The College Savings Foundation, formed by several mutual fund companies that manage 529 plans and interested in educating people about them, plans to push for equal state tax treatment and the removal of the sunset provision that would eliminate the federal tax exemption on earnings after 2010, says Sarah Henriksen, a foundation board member and director of education planning for Strong Financial in Menomonee Falls, Wisc. Strong manages seven plans for three states-Wisconsin, Oregon and Nevada.
Advisors Speak
"I think the plans are a very valuable tool in college planning. That's specifically what they're designed for and they certainly have some tax advantages. I don't believe they are turnkey college-planning programs as some states have marketed them. They are not the whole package," says Philip Johnson, a CFP licensee in Clifton Park, N.Y.
Some people try to weigh how college savings plans will help or hurt the chances of their children getting financial aid versus other savings alternatives. But Johnson doesn't agree with that approach. "If you have as a basic element of your college savings plan to qualify for the maximum aid, you may undermine your son or daughter in the admissions process," he maintains. That's because there's less money available for financial aid at the same time there's tremendous competition to recruit the best students and provide more merit-based aid, he says. Without question, a family's ability to pay the bills will help a student get admitted, he says.
Retirement planning also needs to be considered when deciding how and when to fund college savings, says Ray Loewe, CEO and president of College Money in Marlton, N.J. "No one has unlimited money. Do you fund for retirement or college first? I'm a believer that you have to fund for retirement first. There are loans for college, and there's a certain recovery for people after. When it comes to retirement, no one is going to lend you money or give you financial aid. Retirement has to come first, but you have to pay attention to college along way," he says.
Click here for our annual 529 Savings Plan Provider Guide compiled by Survey Editor Karen Burke. (Requires Adobe Acrobat Reader)