Saving for College - 529 College Savings Plans

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Common Financial Mistakes
"Experience is the name everyone gives to their mistakes." -Oscar Wilde

A recent financial poll reports that in the past 20 years Americans have stopped saving and started spending. While the act of saving has declined by 15% in that time, the proportion of debt to income has doubled. Consumer spending is at an all time high and it only seems to be increasing. There are several common f... Read personal finance article



Secret To Saving
When it comes to saving money, it often seems as if some can and some can't. What secret do the "can's" know that the rest of the world just can't figure out?

Saving money is a basic part of managing your finances. It is necessary for financial success. It is necessary for many of the things you want to do.

Most people assume that in order to save, you need to have "extra" ca... Read personal finance article



Saving for College - 529 College Savings Plans
If you're like most parents, saving for your children's college education is a priority and a big challenge. Tuition and related costs at both public and private universities have been rising at 5% per year or more, far exceeding the rate of inflation. To put that into perspective, a child born in 2006 should plan on $110,000 in total expenses for four years at the average in-state public college; $300,000 for four years at a private university.

Financing these costs for one or more children is going to 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. A $3,000 annual contribution, beginning at birth, to a growth-oriented 529 plan should pay for one child's in-state public education, and a $7,500 annual contribution for a four-year private education. A later start means higher annual contribution amounts.

529 Plan Advantages

- 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 529 plan.

- Tax-Free Earnings and Distributions: All earnings in a 529 plan are tax-free. Distributions are free from all federal income and most state 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 age 18, 529 plan assets are always under the control of the donor.

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

- Unused funds in a 529 can be rolled over to another child's benefit.

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

Choosing a 529 Plan

All plans are sponsored by individual states, but are typically available to residents of other states. Some states offer residents a state income tax deduction for contributions to their own plan. So, for residents of these states, that is the way to go. For those without that tax incentive or residents of states without an income tax, you can choose from just about any of the available plans.

Be aware that many 529 plans are heavily promoted by brokerages and other financial institutions and can carry large and completely unnecessary sales charges. Go with a plan with no sales or other load charges. Typical annual fees for asset and account management combined should be 1% or less.

Recommended 529 Plans

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

No matter which plan you choose, we strongly recommend an "age-based" investment strategy. These strategies range from Conservative to Aggressive. Age-based programs are dynamic asset allocation programs, similar to Target Retirement date funds. They are heavily invested in stocks when your child is young, gradually converting to more fixed-income and cash as college age approaches. This approach protects against the risk of a major stock market downturn just as the funds are needed.

With over 31 years of investment experience, Martin Weil, Registered Investment Advisor and Principal of MW Investment Strategy Group, helps busy professionals and their families achieve their long-term financial goals. For a free special report filled with recommendations on saving for your child's college education, go to http://www.mwinvest.com/site/contact_us.html. Martin can also be reached at (877) 442-8777 or contact@mwinvest.com

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Why Pay more in Taxes

I would love to pay a lot of taxes, A LOT! Crazy you say, well the reality is unless I am going to dodge the law and take my chances I am going to have to pay taxes. I know so many people worried about how much tax they are going to have to pay. Well my dad taught me something that I will always remember. I would rather pay a lot of tax than a little because it means I am making a lot of money. I never think of taxes, I think of ways to make a ton of money. Through research I found a great tax accountant and he thinks of how to legally keep my tax burden at a minimum. We each do what we are good at and my bank account thanks me for it.

There are all these laws of making money. One is you get what you focus on. That is why I focus on making lots and lots of money and I let someone else worry about how to keep the government out of my money. It keeps me open to possibilities, I have seen it so many times people saying I don't want to work that shift because it will bump me into the next tax bracket. So I go and do the shift, meet someone and we do a huge deal together in land. With that kind of money being made the tax bracket just does not matter much anymore. You will also find out when you make a lot of money, that the rich really pay a much lower tax rate than you think. While it publicly is 40-50%, in reality it can be much, much, much lower. It does pay to find a good tax person, they are normally strange people that like reading government documents that don't make sense to the average guy.

When you have made a bunch of money for a while you also will start to learn the bigger pictures of paying less tax. You will start to find investments or business arrangements that offer better protection from taxation and of course you will take advantage of them. A warning, unless you are the worlds largest cola company do not purposefully avoid paying tax. Having the government on your case for 5-10 years is not a fun place to be. Worry about making more money and let the system take its share. Is it fair, no? Is it right, no. Is it easier to make more money than to change the system, YES!

Like all games there are rules no one likes, the rules of living in one of the greatest countries in the world is you pay tax. We could move to some third world banana republic where we have to hire the army to surround us if we wanted to go shopping. But we choose to live here and there is a cost and taxes sure are one of them.

The bottom line is wrap your mind around what is the best use of your time. Make a lot of money and give the tax department their share or only make a modest amount of money so you don't have to pay too much tax. I promise you when you start to make a lot of money there are tax smart people out there that will dramatically lower your tax bill, legally. So remember your goal is to be wealthy and debt free, it isn't to be so poor that you aren't required to pay taxes!

Larry, Alan & Ward are the Three Amigos who developed simple strategies for debt elimination. Learn their strategies at http://www.winthedebtgame.com




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Saving for College - 529 College Savings Plans
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