| If you're like most parents, saving for | | | | children?Choosing a 529 PlanAll plans |
| your children's college education is a | | | | are sponsored by individual states, but |
| priority and a big challenge. Tuition | | | | are typically available to residents of |
| and related costs at both public and | | | | other states. Some states offer |
| private universities have been rising at | | | | residents a state income tax deduction |
| 5% per year or more, far exceeding the | | | | for contributions to their own plan. So, |
| rate of inflation. To put that into | | | | for residents of these states, that is |
| perspective, a child born in 2006 should | | | | the way to go. For those without that |
| plan on $110,000 in total expenses for | | | | tax incentive or residents of states |
| four years at the average in-state | | | | without an income tax, you can choose |
| public college; $300,000 for four years | | | | from just about any of the available |
| at a private university.Financing these | | | | plans.Be aware that many 529 plans are |
| costs for one or more children is going | | | | heavily promoted by brokerages and other |
| to take planning and, most importantly, | | | | financial institutions and can carry |
| disciplined savings. Tax-advantaged | | | | large and completely unnecessary sales |
| "529" College Savings plans are the | | | | charges. Go with a plan with no sales or |
| savings vehicle of choice and offer | | | | other load charges. Typical annual fees |
| important advantages over other options. | | | | for asset and account management |
| A $3,000 annual contribution, beginning | | | | combined should be 1% or |
| at birth, to a growth-oriented 529 plan | | | | less.Recommended 529 PlansThere are at |
| should pay for one child's in-state | | | | least a dozen excellent options to |
| public education, and a $7,500 annual | | | | choose from. Among these, we like the |
| contribution for a four-year private | | | | TIAA CREF-managed plans (California and |
| education. A later start means higher | | | | others) and the Vanguard-managed plans |
| annual contribution amounts.529 Plan | | | | in Iowa, Nevada, New York and Utah. The |
| Advantages- Large Tax-Free | | | | Vanguard plans, with their index |
| Contributions: Parents, grandparents, | | | | investment strategies, have operating |
| other relatives and even friends can | | | | costs of less than 0.75%. A new entry is |
| contribute up to $12,000 per year per | | | | the Alaska plan managed by T Rowe Price. |
| child, tax-free, to a 529 plan.- | | | | It offers a choice of first-rate |
| Tax-Free Earnings and Distributions: All | | | | actively-managed funds and at relatively |
| earnings in a 529 plan are tax-free. | | | | low cost.No matter which plan you |
| Distributions are free from all federal | | | | choose, we strongly recommend an |
| income and most state income taxes when | | | | "age-based" investment strategy. These |
| used for tuition or other qualified | | | | strategies range from Conservative to |
| college expenses. This makes 529 plans | | | | Aggressive. Age-based programs are |
| as powerful as Roth IRAs for long-term | | | | dynamic asset allocation programs, |
| savings.- Donors (parents, grandparents, | | | | similar to Target Retirement date funds. |
| etc.) "own" the 529 assets: Unlike a | | | | They are heavily invested in stocks when |
| custodial account that typically becomes | | | | your child is young, gradually |
| the minor's property at age 18, 529 plan | | | | converting to more fixed-income and cash |
| assets are always under the control of | | | | as college age approaches. This approach |
| the donor.- 529 plan assets are more | | | | protects against the risk of a major |
| advantageous for financial aid | | | | stock market downturn just as the funds |
| considerations: Plan assets are counted | | | | are needed.With over 31 years of |
| at a 5.5% rate by college financial aid | | | | investment experience, Martin Weil, |
| offices, compared to the 35% rate used | | | | Registered Investment Advisor and |
| for custodial account assets.- Unused | | | | Principal of MW Investment Strategy |
| funds in a 529 can be rolled over to | | | | Group, helps busy professionals and |
| another child's benefit.Have I caught | | | | their families achieve their long-term |
| your attention? Now the question is | | | | financial goals. |
| which 529 Plan is best for you and your | | | | |