Morningstar Advisor - June/July 2011 - (Page 10)

On Topic Are 529 Plans a Useful Tool for Clients’ College-Savings Goals? Let us know your thoughts at “Talk to the average client about the advantages and disadvantages of 529 plans and see how confused they get. No wonder people procrastinate saving for college and that the average balance in a 529 plan is only about $9,700.* The average investor can only save a minimal amount and needs to focus on their own retirement. So keep it simple. Eliminate the state-specific plans and on the specific state program, its costs, tax deductibility, and the quality of the underlying investments, clients are well served by 529 plans.” Kristan Anderson West Financial Services McLean, VA Quick Poll (given April 18, 490 responses) 1 Do you recommend that clients use 529 plans in their college planning? Yes No 96% 4% create a unified program for education and retirement with tax-sheltering rules. If education “I think they have some use with my clients. However, their restrictive 2 If you recommend 529s, what is your primary criterion when helping clients choose a plan? In-state tax deduction Quality of underlying funds Age-based tracks available Fees and expenses Quality of asset manager 3 What is your biggest concern about using 529 plans? Complicated/lack of transparency Costs Performance Political risk Lack of flexibility 4 What is your favorite 529 plan? (Top five responses.) 1. CollegeAmerica (Virginia) 2. Utah Educational Savings Plan 3. John Hancock Freedom 529 (Alaska) 4. Bright Directions College Savings Program (Illinois) 5. Ohio CollegeAdvantage 529 Savings Plan 5 Do you have enough information and tools to make informed choices about 529 plans and their tax benefits? Yes No 68% 32% 15% 24% 40% 14% 7% 22% 41% 7% 15% 15% dollars are not used, they should be allowed to roll over to an IRA for retirement purposes. Let the states reward children by providing ‘work ethic’ incentives while teaching the importance of savings at a very young age.” Matthew Kell Sagemark Consulting/Lincoln Financial Advisors St. Petersburg, FL *Source:, “529 Plan Program Statistics,” March 2009. investment rules and the penalty on funds left over make them less attractive. I have clients who have some very large projected college expenses, but I will generally have them fund only a portion of the projected expense. Better to fund with cash flows from work at the end than figure out what to do with the balance left in a 529. With many of my clients worried more on capital accumulation than the tax effect, I am “I think they are good tool for college savings. Most of my clients will not qualify for need-based grants. 529 plans allow for tax-free growth and offer professional management that is age-based, which is valuable.” Robert Seltzer Beverly Hills, CA more apt to recommend an active tax-efficient strategy in a taxable account than the 529s. Net-net, I think I can produce better aftertax returns, due to the ability to move the money around freely. Also, being in California, we have no contribution tax incentive, which would be nice, given our state’s 9% tax rate.” Fred Jin Compak Asset Management Irvine, CA “I believe that 529 plans are a useful tool for college savings. Many 529 plans offer age-based investment platforms, which eliminate the need for a broker or advisor to “manage” these assets for additional ongoing fees. As long as we do due diligence 10 Morningstar Advisor June/July 2011

Table of Contents for the Digital Edition of Morningstar Advisor - June/July 2011

Morningstar Advisor - June/July 2011
Letter From the Editor
Questions for the Secret Society
Are 529 Plans a Useful Tool for Clients’ College-Savings Goals?
Taking the Lead
How to Sell Covered Calls
The College-Savings Challenge
Time to Play Defense?
Four Picks for the Present
Investment Briefs
Careful What You Wish For
Caution in Utilities After Japan Crisis
Blossoms and Thorns in the 529 Garden
Lower Fees, Competitive Returns Help More 529s Make the Grade
Morningstar Grades 529 Plans
529 Risks Include the Political
Researching 529 Plans Made Easy
How Closed-End Funds Are Born
Boutique Within a Bank
The Inefficient Pricing of Moats
More Steak Than Sizzle
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
The Dangers of Demonizing

Morningstar Advisor - June/July 2011