Sushi Money

What a move in the U.S. markets this week!  If you’re not long something it seems you’re missing out, at least for now.  I can’t help but wonder, “What goes up…?”  But that’s a routine fear of investing in the markets.  At some level those misgivings will always be there, but we simply cannot afford to be out of the markets over time.  Where else can you get such a return on your investment over many years?  Well, succeeding in business is one way… or being astute or lucky with real estate or property investments perhaps.  For most of us though, consistent saving and investing is the best way to achieve long-term wealth.  Allocating a portion of one’s income to investments is essential… regular deposits to a mutual fund, 401(k) or IRA.  And how about saving for college for the kids?  With tuition inflation making college costs more expensive every year, that’s another part of our family’s financial planning needs.  I strongly believe kids should pitch in, but I want to help them where I can, as early as I can.

     I’ve been investing regularly into my son’s 529 plan since 2002, and it is starting to add up.  Our 529 plan is through Vanguard, and they offer great choice and flexibility for how you want to design your 529, or simply to choose one of their recommended allocations.  The Vanguard College Savings Center has some excellent information and resources to browse, with almost 18 U.S. states providing options for investing with Vanguard funds. Many states offer tax incentives for residents contributing to a 529 plan, and unlike a strict pre-paid tuition plan, you don’t have to use the money for schools in that state with most plans.  But you don’t even have to use your own states 529 plan- you can open one almost anywhere. And in terms of financial aid for children to attend college?  529 plans are generally treated much more favorably than other forms of college savings plans.

     It used to be that UGMA/UTMA accounts were all the rage.  But I don’t think they are a good vehicle for building college savings for kids.  The main issue is that when a child turns 18 or 21 (the age of majority for a particular state), then they own the account… and the money.  If they should choose to withdraw all the funds and spend it on something else, that’s their perogative.  In fact, once they reach that age, parents basically have no legal control over the funds any more.  Now I’m not saying to “not trust your kids”, but I am saying that human nature at a young age makes it difficult to use money wisely.  But 529 plans are so much better… and offer flexibility.  If you open the 529, you own it.  You select the child as a beneficiary. Even if one’s child doesn’t go to college or need the money- it can be left there to grow, or used for another relative, or even used for your own education needs if desired!   

     Coverdell Education Savings accounts are also popular, but I still believe 529 plans offer superior advantages.  You can read about the Coverdell ESA here to weigh the pros and cons.

     Lots of other articles try to show the “best 529 plans” out there, but really… what is best depends upon your needs, ages of children, tax bracket, etc.   If you stick with a low cost offering such as with Vanguard or TIAA-CREF, and take advantage of any local State incentives for your program, that’s about as good as it gets. 

• SavingForCollege.com is terrific site for information and resources on 529 plans. 

• 401Kid is another great site and offers a nice 529 plan “wizard” to search for information nationwide.

     Oh, one other thing. I think one of the best choices we can make regarding 529 plans is to ensure we open it ourselves… in other words, find a “direct-sold” plan that fits your family’s needs, rather than an “advisor-sold” or “broker-sold” plan.  Direct-sold plans are simply that, sold directly to you, and normally offer the lowest costs.  If you go through your broker or financial advisor to open a 529 plan, chances are it will be the same exact plan as a direct-sold, but will charge higher commissions and fees because it goes through the broker/advisor company.  If that’s your thing, and you want to have someone manage it for you- then more power to you.  But it’s just not that hard… why not save some money over time and do it yourself?  Just like with mutual fund expense ratios, fees and charges do add up!

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