OCR Text |
Show a DAILY THE WALL STREET JOURNAL Sunday. Mardi 18, 2007 HERALD WML Better 529 Plans Help Parents Pay for College... By Nicole Bullock some states) offer relief on the tax on withdrawals. back end-- no college savings plans as 529s are getting grades every day. Named for a section of the fed- eral tax code The SMART fd duced MONEY late 1990s, 529 - .""- in the " """ plans provide tax breaks to people who save for college. Some states offer an immediate break through an income-ta- x deduction, while Uncle Sam (and Recent Improvements It sounds like a great idea, especially with college costs rising at twice the rate of inflation. But sales of the plans had waned in recent years amid frustration with high fees and uncertainty about some of the tax benefits. Interest has returned, however, thanks to steps at both the federal and state level to improve the plans. As recently as a year ago, some parents, like Angie and Jeremy Blackburn of Mansfield, Texas, hesitated to take the plunge, partly because the federal tax break on withdrawals was set to expire in 2010. "It made more sense to me to have the money grow in other types of investments," says Mr. insurance Blackburn, a executive with a three-year-oson. made that break permanent. In August, the Blackburns wrote an $8,000 check to a 529 plan. They weren't alone. Sales of plans started growing again in 2006 after a slight drop in 2005. Financial Research Corp., which tracks 529s, predicts assets in 529s will reach $112 billion by year end. These plans also are getting a That changed last year, when the Pension Protection Act Jonathan Burton have plenty of high expectations children and the cost of college is on the list. The tab for tuition now averages more than $22,000 a year for private schools and almost $6,000 for state school- splus another $7,000 to S9'000 for room and MARKET But even if you're WATCH wealthy enough to cover this commitment, making kids pay at least part of their way has benefits beyond the decreased drag on your nest egg. "Education is not a right," says Phyllis Silverman, a senior vice president at PNC Financial Services Group, who counsels affluent clients. "Kids are going to appreciate their education more if they have to contribute." "There's nothing wrong with a kid working a small part-tim- e job while they're going to school," adds Gary Buffone, a psychologist in Jacksonville, Fla., specializing in family matters. "Kids that work part time do better than kids who don't work at all or work Most parents evidently would agree that when it comes to college, a family that pays together, stays together. In a poll on the Savingforcollege.com Web site, almost 60 say their child should carry at least some of the educational freight even if money isn't an issue. "Responses are dependent to some degree on family history," says Joseph Hurley, founder of Savingforcollege.com. "If their own parents paid for their education, these parents are probably going to follow suit. If they paid their own, they're inclined to have kids pay." Parents Communication Is Key Most teenagers aren't financially savvy. Understanding what it means to pay for college or take out a student loan is a new experience for them. parents who have no trouble critiquing their kids' college plans often spend little time talking about the money that will be needed to pay for everything. Yet s the Internet the answer to backvaluable files on your per sonal computer? Most computer users back up materials like text files, music and photos on discs or external hard if they do it at all. But now, drives new services that outsource TECH the storage WATCH process to the " Web can be faster, safer and cheaper. Online storage options have existed for years but have been rela- Be your child's first college teacher, financial advisers and education experts say. Don't wait until an acceptance letter comes to talk about what you want from your child-a- nd what she wants from you-o- ver those four years. ' "This ideally has to be part of the family culture," says Kevin Ellman, a financial adviser at Wealth Preservation Solutions in Ridgewood, N.J. "If you've been paying for every expense and change your tune when it comes to college, I don't know how effective it's going to be." "The Valerie and Alberto de la Torre learned the importance of family communication when their son Adam came home to Jacksonville, Fla., in December after his freshman semester at Duke University in Durham, N.C. The de la Torres hadn't asked Adam, a top student in high school, to contribute to his college expenses. "Education was a luxury we were willing to indulge," Ms. de la Torre says. grade-poin- t But Adam's first-teraverage was below his parents' expectations, so they told him that with a total college bill approaching $50,000, he'd have to maintain at least a 3.0 average this year with no grade lower than a C. Any grade lower and he pays for the class. "You want not to be too punitive," Ms. de la Torre says, "but you want to make the message very clear: If you just want to go to parties and basketball games, we don't have to pay for that." The earlier families spell out these rules, the better, she adds. "We were sort of vague and assuming, based on his past record. This year is the adjustment year. Next year, he's going to have a part-tim- e job." Sharing college expenses doesn't have to break a kid's piggy bank. Many schools offer money to applicants without financial need if they're eager to enroll that student, and colleges sponsor work-stud- y programs that can offset costs. In addition, families with a level of income or assets that disqualifies them for financial aid can tap several loan options. Federally guaranteed Stafford loans carry a fixed 6.8 interest rate and flexible repayment terms upon graduation. the tively expensive and tricky for consumers to figure out. While nearly s of Internet users in the U.S. say they back up their docu- ments and content, according to research firm Parks Associates, only 9 do so through online services. The new stor- consumer-focuse- age services are easier to use than earlier versions geared toward businesses although how easy largely depends on the speed of your Internet connection. In rare cases, service downtimes may leave you temporarily unable to access your files. The services allow users to upload and access files anytime from any computer with an Internet connection. They use several layers of security to ensure the saved files remain private. They also come which AOL acquired in 2005.) Omnidrive allows users to drag and drop files from their desktop into online folders that can be ac- cessed from any Internet-connectecomputer. It offers one gigabyte of space free and 10 gigabytes for $40 a year. Box.net, of Palo Alto, Calif., helps users store and organize files in various online folders which they can open up to other users such as family members. It offers one gigabyte of space free and charges $7.95 a month for five gigabytes. Mozy.com encrypts and backs up files by making a copy of the files that sit on your machine includon its own servers for ing emails safekeeping. It offers two gigabytes of space free and unlimited space for $4.95 a month. An average user storing songs and photos would typically require between one and 10 gigabytes of storage, while heavy users might want 20 gigabytes or more. (One gigabyte holds around 250 songs; about half of a twcvhour movie; or U.S. lawmakers taking aim fees and penalties, one major card issuer has already dropped the comd mon but practice of "universal default." credit-car- With univer- ty TRANSLATION - sal default, you could be hit with sharply higher rates on your credit card some as high as 35-- if you've been late another creditor, such as an . paying auto lender or mortgage lender. Some issuers also raise your credit-car- d rate if you make late payments on medical or cellphone bills. Earlier this month, Cltigroup's Citi Cards unit said it was ending its universal default policy, effective Immediately. The news came Just before a U.S. Senate panel took card issuers to task for rate policies that lawmakers say are keeping millions of Americans deeply In debt Card Issuers monitor credit reports for notices of late payments, and at any sign of delinquency they boost cardholder rates to the highest penalty rates. Others track" credit scores and boost rates when credit scores drop for reasons other than late payments, such as maxing out a credit line or opening too many charge accounts. When your rates will rise depends on how often the card issuer checks your credit report or score. Credit-carcompanies are required by law to disclose If they practice universal default, but many cardholders don't read their cards' terms and conditions before opening accounts. Compounding matters, many card issuers who practice universal de- fault also charge rates based on the "first In,, last out" method, meaning cardholders must pay their outstanding balances In full before card Issuers will drop rates back to normal levels. Hew can you avoid universal default? Pay your bills on time, obviously. Whenever possible, sign up for automatic services and get Into the habit of checking lowest-co- Still, it's no free lunch. Even in lowest-co529s, the fees tend to be higher than what an average investor would pay on investments bought directly from a fund company. Another rap is that 529s limit i Head of the 529 Class The 529 industry is still young, which makes it tough to compare state plans. These are performance, according to plans for three-yea- r Savingforcollege.com. Private loans are based on creditworthiness and can be arranged through' banks and other financial institutions such as Sallie Mae, but government loans generally offer better terms. Requiring a child to repay tuition debt after graduation is another way to share costs and allows a student to focus on classes and campus life. Or you can raise a teenager like Amanda Jefferson City, Mo., Kimlinger, a high-schosenior who this fall will join Brigham Young University's Class of 2011. Tuition at BYU next year will be $3,800 for Mormon church members, and Amanda can figure on another $10,000 or so for room and board, books and personal expenses. Amanda and her parents will split the bill which she intends to handle with summer jobs and working part time while in school. "I don't want to rely on my parents for the rest of my life," she says. "I can at least pay for a part of my education." around 1,000 photos, depending on their resolution.) Companies are rolling out tools for editing and sharing personal content whether photos, videos, or documents. Box.net lets users create links to their stored photos, videos or documents back on Box. net from their own personal Web g site or profile a tool more related to than storage. Consumers may be wary of storing personal information with a third-partservice that may some day go out of business. The companies stress that customer data are backed up on multiple servers in multiple places and can be imported into other storage programs in the event the business decides to stop operating or if the consumer wants to switch. Long upload times which can d occur even on Internet connections can also be trying. Rick Mann, 38 years old, uses Xdrive for clearing space off his computer. But "it can be painful to upload files," says Mr. Mahn, who says it can take him around 10 minutes to upload 20 or 30 photos from his home in Monticello, Minn., and twice that for a few video clips. By Jessica E. Vascellaro Steps to Avoid Onerous Credit - Card Fees With onerous specified colleges. With all the complications, 80 of 529 accounts are sold through brokers, but you can save by doing the research yourself and buying directly from the plan. The College Savings Plans Network, the 529 plan association, is launching a new Web site aimed at simplifying the decision-makin- g process. SmartMoney.com also has tools to guide you, and Savingf rates plans' attractiveness for residents and plan today plan tomorrow," says Joseph Hurley, founder of Savingforcollege.com, which tracks and compares 529 plans. slide-shosoftware, media players and the ability to upload from a mobile device. AOL began offering five free gigabytes of online storage to anyone with an AOL screen name late last year. (The service is through Xdrive, offer benefits to do so. Some states have multiple plans and even another type of 529: prepaid plans that enable you to pay today's tuition rates for a future education at lowest-co- won't be the Making the Message Clear with Perhaps the biggest obstacle is that the 529 system is pretty confusing. The plans are sponsored by individual states, so each has its own set of investment managers, fees and rules. Parents don't have to stick with their home state, but many states - Try Online Options to Back Up PC Files I ing up Who Has What? Meantime, the underlying annual expenses for funds in 529 plans have fallen 31 since 2004, to 0.74, Financial Research says. As the original management contracts for- these plans expire, states are putting them up for competitive bidding, which is paving the way for lower fees. Costs should keep dropping, as 70 of the remaining 529 contracts expire by the end of 2010, putting $42 billion in assets up for grabs. ...but Kids Should Share the Cost By flexibility; each plan has a set number of investment choices, and investors pay a 10 penalty If they make withdrawal; for anything other than qualified education expenses. "You have every adviser out there pushing them, and the message is that if you don't get a 529, then you are a bad parent," says Sean Sebold, a financial planner in Chicago. "But it eliminates options." boost from decisions by the individual states, many of which nave added tax deductions and other incentives to invest in 529s. For Rick and Karen Sung, Pennsylvania's move to make contributions tax deductible was the clincher. The West Chester, Pa., couple sent $12,000 to a 529 plan last year, netting a savings of $368 on their state tax bill. Typically, states limit deductions to money headed for their own plans. But Pennsylvania, along with Kansas and Maine, now allows deductions for contributions to any 529. your card's due date each month. Many lenders offer free email-aleservices to warn you when a payment is due, and verify when a pay- ment is received. If your card's due date falls at an inconvenient time of the month for you financially, ask to have the date changed. If you receive a statement in the mail indicating a change In your card Issuer's policies, check your statement online. Some cardholders wind up hit by late penalties when card companies suddenly change due dates. If you've been late on lender payments recently, check your card statement or call your card Issuer and find out whether you may be vulnerable to universal default If you're being charged more, call your card Issuer and ask for a ter deal. Competition is fierce, and studies show most consumers who ask for a lower rate get one. If your card Issuer won't budge, shop for better deals at Web sites such as Bankrate.com and CardWeb.com. By Tern" Cuflen LOYe & Money PLAN Alaska INVESTMENTS UNDERLYING T. Rowe Price T. Rows Price mutual Ms EXPENSE 0.55X to RATIOS 0.68)1 for funds; 0.40X to 0.72S for College Savings Plan individual funds AllianceBernstein CollegeBoundfund Vanguard Total Stock Market Index fund funds; West Virginia SMART529 Hartford funds and Invesco Included WV Direct College mutual funds management Savings Plan , funds; Vanguard funds and Savings Plan Trust treasurer's the state, Performance doesn't take into to L53H for in 116 fee 0.03X to 0.14 on Vanguard funds; none for the state Variety of managers, including American Funds, legg Mason, treasurer's portfolio 0.4U to 0.64)1 for .funds; 0.4B to 0.85 for Dreman Value and Pimco individual funds. portfolio CollegeAccess529 0.39)1 individual funds. : Utah Educational South Dakota account :" fees fixed 'Similar plans available to nonresidents :ff 0.72 to 0.94 for Rhode Island only on plans at additional cost By Jeff D. Opdyke Readers: No More Fund Raising! Want to get a parent Apparently, all you to do is say the word... fund-raise- I learned that after my recent column in which I complained that my son gets nothing out of assignments to raise money for a cause. He and his friends care only about winning some prize for sellng the most worthless items. And it's usually the parents who end up doing most of the selling, anyway. I noted in my column that I would much prefer schools and organizations to just hit me up for an donation. That, to unvarnished me, is more palatable. Some readers agreed; others didn't. "I wish it would be so easy," says Alicia Escobar, a school principal in Santa Cruz, Calif. Ms. Escobar agrees fund-raiser- s are "a pain. However, it's the only way we can fund art and music at our school." Straight donations, she says, "will work with affluent and middle-clas- s parents, but it won't work for working-clas- s parents." Ms. Escobar says many parents at her school like the fundraisers, "because they have extended families they can tap into. This is a way they can contribute as they cannot afford to pay the high prices that our middle-clas- s parents pony up" at an annual stuauction. dent Steve Morse, in Mt. Pleasant, S.C., also says I was "off the 7 mark." He has two sons-ag- es and 9 in Cub Scouts who "spent countless hours with Dad for most weekends from late August until late October, taking orders from door-to-doand delivering the product."; Both wanted mountain bikes that required $1,700 in sales-ea- ch; ,. i: Both reached their goal, Mr. Morse says, "without a single dime from Mom and Dad, and no one from work." In all, Mr. Morse says; "this gave my boys a valuable lesson in goal setting and hard wort They also know they helped support the troop." .', Still, the majority of parents I heard from, like Beth Eagleson, in San Clemente, Calif., came down She says opposed to fund-raisershe told her son's school that her third-grade- r "will not participate in fund raisers." "Telling an elementary school child they can win a great prize is unkind them to and encourages cheat," Ms. Eagleson says. When her son's first arrived, he "wrote down the names of all his friends, so he would have a full sheet, not realizing that they would not be buying anything." When Ms. Eagleson told her son she wouldn't buy either, it led to tears. Ms. Eagleson has become what she calls "the school jerk." The Parent Teacher Association serves r for her son's school, as and the PTA recently promised to give $100 to each teacher for classfund-rais- fund-raise- room books-- as long as every family in the class paid to join the PTA. At her son's school; she says, "90 of the population qualifies for free lunch, where that PTA payment may make the difference in Low & Monty. The Podcast " each week to Jeff and Amy Opcfyke talk about the issues that affect family Listen finance. This week they discuss reader reaction to a recent column on the once theyre willing to pay for convenience, especially For when traveling with kids. these and ofter free podcasts, eitoWZt.compoictstt feeding the family that week." "I gave the teacher $100 to buy books for her classroom...and explained to my son why sometimes it is necessary to go against the grain," Ms. Eagleson says. "Sometimes the indoctrination our kids receive from school is not the kind we want them to have, and teaching them to be principled jerks is the best thing we can do for them." Eva Lang, in Memphis, Term., who likens the concept to "extortion," says she visited the Web site for a popug lar program to find that schools get as little as 40 cents on every dollar raised. "I am often approached by a g child or a parent stuck In purgatory," Ms. Lang says, "and I always buy one of the items because I feel so sorry for them. But it is the case that if they just asked for a donation, I would have been glad amount." """'like to give a larger , many parents, Ruth Lopez, a Pleasanton, Calif., mom of a doesn't allow her son r. to go So, she says, "I ended up placing orders for Grandma and aunts and family friends that I pay for." A persuaded her to bring the sign-u- p sheet into the of fice, since that's what all parents there did. g That vehicle was cookie dough, and when Ms. Lopez picked up the order, "I had to find some place to refrigerate the dough (five-poun-d tubs, which I left overcenter's renight in the day-car- e frigerator after a long battle with them). I had to go into work late the next morning in order to pick up the dough...then rearrange the refrigerator at work to be able to put the dough in there. The orders were all mixed up as no one remembered what they ordered, and the copies of the order forms were illegible. All in all a horrible experience, and I will not repeat it." But is there a better way? in Austin, Shelly Runyan, Texas, says that when parents begin discussing annual fund-raisin- g plans, she always asks the same question: "What is the average profit for the group per family and who is willing to pony up that much not to have to go through the hassles?" The response, she says, "has been 95 writing a check. This has made life much easier. I do not believe this sends the wrong message to children. It teaches them to look at time versus income Holly Frachetti, in Denver, participated this year in her first fund- raiser for her son's school. But instead of selling junk, the fund-raisewas an spelling challenge, in which kids hit up sponsors to pay for correctly spelled words on a Challenge Day Test graded by teachers. The kids won "prizes' such as an extra recessj and the school kept 100 of the donations. "As a parent," Ms. Frachetti says, "I'd much, rather spend my time helping my child learn something than, to have to sen something which is not a good value to anyone. This type of fund-raise- r gives kids a specific, positive goal which is complementary to their education. Personally, having participated as a sponsor fof the kids in our neighborhood; the years, I would besc-- jRutfr pier to contribute to this. fund-raisthan the other with products or food that we di eat or use anyway." jerr upayKe covers personal ftrjance for The Wall Street Journal. Write-hiat lovmooYwtJ.eo- i, |