529 College Tax Accounts Add UpOne of 529 plans' strong points is their simplicity. For example, when the bill from your child's college arrives, you arrange for a direct transfer of money from your account to the school. But the plans do have drawbacks. For example, they usually don't let families choose investments, according to Abram Claude, vice president for business development of Fidelity Investments. They get whichever asset mix is assigned to specific age groups.
Arizona, however, lets families choose one of four mutual funds. And several states are considering giving parents choices. '529s were created to appeal to a lot of people. 'That includes people who have never invested in mutual funds or stocks.' In a program that has to be all things to all people, your goal is to outpace tuition inflation by as much as possible, without the risk of a shortfall at the back end, when it's time to pay tuition. Given the plans' limitations, experienced investors might want to use them only as part of their overall portfolio. College savings plans offer benefits in addition to tax- deferral, diversification and simplicity. One is control. There's no time limit on using it. You can change the beneficiary to another family member. And you can withdraw the money, although usually you'll owe taxes and a 10% penalty on earnings. |