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