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Prepaid college tuition . . . sort of
January 1st, 2010 Posted in Judo ChopsThink those 529 prepaid tuition plans are a safe way to make your child’s college education affordable? Think again. The Money Blogger breaks it down: Alabama invested 70 percent of its plan’s funds in stocks, and assumed a perpetually high return. Peering closer, he reveals that while states with such prepaid tuition plans talk the language of guarantees, their fine print says otherwise. Buyer beware.
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We’ve just done 529s through an investment counselor, not bought into our state’s plan. So far, so good. The money is moved from fund to fund as they get older, reducing the riskiness of the investment as the BIG DAY gets closer and closer. Actually, I take no credit: Boyd is the investing guru (and the disciplined saver) in this house.
Not all 529s are subject to the same princpal-agent risk, and can yield some tax-equivalent benefits. However, Congress can change its tax treatment with 529s–I think that is the biggest risk.
Same thing is true for 401k, 403b, and anything else they legislate.
I do invest in 529 and 401k plans. However, I do not completely expect them provide the benefits in the future that they present right now. Still, it’s a good idea to cast your bread upon the waters.
[...] (Hat tip to Tony Woodlief.) [...]
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