Word: 529s
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...basic case is this: 529s let you invest money without having Uncle Sam reach in each year and tax your earnings. Thanks to the magic of compounding, a yearly investment of $3,000 that grows, say, 7% annually, to $38,632 after 10 years, could grow tax free to $44,351, according to Robert Matricardi at T. Rowe Price. (You also don't get taxed when you spend the money, though that little bonus will run out at the end of 2010 unless Congress extends...
...forget that 529s are investments There is risk in any 529 fund and, in most cases, no guarantee that you won't lose money. Pick a plan that has a range of investments, from stocks to a money-market fund or other cashlike option, so that you can move into safer securities as your kids get older. (In other words, you shouldn't be loaded up on tech stocks when Junior is, well, a high school junior.) Most plans you buy directly (i.e., without a financial adviser) include age-based portfolios. That means the fund company decides how you should...
...course, you're free to skip the 529s if you determine that you'll be paying more in fees, expenses and loads than you'll save in taxes. That calculation will take some research and number crunching, but remember that this is your kids' education--probably the most important thing you'll ever...
Start at www.savingforcollege.com for the basics on what 529s are, and for information about other tax-advantaged ways to invest-such as the Coverdell Education Savings Account. Under "College Savings 101," click on "College Calculator" to see how much money you need to save (depending on where you think your kid will go to college) and how much you need to set aside in order to get to that goal. Click on "529 Plans," and you get information on all the different plans states offer (including prepaid tuition plans, which are also sometimes called "529s," even though they...
...Congress last week grilled industry watchers on how the plans, which let money invested for college grow free of federal tax, are designed and sold. They have ballooned in popularity and now hold more than $50 billion in assets. But with each state designing its own program, 529s have developed into a hodgepodge of variations, many with multiple layers of fees not clearly disclosed. The National Association of Securities Dealers has launched an investigation into broker-sold plans, while the Securities and Exchange Commission is studying the industry. Action by Congress or other regulators probably won't come soon...