john d wrote:
- quote -

John,
Remember a 529 is basically just a wrapper for investments, and those
investments don't need to be risky ones. You're right, you wouldn't want
to take on the risk of a 40% drop in one of these, because the goal-date
is so fixed.

But all of the 529 plans I'm aware of include age-based investment
alternatives - mixes of mutual funds - that gradually shift your money
out of stocks and into bonds & cash (money market). If the plan you're
looking at doesn't offer that, or you don't think it gets conservative
enough, you can always simply choose investments that aren't so risky -
for example, shift towards all-money-market in the years leading up to
graduation date. All of these plans allow you to shift your investments
along the way.

You mentioned the Ohio plan...not familiar w/it...in general keep an eye
on costs & commissions (for the "sold" plans available through
brokerages). When you do the math a commission & high expense can
actually eat up a good piece of the expected tax advantages of the plan.
Some of the lowest-cost (and no-commission) plans are those administered
by Vanguard, which include NY, Iowa, Nevada. The Vanguard site has links
to at least some of these. A full run-down on all the different plans is
available at the very good site www.savingforcollege.com

Some states offer a tax break (on income taxes) if you use the in-state
plan; a couple assess state income taxes on distributions if you use an
out-of-state plan, so you should check on that w/OH - the site above
includes this info. Other than that, you typically wouldn't need to
stick with your home-state plan over another state's. Go with the one
whose investments you like, if all else is equal.

Keep in mind that one tax benefit of 529s is expiring in 2010...they'll
just become "tax deferred" instead of "tax free" because of the dopey
way the first law was written. There is a bill floating around to extend
Sec 529 beyond 2010 but if that doesn't pass within the next 5 years,
you would end up with the gains in the account being taxed, to the
beneficiary, at their (kid's) tax bracket. That isn't a huge issue with
a smaller account but in a large one it does reduce some of the
advantages. That's an issue to stay on top of, it could change at any
time in favor of the 529s.

You mentioned selling a house and having cash for this, so perhaps a
larger contribution is in the cards. If so be aware of a special
gift-tax provision with 529s.

Normally you can gift only $11,000 per year to each child; a married
couple can together gift $22k. If you exceed that you need to file a
gift tax return (you probably won't pay tax at that point but the filing
is required). A contribution to a 529 is considered a gift so if you
want to put in say a $30k lump sum that could present a problem. The
special allowance is that you can fund a 529 with up to 5 years of
gifts, all at once. So that's up to $55k ($110k for a married couple),
to each child, in a single year, into a 529. You do need to file a form
reporting this and it "burns up" a corresponding portion of your $11k
annual gift allowance for the upcoming years, but for those who want to
prime the pump with a big lump sum it allows it. There's some sense to
heavily funding these early, because your early dollars have the longest
to sit and grow. And if they don't grow, you have more time to make up
the difference with new contributions either to the 529 or to other savings.

I think you can find details on all of the above at that web site.

-Tad

john d wrote:

- quote -

I haven't really researched 529 plans yet, but I do remember reading
somewhere that they do not have to fully disclose the loads they
charge, unlike regular mutual funds. I haven't taken the time to verify
that, but you may want to investigate that angle; to me there is
nothing worse than getting into a plan where you don't know what the
fee structure is.

I think you raise a good point about the risk of a down market. I don't
think the stock market is an appropriate place to invest funds that
have to be withdrawn and spent on a specific date, like college
tuition. With retirement you can work a few more years, or relocate to
Mexico and live in a shack, if the market goes down but who wants to
tell their kid to wait 5 years to go to college, or to go to the local
community college, because their college fund just lost half its value?

I personally plan to invest my daughter's college money in something
very conservative because of the timing issue. I will also probably
invest some money for her in the stock market, but this would be in
addition to her college money, not part of it. By the way, here is
what the government says about I-bonds and EE bonds used for
educational expenses:

"Under the Education Savings Bond Program you may be able to exclude
some or all I Bond interest from Federal income tax when you pay
qualified higher education expenses at an eligible institution or State
tuition plan in the same calendar year the bonds are redeemed.

Series EE Bonds issued January 1990 and later, along with all I Bonds,
are eligible for this program. You aren't required to indicate that you
intend to use the bonds for educational purposes when you buy them, but
you must meet the program's requirements, some of which apply when you
buy the bond(s). Details are available in IRS Publication 970, "Tax
Benefits for Education.""

There you go: guaranteed return, protection from inflation, low risk,
and tax exempt. I haven't read all the fine print yet, but it looks
good at first glance.

Andy

We just sold a house and have decided to take a good part
of the profit and invest it into the Ohio 529 plan for
our kids.

I'm curious to see how people who use 529 plans are with
them overall? Honestly, I'm a little weary about it because
if we're in a down market the kids could lose 20-40% of their
fund value when they start school.

I'm ok with investing for my retirement. For example, my
401k/RothIRA's took a serious hit in March 2000. It wasn't
even until now that I'm back to where I was. If I were in
my 60's, I could easily elect to work a few more years to
make back some of my losses in a tough market.

I don't think I'd like to see my kids wait 5yrs to go to college
though

What are some good strategies for 529 plans? Has anyone been
contributing for the last 10yrs or so and been pretty happy
looking back at it?

So far I've read some good articles on collegesavings.org,
collegeadvantage.com & have been considering the system at
independant529plan.org also.

Thanks,

john