Morningstar Advisor - Fall 2008 - (Page 11)

Inbox The magazine of investing insights for independent-minded advisors Summer 2008 the Medicaid applicant made a gift to a 529 account within five years. The second is whether the account owner should be treated as owning the assets for Medicaid purposes regardless of when contributed. The states have different answers to this question. I was browsing the college-savings section of the Summer 2008 issue of Morningstar Advisor when I came across the map that displays the best and worst 529 plans of the continental United States and Alaska. Unfortunately, you “forgot” to include Hawaii, the 50th state. You must not know that Hawaii was admitted as a state in 1959 after being annexed by the United States as a territory in 1898. It’s a constant source of irritation with Hawaii residents because the oversight is quite common. And although it’s not rated very highly, we do have a 529 plan. M. Lum, Allstate, Honolulu, HI many desirable features that far outweigh the limited (but expanding) investment options. Hampton Scurlock III, Retirement Tax Advisory Group, Lexington, KY Editor’s note: On Sept. 2, the Kentucky plan gave its investors more flexibility by adding two more options. For an index-laden offering, however, the plan is still expensive. We’ll revisit Kentucky’s, as well as every other state’s, 529 plan next year when we release our new list of the best and worst 529 plans. The College Savings Landscape: Choices are plentiful, as are the challenges. E-mail your feedback, ideas, and viewpoints to magazine_editor@morningstar.com. Or write us at: Morningstar Advisor Magazine, 225 W. Wacker Dr., Chicago IL 60606. I live in North Carolina, and although it didn’t make your list, I think the state’s 529 plan is one of the worst. North Carolina finally allowed a tax deduction for contributors, but that hasn’t helped make up for the poor performance of the plan’s investments. Instead, I have been using American Funds’ CollegeAmerica 529 in neighboring Virginia. Its fees are low, and its investments are good. States should be more aligned to giving their residents better plans with lower fees and better performance. Merely giving a state tax deduction for investments isn’t enough. It also doesn’t make sense for states to be allowed to tax the proceeds if they’re used out of state. All proceeds used for education should be tax free. Keep up the good work in identifying whose 529 plans are good and bad. Maybe “bad” states like North Carolina will feel the pressure to make their plans fairer. Mary C. Scoggin, Scoggin Insurance & Financial Services, Pinehurst, NC Editor’s note: Our apologies for leaving one of College Savings and 529s I truly enjoy Morningstar Advisor. It is a great contribution from Morningstar to those advisors who are serious about the academic side of planning. I have a quick question regarding a comment on page 36 of the Summer 2008 issue. It states that a 529 plan may be tapped by Medicaid if the account owner needs nursing-home care and does not have other funds available. I’m under the impression that contributions would qualify for the “look-back” rule. Therefore, five years after the contributions, Medicaid wouldn’t be able to demand these assets. Is this correct? Paul Caspersen, Ames, IA the most beautiful states off our map. Although Hawaii’s 529 plan is improving (Vanguard and Upromise recently came on-board to manage and administer the fund), the state doesn’t offer its residents any state tax benefits for choosing it and slaps a 0.75% annual fee on assets. There are plenty of cheaper, better alternatives out there, including similar plans in Iowa and Missouri and cheaper and more flexible Vanguard options in Utah and Ohio. In the article “Best and Worst 529 CollegeSavings Plans,” I was surprised to see the direct-sold Kentucky Education Savings Plan Trust named to the dishonorable list. It offers a low investment minimum ($25); no setup, application, enrollment, and administrative fees; no investment commissions; and it has low total costs (0.8% or less). The article mentioned what seems to be the plan’s negative: the fact that there are few investment options. The plan, however, recently added two more options. It seems that the Kentucky plan is cost-efficient and has Susan T. Bart, an attorney who writes a monthly college-savings column for MorningstarAdvisor.com, responds: There are two issues. One is the application of the look-back rule, which should apply whenever MorningstarAdvisor.com 11 http://www.MorningstarAdvisor.com http://www.MorningstarAdvisor.com

Table of Contents Feed for the Digital Edition of Morningstar Advisor - Fall 2008

Morningstar Advisor - Fall 2008 Contents New on MorningstarAdvisor.com Letter from the Editor Contributors Inbox Are You Preparing for Higher Taxes? State of Financials Oracles of Alabama Investment Briefs Managers’ Investment Secrets Revealed Conformity Becomes a Growing Concern at American Gimme Shelter Location, Location, Location Rooted in Buffett, Going for Growth Keeping Little Company Away from the Numbers Consumer Confidence What about Natural Gas? TIPS to Beat Back Inflation Investing in Hidden Assets Funds That Have an Edge Come Tax Time Mutual Fund Analyst Picks 50 Most Popular Equity ETFs Undervalued Stocks Most Popular Variable Annuities New at Morningstar One for You, 19 for Me

Morningstar Advisor - Fall 2008

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