The 529 Answer

Consider one of the two 529 plans. The 529 savings plan lets investors save money in accounts that grow until the student is ready for college. The 529 prepaid plan lets savers pay today's rates for future college credits. Both plans are tax-advantaged, state-sponsored and managed by major financial services companies, but the 529 savings plan is more popular and flexible.

Navy Federal Investment & Insurance Services can help you make the right 529 choices. For more information, call
1-877-221-8108.

The 529 savings plan advantage

• Dividends are tax-deferred, and withdrawals before 2010 for higher education purposes are completely tax-free.
• All 50 states have at least one 529. You can invest in any state's plan, but your home state may offer additional income tax breaks.
• You can often invest $50 or less to start.
• You can open a 529 no matter how much your household makes.
• Couples can contribute up to $22,000 a year.
• Under certain circumstances, a couple can contribute as much as $55,000 into the plan in one year and save from $100,000 to $270,000 over the life of the account.

Your investment choices

Most 529 savings plans offer a choice between two professionally managed options:

• age-based portfolios, which move into more conservative investments as your child gets closer to college age
• static portfolios, which maintain set percentages of stocks and fixed-income investments
• Once you choose your option, you can change it once a year.
• Many states offer individual mutual funds among their investment choices and let you put together your own portfolio.
• Like any stock investment, a 529’s value fluctuates with the market. Ask your financial advisor which plan option is right for you.

Flexible savings options

You don't have to be a parent to open a savings or prepaid 529

• Grandparents, aunts, uncles, godparents—anyone who wants to help is eligible
• You can invest anytime after a child’s birth, and you can open more than one account in a single state for the same child
• More than one person can fund the same beneficiary
• When college begins, your 529 can pay almost any costs associated with the beneficiary's higher education—tuition and fees, books, computers, supplies and room and board

Finding the best plan

The number of 529 savings plans now stands at 70, spread over all 50 states. The programs vary in investment options, fees, penalties, minimum and maximum contributions and the record of the financial services company running them.

Compare the benefits and features of the different plans, using the links at collegesavings.org and the interactive evaluation tool at savingforcollege.com. Among the most important features to look for are:

• strong account-management companies
• solid past performances
• diverse investment options
• low annual fees

A few points on prepaid plans

These plans allow you to pay today's rates for future college credits, in lump sum or monthly payments. The state pools your money with that of other participants and invests it so it will grow to meet or exceed what the state will need to cover actual tuition expenses in the future.

529 prepaid plans are less dependent on the stock market than the 529 savings plans, better for conservative investors, and tax-free when used for higher education.

There are drawbacks:

• The government treats prepaid plans as scholarships, so they reduce your financial aid eligibility
• You can only prepay bills for colleges and universities in the plan’s sponsoring state, limiting enrollment options
• Soaring tuition prices and fluctuating investment returns can result in a plan not earning enough for the future. Only five states—Florida, Mississippi, Ohio, Texas and Washington—promise to compensate for a shortfall
• They’re not available in all states

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