College Savings Plans

Ian Said:

Anyone knows any open for out-of state residents 529 college savings plans with guaranteed principal?

We Answered:

I'm pretty certain that there aren't any. You'll always be taking a risk when you invest in the stock market, so losing money will happen sooner or later. The reason people invest is because stocks outperform CDs and Bonds OVER THE LONG RUN. You have to ignore market dips and know that over the long run you'll end up with more money than if you had just put it in CDs or Bonds.

Amanda Said:

Are 529 College savings plans the best way to save for college education?

We Answered:

I would say that a 529 is the best option for saving for college. Not only can you put after tax money in, but others can contribute as well, subject to the gift tax limits (eg. around $11k).

Correct, you can use the money anywhere, it just must be an accredited school. I believe that you can contribute to any state, it doesn't have to the one in which you live.

Wallace Said:

Does anyone here know about 529 college savings plans?

We Answered:

You can set up a 529 plan through any state no matter where you actually live. Some states offer state income tax deductions for investing in your home state plan but CA and NV are not one of those.

If you do choose to open a plan sponsored by the state of NV you can still use those funds at any federally accredited school nationwide as well as many schools overseas. It will not matter where you live at the time your daughter goes to school. As long as the funds are used for qualified higher education expenses they will be able to be withdrawn tax free.

Another thing to keep in mind is the fact that you are able to rollover your 529 plan to a different plan once every 12 months. Therefore if you open a plan and decide you want to go with a different state's plan you can do so.

Jimmy Said:

What are the best college 529 savings plans?

We Answered:

This is the nonprofit site for all info about all Sec. 529 plans. See the section on Top 10 plans.

www.savingforcollege.com

Top 10 plans:
http://www.savingforcollege.com/articles…
Rankings are either by a) lowest cost or b) best investment results or c) most investment choices

If your kids are very young (grade school), use a growth fund. If they are in HS, forget the 529 plan, it won't have time to grow, put it in the bank. If they are in middle school, use some growth and some income. Don't overthink this! Most plans have 2 options: age-based investments, according to your child's age; they will automatically move from growth to income as your child approaches college; or static investing, with preplanned investment programs with varying degrees of risk (your choice).

Read a lot, and then Just Do It!

Charlie Said:

What are the drawbacks to a 529 College Savings plan?

We Answered:

Kevin

There is nothing hidden if your son opts to not go to college. The money is available. You would be making a nonqualified withdrawal and the earnings component of that withdrawal is taxed and subject to a 10% penalty (see pp. 49-51 of IRS Publication 970). Alternately, you can change the beneficiary to somebody else in the family (again, see IRS Pub. 970 for who qualifies).

There are a few bits of misinformation in some of the earlier responses.
There is no federal age limit - although a couple of plans had set age limits. I am not sure if they still apply. Check any plan's disclosure documents for such restrictions. Even if you are in a plan with such a restriction, you can rollover taxfree to another plan without such a restriction when the beneficiary approaches the age.

Penalty applies not to the money withdrawn, but only on the earnings component.

The sunset provision of the 2001 tax bill will not mean that 529's will be eliminated. Rather, sunsetting would mean that tax status of the 529s reverts back to pre2001 conditions. Prior to 2001, earnings were taxed at the beneficiary's rate - the combination of tax-deferred growth and lowered tax rate would still make them of interest to many families. But I think it is a matter of when and not if, the Congress extends 529 taxfree status. There are too many interested parties - from voting constituents to donating corporations - to allow the tax status to revert.

Bill Said:

HOw do college savings plans work?

We Answered:

If your son does not choose to go to college, you can name another beneficiary, or you can sometimes pay for vocational or other post-secondary schools depending on the state and the program.

If your son goes to college and gets a scholarship, you can use the 529 for books, supplies, and equipment required for
college, or room and board. Room and board expenses qualify only if the beneficiary is enrolled in college at least half-time.

I have set up a 529 in my own name and using my social security # in the event I have kids in the future, so naming a new beneficiary should not be difficult.

Discuss It!