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OK, Here's my first post. As a dedicated Fool, I've read the first 2 Motley Fool Books and have taken control of my own personal investing. That said, isn't the whole idea of an a 529 Plan run counter to everything the Motley Fool espouses? I should let an institution invest for me, give a substandard (below market return) and then pay them for it?

For example, if I were to start of with $1,200 and add $100 per month to the account with an Education IRA invested in an index fund (10.5% return), at the end of 18 years, I would end up with $58,574.

Investing in a 529 plan with a 7% return, I could expect $42,697 (by also investing the state tax write off into the fund). This is a difference of nearly $16,000!

At this point, the only benefits I see to a 529 plan are the following:

1) I'm not limited to the $2k/year limit
2) Somehow, 529 plans aren't considered assets of the student going to school and this doesn't count against them for financial aid.

My question now is which one do I invest in? Is $58k of assets enough to be denied financial aid/student loans? By my projections, in 18 years, a state college education will run about $120k, minimum. I kinda think that the laws will change in order to help out more families trying to get their kids an education.

I've already looked at www.savingforcollege.com, but that whole Web-site seems to be biased towards 529 plans. Am I the only one who thinks this is out of whack?

Any input is most appreciated.


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I've already looked at www.savingforcollege.com, but that whole Web-site seems to be biased towards 529 plans. Am I the only one who thinks this is out of whack?

Probably. The limits on Ed IRAs/Coverdell account changed 3 weeks ago. Prior to that 529s were the better choice of the 2 for many, many people. Joe Hurley started the Saving for College site a number of years ago. 529s are his business and I feel fortunate that he has chosen to share so much of his work for free.

2) Somehow, 529 plans aren't considered assets of the student going to school and this doesn't count against them for financial aid.

How 529s will continue to be treated is anyone's guess - financial aid organizations and legislative organizations have struggled with this and will probably continue to do so.

My question now is which one do I invest in? Is $58k of assets enough to be denied financial aid/student loans? By my projections, in 18 years, a state college education will run about $120k, minimum. I kinda think that the laws will change in order to help out more families trying to get their kids an education.

No one can tell you. You need to know what you have and what you expect to have when your child starts college. You also need to decide what you will be willing to pay for when your child goes to college. The financial aid calculations can and do change as have the packaging philsophies, the total amount of dollars available for aid and the number of students competing for the aid. Currently, the majority of need-based aid is loans. Currently, there are been increases in the amount of money available for merit. The rest is in someone's crystal ball.

If you want to decrease your cost for a state institution, contact your state legislature and encourage them to increase funding to the colleges or state-funded financial aid. It's one way you can have input.

rad
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Thanks for the feedback!
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...isn't the whole idea of an a 529 Plan run counter to everything the Motley Fool espouses? I should let an institution invest for me, give a substandard (below market return) and then pay them for it?

Depends on the 529 -- some give you the option of investing in an index fund.

$58k of assets enough to be denied financial aid/student loans?

Most financial aid is need-based. The less need, the less grants and loans will be awarded -- and the more flexibility the student has in choosing where to go to school. The student still could get scholarships based on merit, athletic ability, etc. The more you & the student save, in a variety of vehicles, the better.

I've already looked at www.savingforcollege.com, but that whole Web-site seems to be biased towards 529 plans. Am I the only one who thinks this is out of whack?

It's "The Internet Guide to 529 Plans." It isn't "out of whack" -- just focused on one way to save for college. Other sites have information about other ways of saving for college. Try http://www.smartmoney.com/college/ for a variety of articles & resources.

At this point, the only benefits I see to a 529 plan are the following:

1) I'm not limited to the $2k/year limit
2) Somehow, 529 plans aren't considered assets of the student going to school and this doesn't count against them for financial aid.


Sorta -- The 529 will be considered in the needs assessment, but it won't have as much impact as savings in the student's name.
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Steve,

You suggested "For example, if I were to start of with $1,200 and add $100 per month to the account with an Education IRA invested in an index fund (10.5% return), at the end of 18 years, I would end up with $58,574."

Would you really want to have all of your money in the stock market for the last 5 years of saving prior to the start of school? What if you had been doing this and your last two years were 2000 and 2001? You could move your money to fixed income securities yourself in an Ed. IRA, and this would bring your estimated returns in line your calculations for a 529 plan, assuming that the fees and elimination of state taxes cancel each other.

I have a 529 through Fidelity and use the Upromise citibank mastercard. I put everything I can on that card and pay it in full each month, giving me an extra $20-30/month towards my kids 529's. Fidelity waives the annual fee if you have a direct deposit (of at least $50/month) set up, so the only fees I pay are those inherent to the fund itself. They also allow generous relatives to contribute obscene amounts of additional funds if they want to, which you can't do with an Ed. IRA. Between the Upromise and the Relative's contributions, the scales are tipped toward 529's for us.

Adenovir
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Thank you for this well thought out post. You've caused me to take a closer look at an EIRA, as I was thoroughly convinced 529 was the way to go.

Having looked at the EIRA again, I believe the 529 holds one major advantage. Unless I'm mistaken, the beneficiary controls the proceeds in an EIRA where the contributor controls the money in a 529 plan. Now I'm sure my 3 week old angel will never do anything to upset her father. But if 18 years from now she does decide to skip college and hitchike around the country, I'd rather have control of the college fund than allow her to withdrawl all her EIRA money, pay uncle Sam the penalties, and live the high life on her father's hard earned, hard saved money.

I'm willing to "pay" with lower returns for that power.
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"I put everything I can on that card and pay it in full each month, giving me an extra $20-30/month towards my kids 529's."

Wow, how do you run up $3,000/month on a credit card?
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