When young parents put down on paper the expenses they need to be planning for, usually, it becomes clear how simple the arrangement needs to be: separate funds for health care, a daughter's wedding and college expenses; all easily seen to if they just make do without food and electricity for the next fifteen years. But it doesn't have to be that brutal. The government, through the Internal Revenue Code sets down a college planning proposal for individual families, in Section 529 of the code, and people affectionately refer to it as the 529 education plan. Each state is free to implement the 529 plan in any way it believes in. 529 Florida plans for example, allows parents to freeze prices on their child's future tuitions by using the plan to pre-pay college tuitions for the future at today's rates. Investing in Plan 529 Florida style could mean something like this: if you have a child now in the eighth grade, you can put down about $35,000 today to buy a quadrennial graduate program at the University of Florida for your child when he or she grows up. The tuition fees and all will probably rise to $50,000 by the time, but you will have the advance reservation advantage of freezing the price in time. Alternatively, you could just chip in a couple hundred dollars a month
The 529 plan has been around for years; people haven't begun really taking notice of it until recently. Investments in 529 plans around the country ten years ago barely drew about $1 billion; it is estimated that by next year, that investments made in 529 Florida plans or any other will hover around $250 billion. It would appear then people have been quite slow on the uptake when it comes to taking advantage of a great government savings plan for their child's education.
But it would benefit people enormously if they would only get with the program. To begin with, the IRS looks favorably upon investments in 529 plans; you pay no taxes on your investments and the state will often give you a few additional tax breaks as well. You don't ever have to worry about managing the funds you put into your 529, as it is professionally managed in some states like Colorado, the government will match your contribution dollar for dollar.People have all kinds of misleading information about 529 Florida plans. If you invest in one every month it's not like you'll be forced in the end use it for college tuition. You can always use it for anything else in the end. Best of all, you can shop around to invest in plans sponsored by other state governments too, not just your own.
But 529 Florida plans have some drawbacks as well. To begin with, these can be inflexible, and have a limit to how many plan adjustments you can ask for. These plans can be unnecessarily conservative in their investment policies as well and bring in low market returns. Another problem is, you never know how much exactly your child's tuition will be. If you happen to invest more than you needed to have, taking the money left over out will cost you 10%.
529 Florida, Colorado and California are all competitive plans.Parents are getting in on this tip now, and as it often is, it's better done late than never.
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