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

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