Building A Bridge


Three years ago, Robin Walker didn’t have any money invested to cover either of her children’s post-secondary school costs. While the legal secretary made a reasonable salary, she knew she wouldn’t be able to send daughter Sheriden and son Clinton, who were 13 and 10 at the time, to college while maintaining her current standard of living.

So when Walker heard about 529 college savings plans (state-sponsored investment accounts) on the job, they sounded like a relatively easy, tax-free way to invest for her children’s college education. These plans give you the ability to invest money in a pre-selected portfolio of stocks and bonds for future use toward educational expenses. They also provide tax-free savings on the interest earned, as long as the money is used for education. Some states even offer a tax deduction for state residents.

The 529 plan option seemed like an even sweeter deal when the Washington, D.C.-based law firm where Walker works offered the plan as an additional savings vehicle for its employees. “I have other investment accounts with my employer and I trust what they offer,” says Walker, who placed $1,500 in Maine’s NextGen College Investment Plan for her daughter and $500 for her son. She made monthly contributions of $500 and $200, respectively.

Unfortunately, within a year of setting up her 529 plan, Walker watched the declining market chip away at her children’s education funds. Managed by Merrill Lynch, the NextGen College Investing Plan was down 22.8% through the first three quarters of 2003. A large loss prompted Walker to discontinue regular contributions to the plan for daughter Sheriden. “I just felt the market was too risky with college just around the corner,” she says.

The stock market’s negative trend has been especially troublesome for parents like Walker who have children nearing college age. Many are worried about having to raid their retirement funds to pay for college costs. And with good reason: Next to buying a home, paying for college—public or private—is one of the biggest expenses a family will incur. Public college and university costs rose 14% in 2003. According to the College Board, a national nonprofit association that connects students with college opportunities, one year at a state school, including room and board, costs around $10,636; a private school costs $26,854.

Walker will rely on other resources when she sends Sheriden off to college in 2005. Because she has time on her side with Clinton, she’s leaving the $7,000 currently in the 529 plan, hoping the market takes a turn for the better before it’s his turn for college.

Parents have a varied number of college financing options, but the most popular tools of late are 529 college savings plans. About $30 billion in assets is now invested in 529 college savings plans and investors are expected to add some $50 billion more by 2007.

While a 529 college savings plan is an important new saving and investing tool, parents need to be “better schooled,” says Joseph F. Hurley, CEO of Savingforcollege.com in Pittsford, New York,


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