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Consider Giving The Gift of College This Season


holidaygiftsWith student debt growing 56 percent over the past ten years, saving for college has never been more important.

One way to face the challenging costs of college head-on is to open a 529 college savings plan. A 529 plan is a tax-advantaged investment plan designed to encourage saving for the future higher education expenses of a designated beneficiary (typically one’s child or grandchild). Investing in a 529 is a quick, easy tool to realistically meet your college savings goals this year—and beyond. With more than 12.3 million 529 plan accounts open nationally, 529 plans continue to be one of the most compelling ways for families of all income levels to plan ahead, save for college, and reduce their reliance on student loans.

Committing to a college savings plan may seem overwhelming at first, but if you are in need of some inspiration to start, consider this: children with a college savings account are six times more likely to attend a four-year college, compared to children with no dedicated account. In addition, college graduates earn an average of $1 million more than high school graduates during their careers, according to the U.S. Census Bureau. In addition, a recent study by Georgetown University’s Center on Education and the workforce reported that by 2020, more than 65% of new jobs in our country will require a college education.

The College Savings Plans Network (CSPN)—the nation’s leading objective source about Section 529 College Savings and Prepaid Tuition Plans—strives to educate people on the benefits of 529 plans, and why they are necessary for our children’s future. Here are some saving tips from CSPN to help you jumpstart your college savings plan and ensure it is financially fit for 2015 and beyond:

Define your savings goals: The first step is to determine how much you ultimately want to save for your child’s education. Do you want to save for tuition only or include room and board? All four years of college or just two? Public or private? You can use a college cost calculator to forecast what the estimated cost of college will be when your child is ready to enroll.

Start early and save often: Start saving as early as possible – you can even open an account before you have children. The earlier you begin saving, the more time your money has to grow, and you can always increase your contributions to an account in the future. Just like exercise, it’s never too late to start saving. Remember, saving something is always better than nothing. Think of it this way, a family that begins setting aside $50 a month when their child is born can accrue over $21,000, in an account that earns 7% interest per year, by the time the child turns 18. In this case you can see that a little bit goes a long way in helping to eliminate future debt.

A recent nationwide 529 investor survey conducted by CSPN confirmed that investors are choosing to start early. According to the results, 31 percent of investors opened a 529 account for a beneficiary aged one or younger. In addition, the average age of a first beneficiary is five years, while the average age of a second beneficiary is four years, suggesting that investors begin saving earlier when opening a second 529 account.

Find Your Fit: Nearly every state offers a 529 plan, either a prepaid tuition plan, and/or a savings plan. Many plans offer tax or other incentives for residents, so it’s always a good idea to look at your state’s plan first. However, you don’t have to go with your state’s plan if it isn’t the right fit for you. In fact, you can participate in almost any 529 plan across the country. CSPN’s website is an excellent resource for choosing a 529 plan that best meets your saving goals/needs. You have the option of comparing 529 plans by feature and by state.

For more information on how to start saving for college, or to spread the word on 529 plans to friends and family, visit CSPN’s website: CollegeSavings.org.

About Today’s Guest Author:

Betty Lochner is currently Chair of the Executive Board of the College Savings Plans Network (CSPN), a national non-profit association and is the leading objective source of information about Section 529 College Savings Plans and Prepaid Tuition Plans. Lochner also serves as director of Washington’s Guaranteed Education Tuition (GET) program, a division of the Washington Student Achievement Council.

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College Savings – Understanding 529 Plans, Fees, and Expenses


If you are planning on saving for college you may want to consider a 529 college savings plan.  529 plans are tax-advantaged savings vehicles for future college or university costs. There are two varieties of 529 plans that are available: pre-paid tuition plans and college savings plans. All fifty states and the District of Columbia offer at least one type of 529 plans for parents, grandparents, prospective students and other savers.  In addition, many private colleges and universities sponsor pre-paid tuition plans which allow you to lock-in tuition rates and mitigate the risk of escalating tuition prices. Many broker-sold 529 plans offer more than one share class, with fees and expenses that can vary greatly.  The most common share classes for 529 plans are Class A, Class B and Class C shares:

Class A shares usually impose a front-end sales load. Front-end sales loads reduce the amount of your investment. By way of example, if you have $5,000 to invest in a college savings plan with a 5% front-end load, the $250 sales load you must pay is subtracted from your $5,000, and the remaining $4750 is invested in the college savings plan. Class A shares usually have a lower annual distribution fee and lower overall annual expenses than other 529 share classes. In addition, your front-end load may be reduced if you invest above certain threshold amounts – this is known as a breakpoint discount. These discounts do not apply to investments in Class B or Class C shares.

Class B shares typically do not have a front-end sales load. Instead, they may charge a fee when you withdraw money from an investment option, known as a deferred sales charge or “back-end load.” A common back-end load is the “contingent deferred sales charge” or “contingent deferred sales load” (also known as a “CDSC” or “CDSL”). The amount of this load will depend on your holding period and typically decreases to zero if you hold your investment for enough time. Class B shares typically impose a higher annual distribution fee and higher overall annual expenses than Class A shares. Class B shares usually convert automatically to Class A shares if you hold your shares for the required period of time.

If there is a sale of Class B shares within the first few years of purchasing Class B shares, there will likely be a contingent deferred sales charge or load added to the transaction in addition to higher annual fees and expenses, further reducing your investment returns.

Class C shares might have an annual distribution fee, other annual expenses, and either a front- or back-end sales load, so be sure to read the prospectus carefully.  It is important to note that the front- or back-end load for Class C shares is usually lower than for Class A or Class B shares. Class C shares typically impose a higher annual distribution fee and higher overall annual expenses than Class A shares, but, unlike Class B shares, will not convert to another class over time. If you are a long-term investor, Class C shares may be more costly than investing in Class A or Class B shares, so consider your likely timing of your need for the funds for college saving plan before deciding to purchase Class C shares.

Author Bio

Today’s guest article is provided by James Garfinkel. He is the founder and CEO of New Amsterdam Life and Director of the not-for-profit Juvenile Life Insurance Foundation.  James Garfinkel has been developing wealth planning advice and financial solutions for individuals and families for almost 30 years.

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529 College Savings – Success Story (video)


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Fidelity Offers 529 College Savings Alternative


Tuesday of this week, Fidelity Investments said that it is going to celebrate National College Savings Month by providing something different, something new to all of their clients that are looking for conservative college savings options. Actually, they made no mention of National College Savings Month, but I give them credit for coming up with a new college savings idea that coincides with this month! 😉

As someone that talks with families on a regular basis, I have heard time and time again about how poorly their 529 college savings plans have been performing in the past couple of years. Since most of these funds are invested in stocks and bonds, they are subject to the same volatility that is experienced by the rest of us that have dabbled in the stock market over the years. Some days and months are good and others… not so much.

Since families have been experiencing more of the “not so much”, they are trying to find options that provide guaranteed returns and some sort of protection from the financial ups and downs of the investment market.  Fidelity Investments has heard the call of these families and is happy to oblige.

They are rolling out a 529 savings plan that is an interest bearing bank deposit savings account with FDIC protection. You basically get the best of both worlds. You get the tax advantages of having a 529 college savings plan AND you get the safety net of having your funds be FDIC insured.

The interest rate of return is indexed to the federal funds rate (which is hovering around zero) but one can only hope that is has no where to go but up… if they are investing in Fidelity’s new 529 option.

If you would like to learn more about the college savings options provided by Fidelity, you can check out their website here for more information.

Today marks the last day of National College Savings Month, but I certainly hope you know that you don’t have to wait for September of each year to start a college savings fund. If you are busy today and have to open a college savings account tomorrow, trust me… no one will harass you because it is October and not September! 😉

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Now Is The Time To Save For College (In New York)


Now Is Always The Time To Save For College and families just recently got an incentive to contribute to education savings through New York’s 529 College Savings Plan. Thomas DiNapoli is the state’s comptroller and he states that fees are going to be reduced by 50%. The old fee structure to manage the 529 fund was set at .49% but starting this month the fee will now be set at .25%.

“Family budgets are getting tighter, but families still need to save for college,” DiNapoli said in a statement. “When you’re saving for college, every dime counts.”

Based upon this change in fees, it is estimated that plan participants will have a combined savings of almost $20 million dollars annually. 529 program fees can range from .20 percent to upwards of 2.27 percent. At .25%, the New York 529 Savings Plan can now boast a reputation of being one of the lowest fee based college savings plan in the nation.  New York’s 529 College Savings Plan is the largest of it’s type in the nation with over $8 Billion dollars invested in about 500,000 separate fund accounts.

New York’s 529 college savings plan is open to any U.S. Citizen (or resident alien) that has a valid social security number. The funds can be used at any accredited college, university, or vocational school in the country (it is not just limited to schools in the state of New York). The minimum contribution required to open an account is only $25.

If you have been thinking about starting a college savings account, you should probably take a look at the option provided by the state of New York. You can view additional information about their 529 program here on the web or you can drop them a call at 877-697-2837 or email: NY529@nysaves.org

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529 Plans – The Best Option For College Savings?


collegesavingsAs a CPA, I get a lot of tax questions. One of the most frequent questions I receive is about 529 plans. 529 plans are one of a few methods to save for college that offer some unique tax advantages. Also available are Coverdell ESA accounts and certain savings bonds. So which one is right for you?

First a little background on the options:
529 plans are named for the section of the tax code that created them. In general they offer tax free growth of savings to be used for “qualified” college expenses of the beneficiary. The funds are put into the plan after tax. There are two types of 529 plans, prepaid plans and savings plans. As they sound, prepaid plans allow the owner to purchase tuition at participating schools at today’s rates (sometimes with a discount) and redeem it in the future. Savings plans work more like a investment account. The advantage to prepaid plans is that they offer a pretty certain hedge against the rising costs of tuition. Private school tuition has been increasing at a rate of 4.5% to well over 5% in the last few years. The disadvantage of these plans are that they are generally limited to tuition at the participating institutions. Savings plans are sponsored by a state, but have much greater flexibility in terms of where they can be used, but growth is subject to the investments of the plan. Risk of loss on the underlying investments falls to the investor (you).

Coverdell ESA accounts work similar to 529 savings plans. There is a limit to the annual contribution to these plans. There is a good summary of the differences of these three types of plans at Fool.com (http://www.fool.com/college/compare.htm).

Savings bonds (
http://www.finaid.org/savings/bonds.phtml) are frequently left out of savings contributions, but I-Bonds offer some unique advantages. I-Bonds earn a very attractive rate of interest that could be compared to the prepaid plans, but also have the flexibility of use similar to the savings or ESA accounts.

So which is right? There are several things to consider when determining the best way to save for college. They include:

Time – The amount of time before these funds are needed should play a key decision in which option is best. ESA and 529 savings plans may invest in the equity markets as well as fixed income markets. Over time equities have out-performed fixed income investments by several percent, but are subject to greater risk of loss. 529 prepaid plans and savings bonds offer protection against investment loss.

Flexibility and Control
–529 prepaid plans are generally limited to the participating schools. The ESA accounts may offer less control for the investor after the student reaches a certain age (http://money.howstuffworks.com/personal-finance/college-planning/financial-aid/5295.htm). Also while all options allow for some transfer of benefits should the intended student not attend college, this is also a consideration.

Taxes – I always tell people not to make any financial decision based solely on the tax consequences and that is why this is not at the top. There are other options of education benefits such as the Hope and Lifetime Learning tax credits and the tuition deduction. In general, one may use a combination of these, but remember – you can’t count both towards the same costs. If qualified school costs are $10,000 and you use $9,000 of a 529 plan against the cost, then only $1,000 of costs are eligible for the tax credits or tuition deduction. Non-qualified expenses generally include room, food and books. Remember that the tax advantage is received when the money is spent. Think about what your tax bracket is likely to be then vs. now.

There are a lot of factors to consider when deciding if a 529 or other savings plan is right. It’s never simple, unfortunately. The key factor to also consider is how much you can afford – both now and at the time the student goes to school. Many will also want the student to be responsible for some portion of the cost of education as well. Money put into education savings is money not available for retirement. This is a balance too many do not take into account. Please remember that any advice in this article is
general in nature. How it applies to an individual situation may vary and you should consider your particular circumstances and consult your tax advisor. Hopefully this information helps sort out some of the issues on these plans.

Some additional resources:
Is a 529 plan the right solution for me? – http://www.ohioscpa.com/Content/42738.aspx
Private School Plan w/ participants nationwide- http://www.independent529plan.org/
College savings plan comparison – http://www.fool.com/college/compare.htm
How 529 plans workhttp://money.howstuffworks.com/

 

About Today’s Guest Author:
Philip Laube is a CPA in Ohio and the current Asst Vice President for Business and Finance for Muskingum University. He has a Masters in Information Strategy, Systems and Technology and publishesinformation on personal finance, technology and other issues both on Muskingum’s website and via twitter as phillaube. We are pleased to have him as a Contributor on CheapScholar.org
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