Comments on: Saving for College with a Savings Account

By: Niklas Smith

Niklas Smith — Mon, 22 Mar 2010 12:26:32 +0000

An excellent point about TIPS – investing in one that matures when you expect to need the money gives (nearly) complete certainty*. In the UK the same applies to index-lined gilts (UK government bonds), except that they have the added advantage of being free of capital gains tax even outside a tax-efficient wrapper. I hope you made this point in the comments to that blog

*Short of the US federal government defaulting, fiddling of the inflation index à la Argentina or worldwide nuclear war breaking out.

By: SJ

SJ — Thu, 18 Mar 2010 17:25:38 +0000

“There are two factors to consider the plan’s fees and the break you may get on your state taxes.”

Rick, Thanks for your view point. Both the above apply in my (IL) case. However, like you mentioned, I will keep an eye on the account as long as Iam in IL to watch out for any surprises.

By: Rick Francis

Rick Francis — Thu, 18 Mar 2010 16:59:44 +0000

@SJ

I personally like the 529 plans but you don’t necessarily want to go with your state’s plan… There are two factors to consider the plan’s fees and the break you may get on your state taxes. For example I’m in TX which has no state income tax and the fees of the TX plans are kind of high. I did some research to find low cost plans- Initially I was in Missouri but the plan management changed and went from a low fee plan to a high fee plan so I switched again to a plan in Utah. The point is that you have to periodically research it to insure you are still in a good plan.

-Rick Francis

By: SJ

SJ — Thu, 18 Mar 2010 13:45:43 +0000

In the state we live, IL, Bright start manages 529 account and they have index funds for age based portfolio which have very minimal expenses. I have my daughter’s (2 year old) 529 with them.
Iam not sure with a decent 529 account like this, if there are better alternatives. I would be interested and a may be a little surprised (naively).

By: Mike

Mike — Wed, 17 Mar 2010 13:29:50 +0000

The problem with TIPS funds for funding short-term needs (anything within the next 3 years, for instance), is that they fluctuate in value–sometimes significantly–as a function of changes in market interest rates.

I think TIPS funds have a place as a diversifier in a portfolio, but if you’re looking to fund a specific expense on a specific date (i.e., college in a certain year), then an individual TIPS makes more sense because you can (roughly) match the maturity to the date you plan on spending the money.

And as to using TIPS to fund ongoing spending needs, it could work if you could set up a TIPS ladder, with a TIPS maturing every month to pay that month’s bills. Unfortunately, there just aren’t enough different TIPS maturity dates to make that work.

By: Larry

Larry — Wed, 17 Mar 2010 13:15:50 +0000

Trying to relate this to yesterday’s discussion, wouldn’t the above be a good argument against keeping large amounts of cash (say, even 3 years of expenses during retirement) as well? If cash is best thought of as a short-term reserve, wouldn’t you want to just have enough for liquidity in case of emergency, and you could keep a good portion of your portfolio in a TIPS fund with little risk and greater reward?