| If you're like most parents, saving for
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| | over to another child's benefit.
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| your children's college education is a
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| | Have I caught your attention? Now the
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| priority and a big challenge. Tuition and
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| | question is which 529 Plan is best for
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| related costs at both public and private
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| | you and your children?
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| universities have been rising at 5% per
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| | Choosing a 529 Plan
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| year or more, far exceeding the rate of
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| | All plans are sponsored by individual
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| inflation. To put that into perspective,
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| | states, but are typically available to
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| a child born in 2006 should plan on
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| | residents of other states. Some states
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| $110,000 in total expenses for four years
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| | offer residents a state income tax
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| at the average in-state public college;
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| | deduction for contributions to their own
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| $300,000 for four years at a private
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| | plan. So, for residents of these states,
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| university.
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| | that is the way to go. For those without
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| Financing these costs for one or more
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| | that tax incentive or residents of states
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| children is going to take planning and,
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| | without an income tax, you can choose
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| most importantly, disciplined savings.
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| | from just about any of the available
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| Tax-advantaged "529" College Savings
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| | plans.
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| plans are the savings vehicle of choice
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| | Be aware that many 529 plans are heavily
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| and offer important advantages over other
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| | promoted by brokerages and other
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| options. A $3,000 annual contribution,
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| | financial institutions and can carry
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| beginning at birth, to a growth-oriented
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| | large and completely unnecessary sales
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| 529 plan should pay for one child's
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| | charges. Go with a plan with no sales or
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| in-state public education, and a $7,500
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| | other load charges. Typical annual fees
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| annual contribution for a four-year
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| | for asset and account management combined
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| private education. A later start means
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| | should be 1% or less.
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| higher annual contribution amounts.
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| | Recommended 529 Plans
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| 529 Plan Advantages
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| | There are at least a dozen excellent
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| - Large Tax-Free Contributions: Parents,
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| | options to choose from. Among these, we
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| grandparents, other relatives and even
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| | like the TIAA CREF-managed plans
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| friends can contribute up to $12,000 per
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| | (California and others) and the
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| year per child, tax-free, to a 529 plan.
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| | Vanguard-managed plans in Iowa, Nevada,
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| - Tax-Free Earnings and Distributions:
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| | New York and Utah. The Vanguard plans,
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| All earnings in a 529 plan are tax-free.
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| | with their index investment strategies,
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| Distributions are free from all federal
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| | have operating costs of less than 75%. A
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| income and most state income taxes when
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| | new entry is the Alaska plan managed by T
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| used for tuition or other qualified
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| | Rowe Price. It offers a choice of
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| college expenses. This makes 529 plans as
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| | first-rate actively-managed funds and at
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| powerful as Roth IRAs for long-term
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| | relatively low cost.
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| savings.
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| | No matter which plan you choose, we
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| - Donors (parents, grandparents, etc.)
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| | strongly recommend an "age-based"
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| "own" the 529 assets: Unlike a custodial
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| | investment strategy. These strategies
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| account that typically becomes the
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| | range from Conservative to Aggressive.
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| minor's property at age 18, 529 plan
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| | Age-based programs are dynamic asset
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| assets are always under the control of
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| | allocation programs, similar to Target
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| the donor.
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| | Retirement date funds. They are heavily
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| - 529 plan assets are more advantageous
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| | invested in stocks when your child is
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| for financial aid considerations: Plan
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| | young, gradually converting to more
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| assets are counted at a 5.5% rate by
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| | fixed-income and cash as college age
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| college financial aid offices, compared
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| | approaches. This approach protects
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| to the 35% rate used for custodial
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| | against the risk of a major stock market
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| account assets.
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| | downturn just as the funds are needed.
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| - Unused funds in a 529 can be rolled
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