#43706 - 08/15/08 02:36 PM
Best option for college savings
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tomlisa
Registered: 08/15/08
Posts: 2
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My husband and I have some money we would like to set aside for our 2 year old's college education. But, we are not sure of the best option for us. We would like to save enough to send her to a public university and cover the tuition.
We live in Illinois. We have looked into the prepaid tuition plan, College Illinois and the Bright Start 529 plan. The prepaid option currently costs aroudn $40,000 to prepay 8 semesters of an Illinois college. But, we are wondering if that is a good investment or whether we could do better with something else. Also, the idea of having the state of Illinois guarantee that worries me.
What are the best 529 options - the Bright Start using one of the Vanguard funds or some other state? Any advice would be helpful.
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#43708 - 08/15/08 08:26 PM
Re: Best option for college savings
[Re: tomlisa]
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itstoomuch
Registered: 01/01/06
Posts: 772
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Best option? If I had to do it all over again, I'd choose a prepaid option as the "Best Option".
Independent 529, along with UGMA. later with a trading account. Last option would be a 529. All according to current tax and income situation.
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#43711 - 08/17/08 01:54 PM
Re: Best option for college savings
[Re: itstoomuch]
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bwilk
Registered: 05/14/01
Posts: 3293
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While I do like some prepaid plans like the PA GSP, I would never use the Independent 529 because of the limitations on the schools where it can be used and the very limited benefits if you go somewhere else. I also don't really like UGMAs. Not saying itstoomuch is wrong, just that I don't agree. I have a CESA and several 529s for my daughter. I do have an UTMA, but with only a token amount.
There is no way for any one here to tell you what is best. Might you do better in a savings 529 rather than a prepaid? It depends on what your definition of better is. Will it get a higher return? Maybe. If better means knowing that you will meet your goal, then the prepaid is better.
You need to research the options and decide what is best for you. Maybe contact a specialist.
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#43712 - 08/17/08 04:02 PM
Re: Best option for college savings
[Re: bwilk]
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anonymous
Registered: 03/29/05
Posts: 2003
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tomlisa, nobody can tell you what you best option would be without understanding your complete financial situation.
You are putting the cart before the horse by asking about the best 529 options before even determining whether a 529 plan make sense. In my opinion, they rarely make sense for someone with just one young child.
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#43725 - 08/18/08 09:39 AM
Re: Best option for college savings
[Re: anonymous]
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Dopps
Registered: 01/23/02
Posts: 1190
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Not sure where anonymous gets the claim that 529's are not good for young kids. Tax-free growth for as many years as possible is a very powerful thing--provided there is growth. So, the younger the better.
This is where you have to check your risk tolerance. If you are conservative, then the pre-paid may look more attractive than a savings program. But, in return for that safety, you give up high return potential. If you choose to chase a higher yield and thus enter a 529 savings plan, you absolutely must adopt a long-term perspective and not have fits when the market does its daily ups and downs. Past performance is no guarantee of the future, but the US stock market has always had a positive return over any 20 year period in its history. Again, the more time you have in the market, the better your chances for overall growth--so start as early as possible.
Bright Start is OK--low costs, but limited fund choices. Bright Directions has more investment choices and generally better performing funds, but costs a bit more.
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#43726 - 08/18/08 10:36 AM
Re: Best option for college savings
[Re: Dopps]
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anonymous
Registered: 03/29/05
Posts: 2003
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Dopps, I didn't say that they don't make sense for young kids. I said that they rarely (not never) make sense for someone with just one young child.
I like tax free growth. The problem is that we don't know that it will be tax free growth. With just one 2 year old child, what are the odds that the child will have qualified higher education expenses?
What are the odds that 529 plans won't hurt future financial aid more so than other solutions?
What are the odds that they won't have to pull the money out for some other pressing need?
What are the odds that the question asker has done the other financial things that they should be doing first? (I bet that there isn't any long term disability coverage outside of work, for example.)
If they had a 2 year old and a 2nd child and the rest of their fiancial basics were handled, I would be much more in favor of a 529 plan.
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#43728 - 08/19/08 08:27 AM
Re: Best option for college savings
[Re: anonymous]
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Dopps
Registered: 01/23/02
Posts: 1190
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Anonymous: I don't want to get into a pissing contest here, especially since we both apparently agree that the answer to whether one should enter into ANY financial arrangement (be it 529, insurance, or anything) is, "It depends." Yes, it depends on lots of other things involving the person's life and current financial position. But I just think it is dangerous to make a sweeping statement implying that 529's are "rarely" appropriate for families with just one young child. IF certain conditions are met and the appropriate questions asked (like the ones you pointed out), then 529's may indeed be very viable. Again, it depends. I have, though, seen numerous cases where the parents are in the right situation to make a 529 for their first young child a very appropriate investment.
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#43730 - 08/19/08 02:27 PM
Re: Best option for college savings
[Re: Dopps]
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anonymous
Registered: 03/29/05
Posts: 2003
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Dopps, it's not a pissing contest. There's no problem if we disagree.
My thought process starts from the assumption that 529 plans aren't good if the money isn't used for higher education expenses. With only one child and school a long ways away, there is just too many things that can happen that would make a 529 plan a poor choice in hindsite. Since we don't have the benefit of hindsite, I believe that they rarely make sense. (I bet that our only real disagreement with this is in my choice of words with rarely. "Rarely" still encompasses a lot of people.)
The exception for the one kid household is the family that has plenty of "extra" cash and doesn't care if the money ultimately goes to a grandkid, nephew, cousin, etc.
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#43734 - 08/20/08 06:32 AM
Re: Best option for college savings
[Re: anonymous]
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Dopps
Registered: 01/23/02
Posts: 1190
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Agree with your comments, Anonymous, that 529's ideally should be used when there is a relatively high degree of confidence that a child, of any age, will go to college. My perspective, and the reason that I chafe at your "rarely" tag, is that I am fortunate to work in an upscale market where all of my clients have attended college (and most of their spouses did as well), and they raise their families in communities where it is pretty much "expected" that their kids will do so as well (as evidenced by their respective local high schools sending close to 100% of their graduates each year to college).
I am not trying to toot my own horn here, but just saying that the conditions being ripe for a 529 are not as rare as you think. However, that being said, I am often amazed at, based on my experience, how many "upscale" people still don't have 529's--they apparently have other places to spend their money (some necessary, some perhaps not so), despite passing up what is arguably the best tax deal on Earth (tax-free growth).
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#43748 - 08/21/08 01:08 AM
Re: Best option for college savings
[Re: Dopps]
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anonymous
Registered: 03/29/05
Posts: 2003
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Dopps, we actually work with the same kind of clients. The same expectation is on the children of my clients. My perspective is simply that so many things can happen from the time a child is 2 until they are 18 that despite all intentions, a 529 plan might end up being a poor choice even if the money is available for college funding.
Think about the children of your clients: Have any ever died? Become disabled? Become drug addicts? Gotten academic scholarships? Gotten athletic scholarships? Started successful businesses instead of going to college? Ended up not "college material"? Did something ever change with the parents' finances and they had to cash in the 529? If you've been around for a long time, the answer is probably "yes" to all of these. The answer is "yes" to all of these in my practice.
The flip side to this is that in all cases that there has been more than one child, money has been needed for qualified higher education expenses for at least one of the children. So please notice that it's not that I'm anti-529 plans for young children, but rather, I am anti-529 plan when there is only 1 young child. Bring a 2nd child into the mix and I have no problem with 529 plans as a funding vehicle.
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