 How
to research a 529 plan
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Confused about 529 college savings plans? You're not
alone.
A recent headline in the Wall Street
Journal announced, "529s lose their luster." To back up
that assertion, the first line said: "The 529 plan, once touted
as a powerful tool to help families save for the crushing costs
of college, is encountering some significant problems."
Then last week, only five days after the largely negative
pronouncement, the same paper ran a piece with a completely different
spin: "College savings plans get better grades," the headline
blared. "For families facing the daunting task of paying for
higher education, 529 college savings plans are looking better than
ever," the first line began.
So which is it? Have 529 plans lost their luster or
are they getting better? If even a venerable paper like the WSJ
sends mixed messages within one short week, the general public is
entitled to be confused!
Joseph Hurley, the founder of savingforcollege.com
who writes the "College
Money Guru" column for Bankrate, questions the premise
of the first article, which focused on a drop in net flows into
529 plans of 0.2 percent in 2005 versus 2004. "Waning interest?"
Joe writes in a recent blog
entry. "A second, or more careful, reading also reveals
that ... the number of individual accounts actually rose 40 percent,
to 7 million, in 2005."
The drop in net inflows, Joe suggests, might be attributable
to withdrawals from the accounts to pay for college costs -- which
is what they're intended for in the first place.
The good and bad of 529 plans
The main challenge with the state-sponsored 529 plans is distinguishing
the wheat from the chaff. With some 80 different plans to choose
from (several states offer multiple plans), the onus is on the consumer
to find the most suitable one. You have to evaluate the costs, investment
options, performance information and impact on state taxes, if any.
That task is daunting enough to cause many people to indefinitely
put off the decision to invest in a 529 plan.
Most of the ones who do invest in a plan enlist the
help of brokers, who direct about 80 percent of the cash going into
529 plans. But if you take this route, you'll be investing in a
broker-sold plan, which of course levies sales charges to compensate
the broker. It's reasonable for brokers to expect some compensation
in exchange for advice. But if you've been keeping up with the scandals
of recent months, you know that some brokers have gotten into trouble
for sending clients to inappropriate plans.
As an example, recently the National Association
of Securities Dealers, or NASD, imposed a fine and cited Ameriprise
Financial Services (formerly American Express Financial Advisors)
for failing to satisfactorily supervise sales of 529 plans by its
advisers. The advisers had funneled the bulk of their clients' money
into Wisconsin's 529 plan.
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