With the school year commencing, many parents are reminded of what they would rather not contemplate: future college costs. If parents are procrastinating because of indecision about which savings vehicle is best, their excuses are up.
Financial experts agree that for Maryland families, the Maryland College Investment Plan, or “529 plan,” is generally the best option for parents that are saving for their children?s college education.
Just don?t expect a financial adviser to give such information.
“You don?t see advisers recommend the plan much because it?s [a no-load plan],” said James Haas, compliance and operations supervisor in the Columbia office of Fiducial, a global provider of financial services to individuals and small businesses.
In an effort to reduce costs, state officials designated the plan as “direct-marketed,” meaning that a financial adviser will not net a sales commission for recommending it. Therefore, many will steer clients in other, more lucrative directions. (This doesn?t apply to fee-based financial advisers, who charge clients by the hour and offer more objective recommendations).
This summer, two events made the 529 plan more competitive relative to other options. In July, as part of a contract renewal, fund manager T. Rowe Price lowered the maximum total operating expense charge to 0.95 percent of assets, from 1.05 percent formerly, making it one of the lowest-cost plans in the country.
And in August, President Bush signed the Pension Protection Act, which preserves the tax-exempt status of 529 plans. Formerly, this advantage was due to expire at the end of 2010.
Tax-exempt withdrawals for earnings, combined with a state income tax deduction on contributions, makes the plan hard to beat. Already, more than 45,000 account holders have invested more than $1 billion in assets.
Its closest competitor is Maryland?s only other 529 plan, the Maryland Prepaid College Trust, which locks in tomorrow?s state tuition rates at today?s prices.
The state already has 1,000 names on a list, waiting for the prepaid program?s enrollment period that begins in December.
“That?s definitely more than in years past,” said John Trader, spokesman for the College Savings Plans of Maryland, the program?s administrator. “That?s a byproduct of the cost of college is a prominent news story. We?re seeing college tuition increase at three times the cost of inflation.”
