| What kinds of returns can people expect to see on their money? |
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| Understanding 529 plans |
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Because it's tied directly to the mutual fund performance, those returns are going to be similar to what you might expect in your 401(k) or your IRA. There is a small layer of extra expense in most 529 plans, which is an administrative fee.
| When is the best time for parents to open an account in a 529 plan? |
Basically you want to have as much time as you can in saving for college. As soon as a child is born is a good time to open an account and start making contributions.
Let's say that parents reading this have children only a few years away from starting college. Would it be wise for them to set up a 529 plan for their kids?
I think so, because if they are setting aside money for college and they can avoid paying income tax on the earnings, then they're going to have more money to pay for college. Even if it's for a short period of time, you're saving on income tax.
| How can people go about opening an account? |
There are two choices. One is to open your account directly with the plan, and the other is to go through a broker. If you do it on your own directly you'll save on cost because broker plans charge commissions and generally have higher expenses.
It's easy with most plans to just open an account online. You can enroll online and make your contributions electronically.
Which one you choose depends on how you feel about choosing a 529 plan and the investment options, and whether you feel you need professional advice in doing that or not. Some people are capable of doing it and have time to do it on their own and others say: "I just don't have the time to figure all this out of my own. I'm going to go to somebody who knows how and pay the extra cost."
It's similar to mutual funds in how brokers charge for mutual funds. You'll generally have a choice between different share classes. Part of the broker's job is to figure out which share class best meets your needs, based on how long the money is going to be in the account.
| -- Posted: Sept. 17, 2007 |