Indiana improves college-savings plans
While area consumers may still be leery about splurging for a new 50-inch plasma television or purchasing a new car, Harrison County’s enrollment in Indiana’s CollegeChoice 529 savings plans has jumped a whopping 340 percent in the past year.
Eighty county residents had enrolled in CollegeChoice accounts through January of 2007, but through August of this year the number had increased to 352.
The plan is a tax-advantaged education savings program that allows anyone 18 or older to start an interest-bearing investment account to save for someone’s college education. When the beneficiary ‘ be it a child, another adult or even the person opening the account ‘ is ready to go to any accredited college or university in the country, the account holder withdraws the money tax-free.
Indiana’s CollegeChoice college savings program has been re-launched with a number of enhancements to help Indiana residents save for college more effectively.
Two plans are offered to help Hoosier families save in a way that best meets their needs: CollegeChoice 529 Direct Savings Plan for individuals saving on their own and CollegeChoice Advisor 529 Savings Plan for those investing with the assistance of a financial advisor.
Also, after a year-long bid process that started in August 2007, CollegeChoice partnered with Upromise Investments in September.
State Treasurer Richard Mourdock, chairman of the Indiana Education Savings Authority, describes UPromise as an amazing 21st century company.
‘Just a few years ago, they were an idea at a kitchen table in Boston and this year they are going to manage more than $45 billion in college savings money,’ Mourdock said. ‘With the switch, we’ve gone from the 45th highest cost plan in the nation to now being the seventh or eighth lowest, thanks to the change to UPromise.’
There are two main components to the UPromise savings plan: UPromise Rewards and UGift.
With UPromise rewards, to open an account, a person only needs $25, as opposed to the $50 required before. Account holders earn points, which are in turn converted to actual money by spending, by using the credit card they registered with UPromise to spend at participating retailers. Included in the list of retailers are McDonald’s, JayC, Kroger, Meijer and CVS pharmacy. UPromise points, which are found on many items in grocery stores, can also be collected and applied to the savings account. More than 1,600 companies are taking part in UPromise.
‘It’s been cleverly marketed towards middle-income folks. The important thing is with the UPromise program every month they’ll get a statement and they’ll be reminded to save for college. A lot of people open savings programs, save for a year, then they forget about them,’ Mourdock said. ‘And not only will they get their statements, when they are opening packages while fixing dinner, they’ll probably see that UPromise logo and will be reminded again. We don’t want people to forget that now is the time to save for college.’
In UGift, a savings program is set up for a child who will receive a Web site. Parents can ask that instead of buying their child a video game or toy for birthday or Christmas people go to the site and invest in the child’s savings plan. In addition to investing in the child’s future, the person making the donation is eligible to get the CollegeChoice tax credit Indiana offers of 20 percent up to $1,000. Mourdock said it’s the most tax-advantaged savings program in the country.
In both plans, Mourdock said saving enough dollars to fund an entire college education probably isn’t likely, but with the cost of college always going up, every little bit helps. Parents can get their children involved by teaching them to save at a young age.
For an infant born in 2008, education at a four-year state school will cost between $180,000 and $200,000, Mourdock said, adding that inflation in education always climbs faster than normal inflation.
‘Every month when the child is young, you talk to them and tell them that one day they are going to college and the child learns that college education is very important. Maybe for every dime the child puts into a savings fund, the parent puts in a dollar. Once the child starts looking forward to that, you’ve laid the foundation that could pave the way for them in the long run,’ Mourdock said.
Mourdock’s goal is to have one in 10 Hoosiers saving for college, which would be about 660,000 accounts. Why? Of the 50 states, Indiana ranks 45th in adults over the age of 25 who have a four-year degree.
‘When you think of the great institutions we have, that’s a real anomaly. We have Indiana University, Purdue, Notre Dame, Ball State and a whole list of fine colleges. It’s just a tragedy, and we have to change that,’ Mourdock said. ‘Another staggering statistic is that in 10 years, in 2018, the average education level of retirees will be higher than that of our work force. That has never happened in the history of the world. That’s bad news for society, but that’s also a great opportunity to get a great education and be the smartest person in the room. If you have a college education, you will really have something most people around you don’t have.’
And what if after 18 years of saving the child doesn’t want to go college? The money can be used in any post-high school accredited educational program or the funds can be assigned to a sibling or niece or nephew. If the parent wants to go to college, the money can be assigned to the adult. The only way there’s any sort of penalty is if the money is pulled out and used for a non-qualified entity, then a tax penalty is levied. The tax includes state and federal income tax, and could be subject to a 10-percent federal penalty tax.
Also, because the money is put into investments, there’s always a risk of loss.
‘A lot of people would probably ask why anyone would want to invest right now,’ Mourdock said. ‘If you ask just about any broker, this is the right time to invest. It’s perfect. In the last 120 years, the best place to invest money has been in the American stock market, and I believe that will still be the case.
‘I’m just like everyone else,’ he said. ‘I’ve watched my 401k turn into a 301k, but the reality is you can’t be a short-term investor and look at one year or two years.’