529 Plans: Getting to the Bottom of 529s

The world of 529 plans is a vast one and as such trying to boil the subject down to a few paragraphs is impossible. So, the next best thing to help explain the plans (named after the section of the tax code that authorizes them) is to provide you with some sound resources on the subject. As always, that leaves the decision making up to you, but that's how it always has been given that there are no one-size-fits-all investment products.

When it comes to 529's, two different plans are available; prepaid tuition plans and college savings plans. Prepaid tuition plans allow parents, as well as others who want to pay for someone's future college or vocational school tuition costs, to lock-in today's tuition rates at eligible colleges and universities.

A college savings plan program is similar to a 401 (k) or retirement account ----it's an investment vehicle where the dollars contributed are typically invested in stock or bond mutual funds. The returns on these 529 plans will depend upon the fund choices made, and what happens in the markets over the investment's lifetime.

"Selecting a 529 is no different than selecting any other investment in that you've got to be sure it meets your needs and investment parameters," says Julie Russell, a financial advisor at Sentra Securities Corp. in Juno Beach, FL.

When you look at various 529 plan offerings, Russell says, some are "truly self-directed", meaning it's you who decides how the money is allocated.

In other programs you must go along with the choices available. "I think the first issue on the 529 plans would be similar to the 401 (k). If you pick a certain plan you many be bound by that plan's constraints, " Russell says. "And that could be good or bad. But, if you're not an experienced investor, you should have someone helping you asset allocate."

With that sound advice, here's a short-list of some Internet sites that will help you to learn more about 529 plans:

- Morningstar (www.morningstar.com). This Chicago-based securities research firm offers plenty of educational information about 529 plans including how the new tax laws impact them and how the costs of these plans can vary. The low-cost providers they suggest include plans from TIAA-CREF and Vanguard.

To get to their 529 data, go to their Web site and click on the "College Savings" link.

- Saving for College (www.savingforcollege.com). Recommended by the American Association of Individual Investors, AAII, the site was founded by Joe Hurley, a CPA. Easy to navigate, it's full of solid information, educates site visitors and rates the various 529 plans.

- The Motley Fool (www. fool.com). The Fools do make learning oh-so easy. Visit their Web site, click on the "College Savings/529" link and . let the lessons begin. One feature they've created is a chart that compares the Coverdale Education Savings Account with the 529 prepaid tuition plan and the 529 savings plan. This is a wonderful visual that you'll also find at www.allaboutfunds.com.

- The Investment Company Institute (www.ici.org). The ICI is the trade association for the mutual fund industry. Available through it is a free, 18-page brochure titled, "A Guide To Understanding 529 Plans."

The piece, developed in partnership with the College Savings Plans Network and the North American Securities Administrators Association, addresses everything from the high costs of a an education to income tax considerations.

To order your free copy of this brochure, visit their site at www.ici.org. Or, request it by title and write to: ICI Investor Awareness Program, P.O. Box 27849, Washington, DC 20038-7850.

In addition. more information about 529 plans can be found online at the College Savings Plans Network, (www.collegesavings.org), and at The North American Securities Administrators Association, (www.nasaa.org).

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Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.