Re: Saving money for other people
There are many ways to save:
One way is a 529:
Most states now offer 529s.
If you choose a 529; at all costs avoid brokers "the so-called financial intermediary." The broker does nothing and sucks off about 15 to 20 percent off the profit that would go to the kid's education.
Check out a few states.
If you choose the state you live in; you can deduct maybe up to $2000 off of your state income tax bill (if your state charges Income TAX).
Ohio has a good plan. It’s called the College Advantage with Vanguard Group, Putnam, and the Fifth Third bank participating in the plan. For mutual funds, the Vanguard Group is the best or better deal with much lower expenses than Putnam. The bank deal is essentially only savings or CDs, and they charge no expenses (i.e., extra expenses – they don’t run banks on air). I would pick Vanguard. And repeating myself – always go directly to the state to initiate a 529 – avoid the greedy broker at all costs. In Ohio; The broker charges a 5.25% upfront load, and a 1.4% yearly expense ratio. That is; money saved using a broker (Putnam) in the first year (or last year) has to make 6.45% just to break even – a real rip-off.
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Upfront loads and expenses in Ohio:
(1) Vanguard: Zero up-front load and 0.4 percent yearly expense ratio.
(2) Putnam (via the Ohio State agency) : Zero up-front load and 1.0 percent yearly expense ratio.
(3) Putnam (using a broker “financial intermediary”) charges a 5.25 percent upfront load and a 1.4 percent yearly expense ratio.
(4) The Fifth Third bank offers savings or CDs and charges no-extra expense (zero risk, but probably the lowest return in the long run)
You can see that Vanguard has much lower expenses than Putnam; and much-much lower than the broker.
In any 529 plan; you have your choice to designate who will monitor the plan: you, the parents, an aunt or uncle, whatever. Of course you would choose a responsible person – not a crazy momma with ten credit cards (maybe I’m just kidding – but….).
The phone number for Ohio is: 1-800-afford-it ( 1-800-233-6734).
You can get a list of all the 529 providers on the Internet.
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