As published in the Sunday, January 10, 2010 Edition of the Lowell Sun

If Benjamin Franklin were alive today, his famous saying might sound something like "...in this world nothing can be said to be certain except death, taxes and increasing college costs."

With the average cost of tuition and fees for an in-state four-year public college increasing 6.5 percent over last year, I think many would agree.

While it may be easy to picture your child or grandchild getting accepted to college and going off to enrich and enhance their life, can you picture how this will happen financially? While it may seem like a daunting task, the good news is the sooner you start saving, the better off you will be.

If you were to invest $300 a month for 18 years, assuming a 7 percent rate of return, you could save more than $126,000 in time for college. But waiting just one year could cost you almost 10 percent, and waiting five years could cost you nearly half.

One of the most powerful ways to save for college is through a 529 College Savings plan. A 529 plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. Each state has at least one plan. Options vary between states (ie. fund companies, expenses, taxes).

The biggest benefit of investing within a 529 is the tax advantages it may offer. Earnings from the funds grow tax-deferred through the life of the program. Better yet, as long as funds are used for qualified higher-education expenses,

withdrawals are tax-free. What this means is you can avoid taxes on the money you contribute as long as you use it for an accredited college, defying the previous quote from Mr. Franklin.
Assets in the plan are professionally managed and the owner is able to invest in a wide selection of portfolios. One available option is an "age-based" portfolio, which uses a unique roll-down strategy that automatically rebalances assets to a more conservative risk tolerance as college approaches. We often compare this to "cruise-control" investing, where your money is being managed and rebalanced by professionals at the investment company you choose. Work with your financial representative to ensure you are in a portfolio with a risk tolerance you are comfortable to assume.

Another great characteristic of the 529 plan is the amount of control the owner has over it. The owner has control over assets, even after the beneficiary turns 18. Should a beneficiary decide not to attend college, the account can be transferred to an eligible family member.

Financial flexibility also makes a 529 account very attractive. With low minimums, around $50 a trade, you can invest on a monthly basis and/or add money at anytime. The money that is being contributed can be increased, decreased or stopped altogether at any time. There are also no income restrictions regarding contributing to the account.

For financial-aid purposes, a 529 plan account is considered an asset of the owner, rather than of the beneficiary. Because federal financial-aid formulas look at only 5 percent of parents' assets versus 20 percent of a child's available assets, a parent's 529 plan account may not have significant impact on a child's financial aid.

While we can't stop the ever-increasing costs of college, getting started early and investing often is the best way to achieve your child's goal of college.

James O'Hearn is a financial adviser for Enterprise Investment Services at 222 Merrimack St., Lowell, and an investment adviser representative of Commonwealth Financial Network. He can be reached at 978-656-5639.

To speak with one of our trusted advisors about your needs, call 978-459-9000 or contact us today.