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Saving for College: A Parent's Guide to 529 College Savings Plans

If you're like most parents, saving for yourchildren?Choosing a 529 PlanAll plans are
children's college education is a prioritysponsored by individual states, but are
and a big challenge. Tuition and relatedtypically available to residents of other
costs at both public and private universitiesstates. Some states offer residents a state
have been rising at 5% per year or more, farincome tax deduction for contributions to
exceeding the rate of inflation. To put thattheir own plan. So, for residents of these
into perspective, a child born in 2006 shouldstates, that is the way to go. For those
plan on $110,000 in total expenses for fourwithout 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 privatefrom just about any of the available plans.Be
university.Financing these costs for one oraware 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 planscompletely unnecessary sales charges. Go with
are the savings vehicle of choice and offera plan with no sales or other load charges.
important advantages over other options. ATypical annual fees for asset and account
$3,000 annual contribution, beginning atmanagement combined should be 1% or
birth, to a growth-oriented 529 plan shouldless.Recommended 529 PlansThere are at least
pay for one child's in-state publica dozen excellent options to choose from.
education, and a $7,500 annual contributionAmong these, we like the TIAA CREF-managed
for a four-year private education. A laterplans (California and others) and the
start means higher annual contributionVanguard-managed plans in Iowa, Nevada, New
amounts.529 Plan Advantages- Large Tax-FreeYork and Utah. The Vanguard plans, with their
Contributions: Parents, grandparents, otherindex investment strategies, have operating
relatives and even friends can contribute upcosts of less than 0.75%. A new entry is the
to $12,000 per year per child, tax-free, to aAlaska plan managed by T Rowe Price. It
529 plan.- Tax-Free Earnings andoffers a choice of first-rate
Distributions: All earnings in a 529 plan areactively-managed funds and at relatively low
tax-free. Distributions are free from allcost.No matter which plan you choose, we
federal income and most state income taxesstrongly recommend an "age-based" investment
when used for tuition or other qualifiedstrategy. These strategies range from
college expenses. This makes 529 plans asConservative 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 accountfunds. They are heavily invested in stocks
that typically becomes the minor's propertywhen your child is young, gradually
at age 18, 529 plan assets are always underconverting to more fixed-income and cash as
the control of the donor.- 529 plan assetscollege age approaches. This approach
are more advantageous for financial aidprotects against the risk of a major stock
considerations: Plan assets are counted at amarket 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 custodialexperience, Martin Weil, Registered
account assets.- Unused funds in a 529 can beInvestment Advisor and Principal of MW
rolled over to another child's benefit.Have IInvestment Strategy Group, helps busy
caught your attention? Now the question isprofessionals and their families achieve
which 529 Plan is best for you and yourtheir long-term financial goals.



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