I Opened Up Two College Saving 529 Plans

As I noted in a couple recent posts, we set our college savings number, but I still needed to pick a 529 plan (FYI, we already have Coverdells for each child, but now we're getting serious with our saving) and open one up for each of my kids. Last week I did the research, and last weekend I made the investments.

Basically, when deciding on what 529 to choose, you have to determine whether the plan in your state offers any benefits versus any other plans (many times, state plans will give tax breaks for residents.) If your state plan is a good one (low cost, good investment options, and nice tax breaks), then it's usually a no-brainer to go with it. However, if it's a so-so plan, you'll need to compare it to others across the country to see which is best for you.

So I took two simple steps. Here's what I did:

• I went to Saving for College to check out reviews for my state's (Michigan) plan as well as review other good plans from other states.

• I got online to see what others were saying about the various plans. I considered The Best and Worst 529 Savings Plans, Best 529 Plans, and The Best And Worst 529 Plans.

Lucky for me, all of the articles as well as the Saving for College website rated the plan for my state among the best in the country. It has low fees, a good set of investment options, decent investment flexibility and good shareholder relations. In addition, the plan allows Michigan residents to deduct contributions up to $10,000 for a joint return off their state income tax. So, by saving in the Michigan Education Savings Program, I not only get a great plan, but (by my calculations) will also save almost $400 of my taxes this year. Not bad at all!!!!

FINALLY, there's an advantage to living in Michigan!!! I've been searching for one for seven years, and now I found it!!! ;-)

Ok, long-time Michigan lovers, don't send me any hate mail -- I'm just kidding (mostly.) Michigan is a nice place to live. It's just that at this time of the year I start to long for Tennessee. The weather is MUCH nicer there, especially in the December-March time frame.

For those of you wanting to read a bit more on saving on and for college, check out Best of Free Money Finance: College and Education Posts.

Comments

[Derek]

How does the tax deduction work, does it just reduce your taxable income?

[FMF]

Derek -- Michigan residents get to deduct the contribution (up to certain limits) from income, thus reducing overall taxable income. Look at your past Michigan tax forms and you'll see a spot for it.

[Diffus]

We've been using for several years now a MasterCard originally issued by MBNA, now, I believe, administered through a subsidiary of Fidelity Investments, that rebates 2% of all purchases into a Fidelity 529 account for my son. Everything, even a Coke at the convenience store, goes on that card. Over the last nine years, the accumulated rebates have amounted to more than $3,000. We've also registered all our credit cards and grocery-store cards at Upromise and have a 529 there.

[Bob]

MBNA credit card is no longer there. It has been replaced by Fidelity Amex card and rebate has been changed to 1.5% from 2.0%.
You can review all credit cards offer for 529 plans at
http://www.plans529.com/Directory/tabid/145/Default.aspx
Under Save for College section.

[Ciji]

What if your kids don't want to go to college? What if they decide they want to open a business or invest in real estate? Can the money you've socked away be used for those purposes or is it just for college tuition and expenses?

[FMF]

There's a good chance at least one of the two of them will go to college and the money can be shifted from one to the other. Also, it could be used for me or my wife if we went back to school. Finally, it can always be removed, though at a penalty.

[Deezer]

What funds did you choose in the Michigan plan? I'm confused as to which is the best . . .

[FMF]

They have age-based funds. I put in half in the "aggressive" fund and half in the "moderate" fund.

[JR]

FMF, We are trying to decide how to best start a 529 for a newborn. We have plenty of cash we could allocate to a plan, and are trying to decide whether to start the plan with a bigger initial investment or larger annual contributions. Can you provide some info on how you went about starting & maintaining your 529's? Any specifics would be much appreciated!