IMHO:College "Education"

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Having been blessed with three children who are rapidly approaching college age, it was inevitable that eventually we would turn our attentions to the need to set aside some money for their college education.

I read about these programs for years but, frankly, when they were largely the prefunded type, I could never get past the inability to discern which college—or in which state—my children would attend. Now, of course, that isn't an issue. What really seems to matter is the state in which you reside (more accurately, where you are taxed)—and, having figured that out, when my family relocated to Connecticut, I opted for the most logical program—Colorado.

That's not as illogical as one might think. Connecticut defers to the federal government's decision not to tax the accumulated earnings in 529 programs sponsored by any state, so long as they are withdrawn for the intended purpose.

Furthermore, Connecticut offers no special incentives to participate in its program, so there was no particular draw to that program (though if I actually lived in Colorado, I could deduct contributions on my state income tax). Rather, I opted for the convenience of a personal discussion—and chose the 529 program offered through my bank.

However, the choices don't end there. First, you have to decide how to invest the money you set aside. This is a choice that some providers think they have made easier—by not giving you much choice. Many still offer only asset allocation funds weighted toward the age of the individual for whom the account is funded. The notion is similar to that employed in many lifestyle funds: The closer you get to withdrawing the funds, the more "conservative" the portfolio.

Unfortunately, bond fund investments haven't seemed very "stable" to me of late, even though daughter number one will be tapping the funds in just a few years' time. Even more "unfortunately," I had in mind a specific fund allocation that didn't happen to match up with the chronological alignments of my children. Having already disclosed their ages in the paperwork morass, my financial "guide" was reluctant to let me choose one of my own, my obvious financial acumen notwithstanding. In a 401(k), this would be no big deal. Pick something and, if you don't like it, go home and change it online that afternoon. Not so with a 529. These choices can be revisited, but generally only once a year.

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Shares Alike?

Of course, the real challenge lay ahead, and it is one that, as a 401(k) investor, I have never had to make: Which type of mutual fund shares did I want to buy?

Fortunately, as a reasonably sophisticated investor, I at least knew what a share class was. However, I still had to decide between three different classes of shares—basically pay me a lot now, pay me a lot later, or pay me a little less for as long as you hold the funds.

When all was said and done, I opted for the last option—mainly because while I wanted to go ahead and get started with a 529, I didn't figure to stay with this program very long. Of course, a year later, I'm still setting money aside from every paycheck with the same plan. I didn't need the involvement of my employer to do so—funds come straight from my checking account.

Still, it would have been nice to have some of that available in the workplace. Most people don't know where to go to establish a 529 and, goodness knows, I'm still struggling with why my money is going to a Colorado plan. I completely understand the reluctance of plan sponsors to get involved in "picking" state programs for their workers—but, with that hurdle vaulted, I am sure I would have been saving for my kids at least six months earlier. Maybe I would have gotten an institutionally priced mutual fund—and maybe, just maybe, I would be able to pick an asset mix that suits my fancy.

Right now, I have to say I wish my 529 could learn a few lessons from my 401(k) .

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Nevin Adams
editors@plansponsor.com