good Listener wrote:
Sat Sep 22, 2018 2:32 pm
I am one of those who uses the expression "man plans and God laughs". If you could afford it I just think it's best to pay for it when the time comes. You can write the check directly to the educational Institution.
True.
But I may not be around at that time, or have the cognizance (marbles) to do so. :shock:

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Sandtrap
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Re: How to fund education for grandchildren: various strategies? Help?

Post by Sandtrap » Sat Sep 22, 2018 2:58 pm

delamer wrote:
Sat Sep 22, 2018 2:53 pm
Sandtrap wrote:
Sat Sep 22, 2018 2:07 pm
delamer wrote:
Sat Sep 22, 2018 12:01 pm
First step is to consilt with your sons to see if they have preferences. You can certainly limit their options, but it is unfair to set up any investments for their children without giving them a chance to weigh in.

Your decisions can have tax implications for them and/or affect how they invest any money they are saving on their own for their kids.

My in-laws set up UTMAs for our kids with my husband as trustee.

My parents gave each kid money at birthdays which we deposited into 529 accounts for which I was the account holder.

In each case, we had control over the assets. Unless you have reason to think your kids will misuse the money, give them that benefit. A UTMA accounts means the money must be used for that child’s benefit (at least in theory, it can’t be raided to pay the mortgage).

There was a thread on the forum a few months ago about a grandparent who had pronounced for many years that there was money set aside for the grandchildren’s education. The grandchildren were in high school and the grandparent refused to share information on amounts, how it was invested, and when it would released to the grandkids. Which put the parents in a very difficult position. Don’t do that.
This is really good stuff!!
Thanks for posting it for me.
I'll talk to my son about it.

What is a UTMA Account?
j
Here is a description: https://fairmark.com/kids-college/utma/
Wow.
Thanks.
Will begin learning and also forward this link and thread to my sons for input.
mahalo,
jim :D

Broken Man 1999
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Re: How to fund education for grandchildren: various strategies? Help?

Post by Broken Man 1999 » Sat Sep 22, 2018 2:59 pm

Good Listener wrote:
Sat Sep 22, 2018 2:32 pm
I am one of those who uses the expression "man plans and God laughs". If you could afford it I just think it's best to pay for it when the time comes. You can write the check directly to the educational Institution.
That is certainly one way to do it.

But, what happens if the YOU isn't around to write that check? Life is a fragile thing.

I also use the expression Man plans, and God laughs. In my case, that drove me to paying for their tuition now. By doing so, the deed is done. I don't need to depend on anyone else, or the volatility of financial markets, or attempting to cash flow tuition, or hoping gifts to parents will be used for what I intended the gifts for..... the list can go on and on.

Worse case: The State of Florida goes bankrupt. The prepaid program itself is guaranteed by the "full faith and credit of the State of Florida."

Grandchildren may not go to college:
1. Full refund on monies paid.
2. Transfer to another family member to use.
3. Scholarship received, get refund up to the amount one would pay for at Florida college, university.
4. I could afford it when I wrote the checks, no idea going forward. For me, honestly, the time had come. Mr Market has been very very good to me (us).

Broken Man 1999

ETA: For Sandtrap J


Great information here.
I agree that it makes sense to gift the funds directly or in trust.
Questions:
1. If the tuition is prepaid, what happens if the grandchild doesn't go to college?
See above!
2. What are the tax benefits to myself as a grandparent?
None for me as Florida has no state income taxes.
3. Are the 529 funds setup for "each" grandchild or as a "pot" for all to tap into?
Yes, each grandchild (4) has individual 529 plans. No idea as to the 529 plans the other grandparents set up.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

livesoft
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Re: How to fund education for grandchildren: various strategies? Help?

Post by livesoft » Sat Sep 22, 2018 3:37 pm

Sandtrap wrote:
Sat Sep 22, 2018 2:12 pm
What do you mean by "overfunding"?
I mean you may have way more than what college costs in a 529 plan and then have to deal with that.
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Re: How to fund education for grandchildren: various strategies? Help?

Post by Steelersfan » Sat Sep 22, 2018 4:20 pm

I gift to each of my children annually with the expectation that most or all of it will go into 529 plans for their children. Their states allow a state tax deduction (some do some don't) for 529 plan contributions so that's a bit of a bonus for them. I prefer that they control the 529 plans rather than me. It's just one more thing for me (or my executor) not to have to worry about as I get older.

So far so good and I've been doing it for six years.

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Re: How to fund education for grandchildren: various strategies? Help?

Post by Spirit Rider » Sat Sep 22, 2018 4:52 pm

If the parent's income/assets and student's income/assets will make them eligible for financial aid. The best option is to have 1/2 of 529 assets owned by a parent or the student and 1/2 of 529 assets owned by a grandparent.

529 plans owned by a parent or the student are considered as if they were parental assets and are assessed at a maximum rate of 5.64% for the FAFSA EFC. Distributions have no affect and should be used up first.

529 plans owned by a grandparent are not considered a parental or student FAFSA asset. However, distributions are considered FAFSA student untaxed income assessed at a maximum rate of 50%(ouch). Therefore, they should be used for the last 2 1/2 years when they do not affect the FAFSA.

This reduces the size of the parental assessed assets, reducing the affect of 529 assets on the EFC and the grandparent 529 has no effect at all.
Last edited by Spirit Rider on Sat Sep 22, 2018 4:56 pm, edited 1 time in total.

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HueyLD
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Re: How to fund education for grandchildren: various strategies? Help?

Post by HueyLD » Sat Sep 22, 2018 4:54 pm

Sandtrap,

You and your wife can deduct up to $4k per year from your AZ income tax (form 140 line 34) for contributions made to a 529 plan for the benefit of your grandchildren.

The most money you can have in a 529 plan depends on the state https://www.savingforcollege.com/compar ... _questions

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Re: How to fund education for grandchildren: various strategies? Help?

Post by Jack FFR1846 » Sat Sep 22, 2018 5:36 pm

I really like US Savings bonds. They're clean, easy and can be controlled by you with the grandkids as beneficiaries. I've invested in bonds myself, and been happy that they're there a number of times where we then had a choice to simply sell some and pay for an expense without issue.
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Re: How to fund education for grandchildren: various strategies? Help?

Post by aristotelian » Sat Sep 22, 2018 6:04 pm

I see no downside to 529. Great tax benefit, strong incentive to go to college, and you retain control of the funds. I would only not do it if you had some reason to believe the child is unlikely to go to college.

I prefer just saving in taxable account over UTMA. There is just no reason to give up the control and risk giving a large amount of money with no restrictions to a kid who might be hanging with the wrong crowd at age 18.

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Re: How to fund education for grandchildren: various strategies? Help?

Post by StealthRabbit » Sat Sep 22, 2018 6:19 pm

Good points above + a few more...
529 was not a benefit in my state, AND... FAFSA grabs 100% of the students 'conventional' savings / assets... AND it is very CHEAP for students to borrow money than for parents to pay / lose opportunity costs (plus it adds far more 'skin-in-the-game' for student to be paying for THEIR college (Your thoughts may vary)... (I am not a fan of 529)
so:
1st, get them on your estate plan!!!
2nd, stick the dough where FAFSA can't nab it.
3rd, look to utilize QCD's (designated RMD) https://taxprocenter.proconnect.intuit. ... e-retired/

4th... Consider equipping / training the kids to be ready and able to cover higher EDU...(you have a LOT of time :wink: )

1) Train them to handle dough (from day one... make them 'responsible' for things within their span of control.)
2) 4H is really great as soon as they can manage a few chickens... or similar (non-AG options)
3) IRA (Roth) as soon as they have earned income ~ age 10 - 12 (I matched 100% of kid's earnings into their Roths until the day they were age 18 (~ $20k)
4) Teach then to invest / value companies (they they are interested in) or the principles of MF / EFT investments (One of mine became a 'trader' CFA)
5) Teach them employable skills (more than a minimum wage job). Grandparents are excellent at doing this, mine taught me to weld, rebuild engines, build furniture, lay concrete, build stone walls / barns / electrical and plumbing...
6) Consider helping the grandkids start and manage a business. 50% of our homeschool group kids had businesses, some had more than 10 employees. Those businesses were able to support college expenses, or the businesses were sold, or passed on to family members.
7) Help them get started in Real Estate management and ownership. Couple friend's kids bought 4 plexes at college and made enough to pay for college, as well as equity appreciation paid for 2 yrs abroad + grad school. Grandparents helped with down payment and training the kids to manage the income / duties of being a property owner. Good training for life. nice lessons to learn while young (college age or sooner.
8) Share your business with your grandkids (those who still have businesses). if not... buy a business for them ...

By following your example ... they will learn much from you which will far outweigh their higher education. (including 'investing', especially examples of 'Investing in Others'!) My (poor) folks paid for the education of poorer neighbors kids, but I knew they didn't have a dime to pay for mine. That was fine (maybe preferred... lessons learned :idea: )

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Re: How to fund education for grandchildren: various strategies? Help?

Post by JW-Retired » Sat Sep 22, 2018 8:07 pm

delamer wrote:
Sat Sep 22, 2018 2:52 pm
Good Listener wrote:
Sat Sep 22, 2018 2:32 pm
I am one of those who uses the expression "man plans and God laughs". If you could afford it I just think it's best to pay for it when the time comes. You can write the check directly to the educational Institution.
But this gets back to my point about allowing the parents to plan.

“I’ll write a check for college for the grandkids if I can afford it at the time” sounds generous, but is fraught with issues.
The particular 529 plan we use for our grandkids has a nice option to always send copies of annual statements to the parents as interested parties. This should allow the parents to coordinate their own college savings plans with what we grandparents are doing.

Sure don't want the parents to be surprised by how much or little grandparents are going to be covering. One of these years, as college looms, I will ask if they did look at these annual statements. :D
JW
Retired at Last

Good Listener
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Re: How to fund education for grandchildren: various strategies? Help?

Post by Good Listener » Sun Sep 23, 2018 12:19 pm

delamer wrote:
Sat Sep 22, 2018 2:52 pm
Good Listener wrote:
Sat Sep 22, 2018 2:32 pm
I am one of those who uses the expression "man plans and God laughs". If you could afford it I just think it's best to pay for it when the time comes. You can write the check directly to the educational Institution.
But this gets back to my point about allowing the parents to plan.

“I’ll write a check for college for the grandkids if I can afford it at the time” sounds generous, but is fraught with issues.
My statement could have been read in 2 ways and you selected the one I didn't mean.... what I meant was that assuming you know now that you can afford it (barring disaster) I like the idea of paying at the time the expenses are incurred. There could be a scholarship, free college as is happening in some states, or a kid who isn't college material.

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