Making the grade

Do state college tuition plans pass or fail in giving parents huge savings?

“It’s important for parents to understand what they’re getting,” says Peter Roberts, chairman of College Savings Bank. “To work, you need a plan that generates at least a rate of return of 10% (or 20% if you’re considering private colleges) in order to stay ahead of rising tuition rates. Otherwise your child’s education may end up underfunded.”

Treat college savings plans as you would any prospective investment-ask for a prospectus. Who’s managing the account and where are the funds invested? For instance, contributions to Montana’s program are invested in certificates of deposits indexed to college costs and FDIC insured, guaranteeing your principal and interest.

“Fidelity’s plan is tailored to the age of the child,” says Claude. “So, the portfolio is heavily weighted in stocks and stock mutual funds when the child is younger but shifted to mainly bonds and money market funds as he or she reaches college to safeguard against changes in the market.” He concedes the risk is greater, but so is the potential payoff.

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