529 Plan Trust
June 23rd, 2007
Question: Non-biased investment advice.?
I want to invest around 10 grand into a fund for my daughter’s education. My advisor recommended a CollegeAmerica 529 Plan. I’ve never heard of this before. I know the best advice is to find an advisor that I can trust, but I don’t trust anyone who is making money off me. Can anyone give me more info on this??
… more info on the college plan…?
Answer: Yes, I agree with the gentlemen above. And if you went through the 529 Plan yourself the cost would be the same for the investment, the broker will charge you probably 40 dollars a year for the account.
As for the 529 Plan, if you are looking to put money away for education this is a great choice. Like everything though, there are positives and negative.
Positives…..
1. Tax deferred (like your IRA)
2. You can put large lump sums into it and even can put up to 60k in one year for the tax write-off(5 year forward gifting write off) (each state has a maximum contribution number based on the average price of their universities, Virginia obviously being higher than say South Dakota)
3. If you daughter decides she doesn’t want to go to school, you can transfer that money laterally(to give to another child’s education or a cousin)
4. You have control over the money. (so if your child ends up wanting to go to woodstock she will not get the money, oppossed to a custodial account where at the age of 18, legally it is her money to do with what she wants).
5. (could be a neg or positive for you) The money is invested in mutual funds, so more diversification.
6. Do not pay federal tax’s on money when the child withdrawals, and if you purchase your state plan, you do not pay state tax’s.
Negatives
1. Your investment choices are only what is in the plan.
2. You have to pick age based investment plan or you pick your own. (age based is based on age, so the younger they are the more “risky” the account, as they get closer to college age, the portfolio is then moved to more “safe” investments)
3. You can only change the investments inside the plan 1 time a year.
4. The 529 Plan has a sunset law attached to it by 2010. So in 2010 things are allowed to be reviewed with the plan and changed if necessary by federal law.
5. If you live in a state like me PA, where I hate Deleware Funds, you are stuck with it unless you choose another state’s plan. (I would chose Virginia’s plan for example because I like American Funds, and my family will pay just the state tax 3.5% when I take the money out)
I think your advisor picked a great plan if you are looking for Educational funding. Also, your family, grandparents, friends, etc can contribute to the plan as well. Most plans offer as little as 25 dollars and some 50 dollar contribution to the plan. So its great for christmas and birthday gifts to contribute. And they can write it off on their tax’s as a gift. Your financial advisor does not make much off this plan(commissions are lower with this plan than normal mutual funds) due to high federal regulation. You would be paying the same like I said earlier if you did it directly with your state’s treasury department. (except for the account fee)
Good luck!
Edit-
you said you want more information on the college plan? Every 529 Plan in run by the same laws, the College America plan is Just Virginia’s 529 Plan. You have American Funds inside your plan vs. mine with PA is Deleware Funds. That is the only difference. And as a Fund family, I prefer American Funds. Obviously, American Funds(the actual mutual funds inside the plan) internal expenses are alittle lower than deleware funds when comparing, but the cost is the same for the 529 Plan in any state you purchase it and the laws are the same. The only difference is like I said earlier, Virginia’s plan allows for more money on a Maximum level than say South Dakota, because the Average price of universities in Virginia cost more.
“Spelling Bee” – Kentucky Education Savings Plan Trust
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