by Gerry Chambers

I decided to invest in my grandchildren’s future. My wife Mary and I believe in higher education. No matter how much the “experts” devalue a college education, we think it’s vitally important.

Four years of higher level courses in art, literature, history, and science can help to produce a thoughtful, responsible, somewhat cultured individual who will work for the betterment of our world.

I’m from a farm outside of Murphy, North Carolina and education brought many members of our family out of a hardscrabble Appalachian life to undreamed of levels of prosperity. I want my grandchildren to have as many opportunities as possible.

But I’m not a professional investor and I didn’t want to spend my time learning about making money from my money. I talked with my accountant and my sons Jason and Chris and decided to start individual 529 educational accounts for my grandchildren, Allen, Iris and Adeline. My sons set up the accounts and I plan to contribute every month and so will they.

It took me just a little bit of time to figure out the benefits of a 529 program and I’d like to share them with you.

Every state has a version of 529. But the basics are the same. There are two types of plans:

• College Savings Plans
• Pre-Paid Tuitions

The College Savings Plan allows you to set up individual accounts and contribute money.  The money is typically invested by the plan in stocks, mutual funds, bond mutual funds and money market funds. The U.S. Securities and Exchange Commission (SEC) says, “These portfolios often shift toward more conservative investments as the beneficiary gets closer to college age.”  The SEC does point out that the investments are subject to market swings.

The savings can cover:

• Tuition
• Room and board
• Fees
• Books
• Computers

You can set up one of these plans through investment companies, insurance companies, banks or credit unions. Jason chose to do it through an insurance company that provides the benefits to the college where he works, and Chris is likely to use his credit union.

The Pre-paid Tuition Plan allows you to buy credits at participating colleges or universities for tuition in the future, and in some cases it allows you to save for room and board. These plans are generally sponsored by state governments and they have residency requirements. One advantage is that the investments are often guaranteed.

The benefits include:

• Locked-in tuition
• Covers tuition and mandatory fees

Tax Savings

My sons and I were happy to learn that neither we nor the kids will have to pay taxes on the profits if the money is used for college expenses.

Fees

You might want to consider the fees when you decide to set up a 529 plan. Remember brokers often charge fees and the upfront fees for mutual funds and other investment programs. However, the SEC says, you might be able to negotiate these fees away or reduce them if you invest certain amounts, or purchase Class A shares.

There’s also something called Direct-Sold College Savings Plans that allow you to buy directly without a broker. Many states offer the Direct-Sold plan.

Review Every Year

We plan to review our plan every year to make sure that we’re contributing the right amounts of money, and make sure our goals for the kids are realistic.

My Goal

My overriding goal is to make sure that my grandkids don’t get mired in educational debts. I feel good about our decision to set up these funds and I’m at peace about their future education.

I recommend that if you find yourself in my position, don’t hesitate to check out a 529 plan.