Iowa College 529

If you're like most parents, saving for college for your children is a priority and a challenge. Tuition fees and costs related to both public and private universities have increased by 5% per year or more, far exceeding the inflation rate. To put this in perspective, a child born in 2006 should plan on spending $ 110,000 in total for the four years the average college in the state's public four-year $ 300,000 for a private university.

The financing of these costs for one or more children will take planning and, most importantly, disciplined savings. Tax-advantaged "529" college savings plans are the savings vehicle of choice and offer important advantages over other options. An annual contribution of $ 3,000, from birth to growth-oriented 529 plan should pay for the education of a child in the public and an annual contribution of $ 7,500 for a four-year private education. A later start means higher the amount of annual dues.

529 Plan Benefits

- Large Tax-Free Contributions: parents, grandparents, other relatives and even friends can contribute up to $ 12,000 per year per child, tax free, to a plane 529.

- Tax Free Earnings and Distributions: All earnings to a 529 plan are tax free. Distributions are exempt from federal income and most income taxes when used for tuition or other qualified college expenses. This makes 529 plans as powerful as Roth IRAs for long-term savings.

- Donors (parents, grandparents, etc.) "own" the 529 assets: Unlike a custodial account that typically becomes the minor's property at the age of 18, 529 plan assets are still under the control of the donor .

assets - 529 plan are more advantageous for reasons of financial assistance: Plan assets are counted at a rate of 5.5% by the College financial aid offices, compared to 35% rate used for custodial account assets.

- Funds not used in a 529 can be rolled over for the benefit of another child.

Have I caught your attention? Now the question is who is the best 529 plan for you and your children?

Choosing a 529 plan

All plans are sponsored by states, but they are generally available to residents of other states. Some states offer residents a tax deduction for state income for contributions to their own plan. Thus, for the residents of those States, which is the way forward. For those who do not have this tax incentive or residents of states without income taxes, you can choose any available plans.

Be aware that many plans are heavily promoted by 529 brokerages and other financial institutions and can carry large and completely unnecessary sales charges. Jump to a plan without a sales charge or other fees. Typical annual fees for asset management and account combination should be 1% or less.

Recommended 529 Plans

There are at least a dozen excellent options to choose from. Among these, we like TIAA CREF-managed plans (California and others) and the Vanguard managed plans in Iowa, Nevada, New York and Utah. Vanguard plans, with their investment strategies index, operating costs of less than 0.75%. A new entry is the Alaska plan managed by T Rowe Price. It offers a great choice actively managed fund and a relatively low cost.

Whatever plan you choose, we strongly recommend a "strategy based on the age of investment." These strategies range from conservative aggressive. programs based on age are dynamic asset allocation programs, similar to Target date retirement funds. They are heavily invested in stocks when your child is young, gradually converting to more fixed income and cash flows approaching college age. This approach protects against the risk of a big stock market downturn as well as the funds are needed.