This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Lesson Learned: Some 529 Plan Guarantees Are Better Than Others (Correct)

(Corrects story originally published March 18 to say the Pennsylvania 529 Guaranteed Savings Plan, not the commonwealth, guarantees the fund and the tuition value is based on what specific school the student attends.)

NEW YORK ( TheStreet) -- So-called Guaranteed Savings Plans for college seemed too good to be true.

In essence, by offering a plan tied to the rate of inflation for educational institutions, state-sponsored Guaranteed Savings Plans gave college savers the opportunity to lock in tuitions at rates on the day they start saving.

For many, it was too good to be true. For instance, out in Illinois, where state budget troubles are the stuff of legend, the program had to be shut down for a year to new enrollees. When the investments don't cover the cost of rising tuitions, who makes up the difference?

In some cases, it's consumers who will or have had to pay. One of the worst-case scenarios for parents saving for college is the belief they have college expenses tackled, only to find out at the last minute that in fact they don't.

I was therefore surprised and pleased to learn during my radio interview with Pennsylvania state treasurer -- and likely gubernatorial candidate -- Rob McCord, that Pennsylvania's Guaranteed Savings Program is now fully funded and guaranteed.

This means in the Pennsylvania 529 Plan the principal is protected, and this means the Plan, not each account owner, assumes the risk for covering tuition inflation increases.

For college savers, the importance of the guarantee is this: You can earn inflation-indexed returns right up to the end. By contrast, there are many college savings vehicles that are timed to when Junior enrolls for his first semester.

This seems to make sense, but keep in mind that every product I know timed to a specific event changes to an increasingly more conservative allocation as the expiration date nears.

Logically, this makes sense, as you do not want to lose principal in a market swoon just before your child goes off to college. However, likely it means your returns diminish as enrollment approaches because your savings will be allocated to lower-yielding but much safer fixed-income investments.

However, with a guarantee in place, college savers can reap all of the benefits of inflation-indexed returns investing right up to withdrawal date(s), with none of the downside associated with aggressive investing -- namely loss of principal.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $132.54 0.88%
FB $80.54 0.07%
GOOG $540.11 -0.44%
TSLA $247.73 0.86%
YHOO $43.48 -0.44%

Markets

DOW 18,232.02 -53.72 -0.29%
S&P 500 2,126.06 -4.76 -0.22%
NASDAQ 5,089.3620 -1.4320 -0.03%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs