529 Plans

[Keiffer]

Any words of caution or advice on 529 plans? I want to start early to let the $$ compound. Son is 2 and daughter will be here soon.

Texas has funds available through Enterprise Capital Management - division of AXA.

[flatscat1]

529 plans are good. As long as the invested money is used for college purposes (which are very specific and outlined) then the appreciated portion is never taxed. Furthermore, they can be a good means to reduce one's taxable estate, in that anyone can make a 5 year contribution (at a single time) into a 529. Meaning your parents or you and your wife can contribute up to around $150,000 per child in a single contribution. For instance, if you had parents in poor health who wanted to leave money to the kids, this is a way to do it while reducing their net worth and taxable estate before the IRS takes their cut upon death.

All 529's are sponsored by a state, but this does not mean you have to use Texas. I am a liscensed advisor in Tx but we utilize Maine's 529 plan. Doesn't matter where the kids go to school or where you live.

Make sure the sponsoring plan has a diversified selection of fund managers, and many offer age-based portfolios. Also nice is to have a plan that can auto-rebalance back to a specified allocation. Watch out for fees charged by the brokerage for holding the account. These are the yearly account fees. Check the performance of the available managers and make sure you can construct a well diversified portfolio (size, style, geography, and asset class.)
As the time until college nears, you usually will increase the fixed income portion so as to reduce volitility.

AXA Enterprose is a mutual fund company. I have used their M&A fund before. Make sure there are other fund companies/manager choices available within the plan.

[Mantaray]

What's the minimum amount you can contribute and what's the maximum length of contribution?

[winmck]

If you don't plan on contributing more than $2000 per year and you are not over the compensation limits, the Education IRA can be more cost efficient to use. You are also not limited to a particular mutual fund company or "package" of funds available to invest in. You can use virtually any fund company or investment. A good financial advisor should be able to recommend the most appropriate vehicle.

[scwine]

I have been with the Iowa 529 plan for 2.5 years, since the birth of my daughter. I can say that I have been very pleased with the results so far.
http://collegesavingsiowa.uii.upromise.com/

[flatscat1]

Winmck brings up a point I should have mentioned as well. You can also look into what are called "Coverdell Savings Accounts". These are a different type of college savings plan but the limitations (your joint income and a low maximum contribution) make this an option that isn't available to everyone. Be very careful in comparing 529's and Coverdell accounts, as there are distinct differences between them, including on what the money can be used for. In other words, what is catagorized as a "education expense" differs between those plan types.

[InfamousJ]

I recently heard some news about this type of stuff, i.e texas tomorrow fund. It basically said the college could charge you more than the plan would pay, so even though you have been investing for a long time and think all your kids college will be paid for by this one plan, that is not true. The plan could cover some of it but the college could charge additional fees not covered by the plan or something like that, i.e. raising their tuition rates beyond what the plan will pay. Anyone heard this or know of what I am trying to say? LOL

[scwine]

I recently heard some news about this type of stuff, i.e texas tomorrow fund. It basically said the college could charge you more than the plan would pay, so even though you have been investing for a long time and think all your kids college will be paid for by this one plan, that is not true. The plan could cover some of it but the college could charge additional fees not covered by the plan or something like that, i.e. raising their tuition rates beyond what the plan will pay. Anyone heard this or know of what I am trying to say? LOL
Will try to answer without any research. The 529's are just an investment vehicle used to pay out for college. Of course the rates are always going to raise, but hopefully your 529 will continue to go up as well( average @ 6% per yr. is the rate tuition is going up). The texas Tomorrow fund, locks in the rate. but I do not now what kind of funds they offer, that would be key as well as minimum investment. I have the 529 Iowa plan, and it hs performed well for the 2yrs I have had it.

This reply probably didn't help but maybe this link will........http://www.savingforcollege.com/

[InfamousJ]

Yes scwine, I have some friends that think they have locked in the tuition rates and their Texas Tomorrow Fund will pay for their kids college when it is needed and they have paid what they were supposed to into the plan. According to what I heard, it will not work as the legislature or something voted to allow the universities to exceed that price or something like that. It's a simple concept, invest and it grows and compounds thus you should have enough, but for people to be led on that it will cover college like the Tomorrow Fund (unless they read extensively and keep up with legislature) is not a good thing. Basically those rates are not locked in. I just happened to hear about it on the news one evening and is the only reason I am trying to find out more about it. Thanks for the link.

[mudhog]

infamousj

I was looking into that fund (TTF)and they would not let me join because I was told that the government will back the funds by investing into it also. I was told that our governor stop this funding so now they cannot promise that it will meet the cost in the future and they do not allow any more accounts until this bill is reinstated or they have to rewrite the books and the consumer has to invest alot more to keep up with the rising cost.
This is on hold for this reason. I never heard or read about this anywhere until I sent for the info package.

[Sharkbite]

One thing to also keep in mind the ownership rules regarding choosing a college savings plan. One of the big advantages of the 529 is that the parent/guardian/whomever will own the assets and not the child. If the child decides not to go to college or doesnt need the money because of something like a scholarship, the $ can be transferred to a sibling or depeding on the plan even back to the parents or cousin. Some even allow you transfer the money from the child to their child. It's been a while since I've worked with individual clients so I'm not sure the exact ownership rules for the Coverdell. Regarding the UGMA/UTMA rules, once the child turns 18 it's their $.

This could be a huge deal down the road if your kid turns out to be a wild child that wants to run off and join the circus when they are 18 and spend their college $ on strippers.

Sharkbite

[goatchze]

J, my wife and her brother went through college on TTF. Everything was fine, and it was quite a deal for their father. However, I think the way tuition is rising the plan problem isn't very feasable anymore. I am 100% not an expert on it howeve.r

[t-dub]

I've done a lot of research on the subject, so I'll just throw in my honest .02.

529 plans are a great way to save for college. The Texas Tomorrow Fund has two options - - a guaranteed tuition plan and a 529 plan. The state shut down the guaranteed tuition plan 4 years ago. I was lucky, as my son just made the cutoff to get into the plan. I've got 4 years of tuition paid for, but only tuition. The reason that the state shut down the fund was the fact that the cost of a college education was growing so much faster than the rate of return that the state could get on the funds they were investing. Remember the bad stock market and LOW interest rates 5 years ago?

On the 529 plan side, the state offers the plan that uses the Enterprise funds. I'm not a big fan of the TX plan, as the fees on the funds are really high and the returns are not that great. I personally use the Vanguard 529 plan (I believe it's the Nevada state plan). It's about as low cost of a 529 option that's available and the returns are going to match the indices. I personally would not go through a broker to open a 529 plan, as you'll wind up paying higher fees than need be. Try Vanguard.com. I think you have to have $3000 to start, but after that, you can put in as little as $50.

I plan on using the 529 plan to cover room & board, books and other college costs besides tuition.

They've got a lot of slick calculators on the Vanguard website to help show what you need to save for college. It actually lets you choose a school, shows the cost of that school today, and projects into the future what it's going to cost. It's scary what 4 years at one of the big TX schools will cost in 15 years if the cost continues to rise 6% a year.

[warcat]

I've done a lot of research on the subject, so I'll just throw in my honest .02.

529 plans are a great way to save for college. The Texas Tomorrow Fund has two options - - a guaranteed tuition plan and a 529 plan. The state shut down the guaranteed tuition plan 4 years ago. I was lucky, as my son just made the cutoff to get into the plan. I've got 4 years of tuition paid for, but only tuition. The reason that the state shut down the fund was the fact that the cost of a college education was growing so much faster than the rate of return that the state could get on the funds they were investing. Remember the bad stock market and LOW interest rates 5 years ago?

On the 529 plan side, the state offers the plan that uses the Enterprise funds. I'm not a big fan of the TX plan, as the fees on the funds are really high and the returns are not that great. I personally use the Vanguard 529 plan (I believe it's the Nevada state plan). It's about as low cost of a 529 option that's available and the returns are going to match the indices. I personally would not go through a broker to open a 529 plan, as you'll wind up paying higher fees than need be. Try Vanguard.com. I think you have to have $3000 to start, but after that, you can put in as little as $50.

I plan on using the 529 plan to cover room & board, books and other college costs besides tuition.

They've got a lot of slick calculators on the Vanguard website to help show what you need to save for college. It actually lets you choose a school, shows the cost of that school today, and projects into the future what it's going to cost. It's scary what 4 years at one of the big TX schools will cost in 15 years if the cost continues to rise 6% a year.I'm using the Texas Tomorrow's 529 Plan, and it has performed well. The original price per share (when I got in back in 2003) was $10.15, now the value of each share is ~$16.