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CNN Live Today

College Savings Plan

Aired September 03, 2003 - 10:50   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


DARYN KAGAN, CNN ANCHOR: We look more at money issues now. We go from the market to your money. And we are focusing this morning on saving for college. It is a tough one. There are a lot of options out there, and now you can add another one to the list.
It's the new 529 Plan. It covers private colleges. And details were just released this hour. Our personal finance editor Gerri Willis joins us now with tips on how to make the plan work for you.

Gerri, good morning.

GERRI WILLIS, CNNFN PERSONAL FIN. EDITOR: Good morning, Daryn. Good to see you.

KAGAN: A lot of parents out there looking at a huge bill if their kids are going to private college. You're saying if you're going to go for 529, first thing you need to do is understand the details and understand how the program works. How does it?

WILLIS: Well, this brand new plan announced today is pretty complex. I'm going to try to boil down for you here, so you can see the details very clearly. They're very similar to the prepaid state 529 Plan in that you put your money aside, and it grows tax-free.

Essentially, what you're doing is buying tuition credits, (unintelligible) actually. And it allows you to pay today's dollars for tomorrow's tuition.

So if you set aside $5,000 for $10,000 worth of tuition for your child years from now, and that's half the amount, then when the bill comes due, you already have paid half.

It helps you get around the fact that there's 7 percent inflation in college prices every year.

KAGAN: I think we're talking mid $30s per year to go to a private college, $30,000, $35,000.

Determine whether you're a good candidate for 529.

WILLIS: The organizers of this say that it's the people who want to go to private school, the parents who are, you know, absolutely certain their kids would go to private school. You can transfer your money if your child changes their mind, but remember again we're trying to avoid that incredible inflation and particularly college prices.

KAGAN: But aren't you -- I mean, how do you know when your kid is five or six years old, where they're going to school, if they're even going to go to school?

WILLIS: Well, that's a great question. And it's all of these programs, including this one, allow you to move your money if you absolutely must. You can move your money into a safe 529 plan or you can take it out entirely, use it for another child. There are some penalties, but you can move the money, Daryn.

KAGAN: All right, but still you need to go ahead and weigh the advantages and disadvantages?

WILLIS: That's right. The thing you need to understand here is that this plan does not carry fees. That's the big advantage. The broker sold 529 plans or (unintelligible) can have fees as high as 2.5 percent. This has no fees. So that's one of the major advantages.

And as we said before, the big disadvantage is if your child decides not to go to a private school, you've got to put that money in some other kind of 529 plan or take it out entirely. And you will be penalized at some level for that. You'll only get a two percent gain -- up to a two percent gain on your money, or your loss on the down side will also be capped to two percent.

Well you know, your money wouldn't earn what it might otherwise if you take that money out and you don't use it for the use that you've already described.

KAGAN: It's not perfect for everybody. There are alternatives out there. What are some of those?

WILLIS: Well, you can use one of the state plans. You can use a Coverdale (ph) account, the old fashioned education IRA, or you can just set up an old fashioned custodial account. This is really just a souped up brokerage account, which you can use for anything.

Remember, though, you can still take the money out and use it any way they want to.

KAGAN: Ah, so take the money and run.

WILLIS: That's right. They can buy a car instead of a college education.

KAGAN: Or a little trip to Europe or something. Meanwhile, (unintelligible) a lot of information. So head to the web to figure out more and whether this is a plan for you.

WILLIS: That's right www.independent529plan.org is the place to go. And to compare plans, go to www.collegesavings.com. They'll also help you -- Daryn.

KAGAN: And meanwhile, thank you for your help. Appreciate it. Gerri Willis in New York.

WILLIS: Thank you.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com






Aired September 3, 2003 - 10:50   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DARYN KAGAN, CNN ANCHOR: We look more at money issues now. We go from the market to your money. And we are focusing this morning on saving for college. It is a tough one. There are a lot of options out there, and now you can add another one to the list.
It's the new 529 Plan. It covers private colleges. And details were just released this hour. Our personal finance editor Gerri Willis joins us now with tips on how to make the plan work for you.

Gerri, good morning.

GERRI WILLIS, CNNFN PERSONAL FIN. EDITOR: Good morning, Daryn. Good to see you.

KAGAN: A lot of parents out there looking at a huge bill if their kids are going to private college. You're saying if you're going to go for 529, first thing you need to do is understand the details and understand how the program works. How does it?

WILLIS: Well, this brand new plan announced today is pretty complex. I'm going to try to boil down for you here, so you can see the details very clearly. They're very similar to the prepaid state 529 Plan in that you put your money aside, and it grows tax-free.

Essentially, what you're doing is buying tuition credits, (unintelligible) actually. And it allows you to pay today's dollars for tomorrow's tuition.

So if you set aside $5,000 for $10,000 worth of tuition for your child years from now, and that's half the amount, then when the bill comes due, you already have paid half.

It helps you get around the fact that there's 7 percent inflation in college prices every year.

KAGAN: I think we're talking mid $30s per year to go to a private college, $30,000, $35,000.

Determine whether you're a good candidate for 529.

WILLIS: The organizers of this say that it's the people who want to go to private school, the parents who are, you know, absolutely certain their kids would go to private school. You can transfer your money if your child changes their mind, but remember again we're trying to avoid that incredible inflation and particularly college prices.

KAGAN: But aren't you -- I mean, how do you know when your kid is five or six years old, where they're going to school, if they're even going to go to school?

WILLIS: Well, that's a great question. And it's all of these programs, including this one, allow you to move your money if you absolutely must. You can move your money into a safe 529 plan or you can take it out entirely, use it for another child. There are some penalties, but you can move the money, Daryn.

KAGAN: All right, but still you need to go ahead and weigh the advantages and disadvantages?

WILLIS: That's right. The thing you need to understand here is that this plan does not carry fees. That's the big advantage. The broker sold 529 plans or (unintelligible) can have fees as high as 2.5 percent. This has no fees. So that's one of the major advantages.

And as we said before, the big disadvantage is if your child decides not to go to a private school, you've got to put that money in some other kind of 529 plan or take it out entirely. And you will be penalized at some level for that. You'll only get a two percent gain -- up to a two percent gain on your money, or your loss on the down side will also be capped to two percent.

Well you know, your money wouldn't earn what it might otherwise if you take that money out and you don't use it for the use that you've already described.

KAGAN: It's not perfect for everybody. There are alternatives out there. What are some of those?

WILLIS: Well, you can use one of the state plans. You can use a Coverdale (ph) account, the old fashioned education IRA, or you can just set up an old fashioned custodial account. This is really just a souped up brokerage account, which you can use for anything.

Remember, though, you can still take the money out and use it any way they want to.

KAGAN: Ah, so take the money and run.

WILLIS: That's right. They can buy a car instead of a college education.

KAGAN: Or a little trip to Europe or something. Meanwhile, (unintelligible) a lot of information. So head to the web to figure out more and whether this is a plan for you.

WILLIS: That's right www.independent529plan.org is the place to go. And to compare plans, go to www.collegesavings.com. They'll also help you -- Daryn.

KAGAN: And meanwhile, thank you for your help. Appreciate it. Gerri Willis in New York.

WILLIS: Thank you.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com