Saving for College: A Parent's Guide to 529 College Savings Plan

If you're like most parents, saving for the education of your children is a priority and a challenge. Tuition fees and costs in public and private universities have increased by 5% per year or more, far above the rate of inflation. To share that should be in the right perspective, a child born in 2006 to $ 110,000 in four years the total expenditure on average in the state of public school, $ 300,000 for four years at a private university.

Funding of these expenses for the children of one or more planning and will be disciplined, especially economy. Tax-favored 529 "savings plans for the studies are the savings vehicle of choice and offer important advantages over other options. An annual contribution of $ 3000, which begins with the birth, growth-oriented 529 plan should pay for a child in a state of public education, and an annual contribution of $ 7500 for four years of private education. A later start to increase the annual amount of contributions.

529 for the plan

- Major Contributions tax free, parents, grandparents, other relatives and friends can contribute up to $ 12,000 per year for each child, tax free in Annex A at 529.

- Tax exempt income and distributions: All earnings in a 529 plan are exempt from tax. Distributions are free from all federal income countries and most tax if the lessons or other charges for the use of college qualified. This makes 529 plans as powerful as Roth liquidations for the long-term savings.

- Donors (parents, grandparents, etc.) "owner" of the 529 Pro: Unlike a custodial account, which usually is the property of the child at the age of 18 years, 529 plan assets are still in the control of the donor.

- 529 plan assets are more favorable for financial aid considerations: Plan assets are recorded at a rate of 5.5% by funding from the Office College, against 35% for used goods account for safekeeping.

- Funds not used in a 529 can be carried forward for the benefit of another child.

I've piqued your interest? The question now is the best 529 plan for you and your children?

The choice of a 529-plane

All plans are sponsored by States, but are generally available to residents of other states. Some states offer residents a tax deduction for contributions to state their plan. So for the people of these States that the way to go. For those who can, in the absence of tax incentives or residents of states without an income tax return that you choose from almost all the plans available.

Be aware that many projects, many of the 529 brokers and other financial institutions to promote and spread the costs of large and completely unnecessary to sell. Continue to invite to a plan with no sales or other taxes. Typical annual fees for the activities of management and accountability must be combined, 1% or less.

Recommended 529 Plans

There are at least a dozen excellent options to choose from. Among these, we like the TIAA-CREF management plans (California and others) and Vanguard managed plans in Iowa, Nevada, New York and Utah. Vanguard plans, strategies with their index of investment, operating costs of less than 0.75%. A new entry is the Alaska plan from T Rowe Price. It offers a first class, actively managed funds and relatively low cost.

Whatever plan you choose, we recommend an age "based on" investment strategy. The strategies range from conservative aggressive. Age-based programs are programs for dynamic asset allocation, target retirement date fund. They are heavily invested in equities, if your child is young, a gradual shift to more fixed income and cash flow college approach. This approach protects against the risk of a significant decline in the stock market and the resources that are needed.