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

If you're like most parents, saving forchildren?Choosing a 529 PlanAll plans
your children's college education is aare sponsored by individual states, but
priority and a big challenge. Tuitionare typically available to residents of
and related costs at both public andother states. Some states offer
private universities have been rising atresidents a state income tax deduction
5% per year or more, far exceeding thefor contributions to their own plan. So,
rate of inflation. To put that intofor residents of these states, that is
perspective, a child born in 2006 shouldthe way to go. For those without that
plan on $110,000 in total expenses fortax incentive or residents of states
four years at the average in-statewithout an income tax, you can choose
public college; $300,000 for four yearsfrom just about any of the available
at a private university.Financing theseplans.Be aware that many 529 plans are
costs for one or more children is goingheavily promoted by brokerages and other
to take planning and, most importantly,financial institutions and can carry
disciplined savings. Tax-advantagedlarge and completely unnecessary sales
"529" College Savings plans are thecharges. Go with a plan with no sales or
savings vehicle of choice and offerother load charges. Typical annual fees
important advantages over other options.for asset and account management
A $3,000 annual contribution, beginningcombined should be 1% or
at birth, to a growth-oriented 529 planless.Recommended 529 PlansThere are at
should pay for one child's in-stateleast a dozen excellent options to
public education, and a $7,500 annualchoose from. Among these, we like the
contribution for a four-year privateTIAA CREF-managed plans (California and
education. A later start means higherothers) and the Vanguard-managed plans
annual contribution amounts.529 Planin Iowa, Nevada, New York and Utah. The
Advantages- Large Tax-FreeVanguard plans, with their index
Contributions: Parents, grandparents,investment strategies, have operating
other relatives and even friends cancosts of less than 0.75%. A new entry is
contribute up to $12,000 per year perthe 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: Allactively-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 federalchoose, we strongly recommend an
income and most state income taxes when"age-based" investment strategy. These
used for tuition or other qualifiedstrategies range from Conservative to
college expenses. This makes 529 plansAggressive. Age-based programs are
as powerful as Roth IRAs for long-termdynamic asset allocation programs,
savings.- Donors (parents, grandparents,similar to Target Retirement date funds.
etc.) "own" the 529 assets: Unlike aThey are heavily invested in stocks when
custodial account that typically becomesyour child is young, gradually
the minor's property at age 18, 529 planconverting to more fixed-income and cash
assets are always under the control ofas college age approaches. This approach
the donor.- 529 plan assets are moreprotects against the risk of a major
advantageous for financial aidstock market downturn just as the funds
considerations: Plan assets are countedare needed.With over 31 years of
at a 5.5% rate by college financial aidinvestment experience, Martin Weil,
offices, compared to the 35% rate usedRegistered Investment Advisor and
for custodial account assets.- UnusedPrincipal of MW Investment Strategy
funds in a 529 can be rolled over toGroup, helps busy professionals and
another child's benefit.Have I caughttheir families achieve their long-term
your attention? Now the question isfinancial goals.
which 529 Plan is best for you and your



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