Apr
21
The Long Term, from Duncan Coker
April 21, 2008 |
I am right now in the process of setting up a 529 plan for my daughter. For those not familiar, it is a college savings plan where the growth of contributions is tax free if applied to education. It is a very good deal. But the main point is that she is 9 months old now, so at earliest this is a 17 year investment, by far the longest I have ever entered. Interesting to think where the developed markets will be in 17 years. All the crises, euphorias, recessions, recoveries, bubbles and busts we will see. But ultimately all those moves will look like rings on an evergreen tree against the backdrop of time. And I also planted a few young spruce trees in the back yard to chronicle the occasion.
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I have three 529 plans for my sons: one in Georgia, the Utah plan and the one I am most satisfied with, the Nebraska plan through the discount brokerage firm TD Ameritrade.
Hi Duncan,
Congratulations to you and your wife on your daughter.
In Canada we have an equivalent called a Registered Education Savings Plan. I’m living the pay-out part now as my eldest is in his sophomore year at University. It’s nice to get those cheques every semester, so what you are doing is a very good move, which you will appreciate down the road.
3 more to go (kids that is) …
Cheers,
George
Those plans are very good ways to assure that college costs will be reduced — free in some cases. I was pretty stupid, and chose to not enroll in any of those plans, and have had to pay the entire cost of my son's education out of pocket. That being said, his college education is probably the best investment I will ever make. Jeff
A 529 plan is an excellent way to set aside money to help pay for post high school education. As long as the money is used to pay for education related expenses the amount of money withdrawn is tax free. Furthermore, the accumulated value can also be used to pay for trade schools, and post undergraduate expenses such as master degree and medical schools. The beneficiary can also be changed. Any individual such as a grandparent can fund a 529 for their grandchild. There are other potential benefits which go beyond the scope of this website.
For someone who is thinking about a 529 plan, I would strongly recommend that they do some research on this ahead of time. There is excellent free literature available from mutual fund companies, brokerage firms and a number of books available on the subject. This is a link to the Securities and Exchange commission Introduction to 529 plans.
I have attached a link here to amazon for a list of some of the books and magazines on the subject. .
It might also be a good idea to sit down with a QUALIFIED financial planner or advisor and/or a tax attorney to discuss this in greater detail. This is of course dependent on the complexity of an individual's situation.
I worked on a case once which involved several million dollars, so you see these can be can be quite extensive and comprehensive or quite simple involving a small amount of money, time and effort.
There are also state sponsored pre-paid college plans which can be used to plan for tuition as well as room and board. These work much like an annuity. Each state has their own individual program. I have attached a link to Florida's Prepaid College Plan.
I wish you all the success in the world. The future of America is in our youth.
We have two girls in 529 plans.
I have used their 529 plans as an education in itself for the last 5 years. When we get the quarterly statements, I go over both girls' statements with them.
The 14 year old has begun to catch the lesson. The stock market is the best place to be long term. She is asking questions on how to invest on her own, what taxes are, etc. The 9 year old is where the 14 year old was at her age: interest in the bottom line but not worrying how we got there.
The returns have been good, and since both girls are bright, the returns on the education will be most likely even higher, but the practical 529 lesson in money management is priceless.
My wife and I have two children (3 and 1) for whom we have setup 529 plans. We make sporadic contributions, which I almost always feel are insufficient. It is encouraging to hear comments, such as those from George, reaffirming the benefits of such a long term investment. Those comments have motivated me to go make another one of my random contributions.
Like Duncan, this is by far the longest investment I have ever entered…a fact I feel a little ashamed to admit.
Tyler
The number one benefit of 529 plans is the tax free withdrawal feature. Plus the overall out-of-pocket expenses that are covered are quite liberal. If withdrawals go beyond the expenses of education, they are tax deferred. So in essence looking at it this way, it is a very good plan and could be a great plan. It is like a fine painting, the more you look at it the more you appreciate its beauty. Relax and enjoy. sl.