The Daily Item, Sunbury, PA

June 3, 2013

A way to celebrate savings

By Michelle Singletary
The Washington Post

— We had Mother's Day in early May, and Father's Day is coming up this month. In September, we'll celebrate Grandparents Day. And now we've got 529 College Savings Day. It's a bit hokey, falling as it does on May 29, as in 5/29. Cute, right?

     Still, I don't mind another celebratory day since this one promotes the tax-favored plans to save for college. We need a day or really a month or two to promote 529 plans. Despite the concern about a looming student-loan crisis, less than one-third of Americans say they know what 529 plans are, according to a survey by financial services firm Edward Jones.

     With the ever-rising cost of college -- above the rate of inflation -- and not as many scholarships as you think available that will cover all the costs to get through four years of college or more, you'll need a plan to save.

     There are two types of 529s: prepaid tuition plans and savings plans. The first allows people to pay a child's tuition in advance. The more popular second type allows for saving through a tax-advantaged investment account. Earnings in a 529 grow tax-deferred and are free from federal tax (and in most cases free from state and local taxes as well) when used for qualifying college costs.

     Every state and the District of Columbia now offer at least one 529 plan. Although the 529s are state-sponsored, you can invest in any of them regardless of where you live. But many states offer a tax deduction for residents who use their own state's plan. Money invested in a 529 can be used for a public or private institution.

     My oldest daughter Olivia graduates from high school this week (Hallelujah!), and as I sit in the stands watching her walk across the stage, I won't be worrying about how we will afford her college education. I can't tell you how relieved that makes us feel.

     Thanks in large part to the Maryland 529 savings plan my husband and I invested in not long after she was born, we have the money we'll need -- tuition, room and board -- for her to attend the Honors College at the University of Maryland. We'll add that money to a scholarship she won from the university and she's set. No debt for us! We've also invested in a plan for our 15-year-old and 12-year-old.

     Based on data collected by the College Savings Plans Network from all 529 plans in the country, total investment by American families last year reached a record $190.7 billion, an increase of 15.7 percent from 2011.

     So what can you do to celebrate 529 College Savings Day?

     Become informed. Read Morningstar's annual report on 529s. It reinforces that you have to be mindful of a plan's performance, fees and investment options. Morningstar found that all 529 age-based investment options have posted gains for three-, five- and 10-year periods. Equity-heavy investments have posted the strongest gains following the upswing in the stock market of late. Bond and cash-heavy categories have posted slim annualized returns.

     Don't forget that fees matter. What you pay to have your 529 managed directly impacts your return. "Several states aggressively negotiated for lower-cost investments in 2012 as their 529 program management contracts were up for renewal," Morningstar said in its annual report.

     The research firm also noted that: "As has historically been the case, direct-sold plans dominated by index funds tend to be the cheapest in the industry, and adviser-sold plans tend to be the most expensive when measuring on an absolute basis."

     Celebrate 529 Day by determining how much you want or need to save for your child's education, says the College Savings Plans Network (www.collegesavings.org). Its college cost calculator will likely scare you to save no matter when you look at it.

     The network has also created an interactive map that details what various states are doing to promote 529 plans. Many states are offering cash promotions with various deadlines throughout the rest of the year. If you "like" the College Savings Plans Network's Facebook page (www.facebook.com/CSPN529), you get a chance to win $529 for a new 529 account or a contribution to an existing account. The network is giving away 10 such awards.

     On Wednesday from 11:30 a.m. to 12:30 p.m. (Eastern), Joe Hurley, who founded Savingforcollege.com, will be hosting a live webinar to answer questions about 529 plans. If you miss the online discussion, check out the website, which is my go-to for 529 plan information. On the home page, you'll find a report on the best and worst performing 529 plans for the first quarter of this year.

     Typically on national days you're sort of guilt-tripped into spending money for stuff people don't really need. Here's a chance to put your money to good use the whole year long.

Readers can write to Michelle Singletary c/o The Washington Post, 1150 15th St., N.W., Washington, D.C. 20071. Her email address is singletarym@washpost.com. Follow her on Twitter (@SingletaryM) or Facebook (www.facebook.com/MichelleSingletary). Comments and questions are welcome, but due to the volume of mail, personal responses may not be possible. Please also note comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.