Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
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.

Thanks,
Jen



Print the post  

Announcements

Paying For School Guide
Trying to Tackle Tuition? The Motley Fool's Guide to Paying for School will help you fight those rising education costs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.