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  1. #1
    captain obvious Lurker's Avatar
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    529 college savings plans

    Anyone have some insight into these? I just got some money handed to me and rather than blow it, the wife and I want to start a college fund for the kids.

    There is so much info online it is overwhelming


  2. #2
    Moderator RX951's Avatar
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    Synopsis of a 529; good to do !

    529 college plan is a plan that helps you to educate your child in a college without burying yourself under a mountain of loans. It is a well known fact that the college education fee is touching heights. It is increasing at a staggering rate every year. In this difficult time, 529 college plans help you accumulate this big amount very easily. 529 college plan provides you with two options - prepaid tuition plans and college saving plans.

    Accumulating money for your child's higher education is an imperative task. Every parent wants the best education for his/her child. For this, money is required in ample amount. The earlier you start saving the better it will be in shaping your child's future. Over the past 30 years, the cost of education at a four-year public college has increased by nearly fifty percent. The cost of same duration of studies in a private university has increased nearly by two folds. To meet these steeping costs, it is imperative that parents start saving now.

    Considering the cost of higher education in America, there are only a few who can afford to pay the college fees themselves without the help from parent/guardian, loans, scholarships etc. To tide over this, the US congress launched the 529 plan in 1996. In a 529 college plan, any person can contribute to the account. The income level of the parents is also not a constraint in opening a 529 account. People from any income group can save money for their children through a 529 college plan.

    But there is a wrong notion about 529 college plans; it is believed that this plan is only for parents who wish to send their children to a state school. However, this is not true. You can get a 529 college plan for whichever university you want to send your child to. Every state in United States of America now has a 529 plan. The control of the operation of a 529 college plan lies with the state itself.

    Make sure that a 529 college plan is not an end moment alternative. You should not think about it when a child reaches the door of college. Saving the amount required is in fact a long term process. You can save this amount by paying a small installment every month. At the end, you can pay for the college expenses with the amount that has accumulated in this account. If a person starts saving at early stages of his childs life, then (s)he can also avail the investment and tax benefits offered by the 529 college plan.

  3. #3
    Moderator RX951's Avatar
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    Benefits and PROS

    Section 529 College Saving Programs

    Saving for college has always been a challenge for families. The introduction of state-sponsored college savings plans has created a new type of investment vehicle to help families address this growing need. In 1997, federal tax legislation created Section 529 of the Internal Revenue Code. State college savings programs created under this code, commonly called ˇ§529 Plans,ˇ¨ offer unique features and benefits which can make them an attractive investment for families.

    Over 40 states now offer 529 Plans and each one is different. Most programs are open to residents of any state. A family should review the unique features of their state program when comparing it to others.

    There are several features which all the state 529 Plans have in common:

    529 Plans provide tax-free earnings from the time invested until the money is used to pay for college. This is a change from the tax-deferred status the plans originally had. The Federal Income Tax Cut of 2001 upgraded the 529s to full tax-free status if used to pay college expenses, potentially saving tuition-paying families thousands of dollars.

    If the money saved is not used for college costs, the earnings will be subject to a 10% penalty in addition to state and federal taxation. If the student receives a scholarship, an amount equal to the scholarship is not subject to this penalty.

    The funds are owned and controlled by the account contributor and not the child beneficiary. It is the contributor who owns the account and decides how the funds are to be used and there are no income limits on eligibility to contribute to 529 Plans.

    The maximum amount which can be contributed varies by state with most limits ranging from $100,000 to $268,000. Since the plans allow the changing of beneficiaries, the account can be used for more than one child.

    The investment vehicle is almost always some combination of mutual funds. There are usually different investment options for participants to choose among. By law, once made, that choice cannot be changed; a new account must be opened. Age-based asset allocation strategies are most often offered.

    The funds can cover the higher education costsˇXboth graduate and undergraduateˇXof any accredited college in the U.S. The funds can be used for qualified education expenses including tuition, books, supplies and equipment, and room and board for campus housing (off-campus housing rates are different).

  4. #4
    Quote Originally Posted by RX951 View Post
    ...The investment vehicle is almost always some combination of mutual funds. There are usually different investment options for participants to choose among. By law, once made, that choice cannot be changed; a new account must be opened. Age-based asset allocation strategies are most often offered...
    This may help. 529 or 401(k) are just labels placed on an account which may contain 1 or more funds.

    Usually the funds themselves are the same or similar to the funds you may hold in a regular investment account.

    You have to carefully select the fund or combination of funds in the special account to match your risk tolerance and time horizon (ie the year you will start withdrawing money).

    The long term gains achieved will vary widely depending on the fund or funds chosen. Age based asset allocation funds are designed to take away some of the guesswork if you are not a sophisticated investor, ie Vanguard 2025 fund is a mix of stocks and bonds designed to give reasonable yield with reasonable risk, with withdrawals starting in 2025. Vanguard may periodically tweak bond/stock ratio at its discretion to best meet gain/risk objective for average investor.

    Asset allocation fund is designed to "stand alone" with no fuss no muss. For some people thats a great way to go, but others may prefer custom mix of funds taking into consideration entire investment portfolio. Thats where an investment or financial adviser can help.

    Like the 401(k), the 529 is a good deal because of the tax deferral so long as you dont overly impair your cash flow and have to withdraw funds prematurely.

    The whole thing started making more sense to me when I kept in mind 529 and 401(k) are just labels placed on an account with one or more funds with special rules governing withdrawal.
    Last edited by Blue 182; 05-22-2008 at 09:58 PM.

  5. #5
    Moderator RX951's Avatar
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    Also look into the ROTH accounts.

    http://www.investortrip.com/which-ro...ur-retirement/


    Roth 401 and Roth 403

    http://www.taxtrimmers.com/roth.shtml

    Also, remember, there is a pre-tax ROTH and an after-tax ROTH. One can benefit you for college better than the other if you choose to withdraw money before 59 1/2

    Max what you can in your 401K, then once you reach the limit, dump the rest in a ROTH.
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    Last edited by RX951; 05-23-2008 at 08:50 AM.

  6. #6
    captain obvious Lurker's Avatar
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    I dunno, the way the economy is right now I don't think I want to dump anything else into the stock market.

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