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I live in Pennsylvania, who is apparently woefully behind the times regarding competitive 529 plans. (We only have a poorly-performing advanced tuition payment plan).

I therefore am considering starting a college fund either in another state's plan (probably one of the Fidelity plans-DE, NH, or MA), OR...setting up a taxable portfolio using the RP4 (in my name). Of course, at some point (probably a year or two before junior began school), we would begin shifting some funds into treasuries, bonds, CDs, and/or money market funds. So we wouldn't be in the RP4 100% for ALL 18 years...

My dilemma is, I can't seem to figure out which method would yield better returns.

Question #1: The Fidelity plans start heavy on stocks, but then shift more toward bonds as the child ages. What is a reasonable estimate for the overall return over 18 years in this scenario? (Child is expected to arrive any day now, so we're starting from scratch)

Question#2: The RP4 traditionally have outperformed the market average (DJIA and often the S&P500 as well). If the historic average for the market has been around 11.5%, what (reasonable) assumption can I make about how much better the RP4 would do over the next 18 years? How do I estimate the annual tax effects on this taxable portfolio?

I guess I'm trying to weigh whether the advantages of tax-deferral and financial-aid qualification offered by the 529 plans would outweigh the superior returns of the RP4 method for investing. But I haven't a clue how to go about this analysis.

Remember, too, that I wouldn't get any in-state tax benefits, unless Pennsylvania wakes up and gets its act together.

Any help would be greatly appreciated.


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