Clinton Bast wrote:
- quote -

Clint,
With a 529 plan you're not limited only to your home state, which it
sounds like Wisconsin. You can open an account through any state's plan.
In some states you get a tax benefit if you use your home-state plan,
but if your state isn't one of those, then you might as well consider
all the alternatives (and if your WI plan is lousy, you might not bother
with the in-state plan even if it has a tax benefit for you). The site
www.savingforcollege.com gives a run-down on all of them.

I typically recommend the 529 plans administered by the low-cost mutual
fund company The Vanguard Group, which include the Nevada, Iowa, and New
York plans. You can get info on these by going to the site above or
www.vanguard.com.

529 plans have both the advantage and disadvantage of limited investment
alternatives. "Advantage" because it's likely you can find whatever
you'd want, so it simplifies things a bit. "Disadvantage" because some
people want more flexibility.

In your situation a Coverdell might make more sense. The tax-free
benefits of 529 plans will expire at the end of 2010, unless they're
extended. But the Coverdell doesn't have an expiration date at the
moment. So if you're within the contribution dollar limits anyway you
might not see any benefit to a 529 over a Coverdell.

RE: mutual funds. The "fool" site is probably talking about the
difference between "actively managed" mutual funds and what most people
call "index funds." If they're saying that people should avoid mutual
funds altogether, they're giving lousy advice. But I doubt they're
saying that, the site probably has a big section about index funds. And
in general mutual funds are still the best way to invest smaller amounts
of money, and for most people, an acceptable way to invest even very
large amounts of money. You might choose index funds instead of the
actively managed funds, but still, whether in a Coverdell, 529, IRA,
brokerage account, etc., mutual funds are the way most people invest.

BTW - Vanguard built its name on low-cost index funds like those the
Fool site was probably pointing you towards. You can use their funds
whether you do so through a 529, Coverdell, IRA, or regular taxable account.

-Tad

When it comes to saving money for college, a lot of people say to
start a 529 plan. It appears the main reason is for the tax benefits.

I had asked my financial advisor that handles my 401K what she thought
about the 529 plan. She didn't particularly care for the Wisconsin
plan (EdVest) because it was operated by Strong Funds. She suggested
that I could probably get better returns if I invested in something
besides the Strong Mutual Funds. I also noticed at the Motley Fool
website that they are really down on Mutual Funds in general since
most rarely out perform S&P 500 and you have to pay administration
fees. But it appears to me that 529 plans pretty much only invest in
mutual funds.

So I was wondering if a person could come out ahead by not using a 529
plan. Perhaps I could get better returns and avoid some fees. But
would that benefit be offset by the taxes I would have to pay?

The other day I noticed the Coverdale plan. Maybe that is the way to
go. It appears you have more flexibility to choose where to invest
your money and it has tax benefits. The annual contribution limit
seems low, but to be honest, I don't think I can afford to invest more
than the limit anyways.

- Clint