Section 529 - The Plan In Complete Control
College-savings plans are opening at a rapid pace. One key attraction is tax-free growth of earnings. But scanty performance data show that the programs have posted only moderate investment returns.
Overall, that may make the plans most suitable for families interested in a diversified but simple, hands-off way to save for college. Known as 529 plans, these tax-deferred state programs typically provide families with accounts whose mix of securities changes as the college-bound beneficiary gets older. Commonly, plans give an aggressive, stock-oriented mix to families with the youngest children, who have the longest time before starting college. The asset mix becomes increasingly conservative and fixed- income dominated as the child gets older and approaches college entrance. New York limits families like that to no more than 55% stock. But that rises to 65% on Friday says Timothy Lane, vice president of tuition financing at TIAA-CREF. The outfit manages investments for plans in New York and six other states. The reason for the modest performance by 529 plans is their lack of emphasis on stocks. Almost all offer a mix of stocks and bonds or money market accounts. Plans take that approach because states place a high priority on protecting the principal in each investor's account. |