When it comes to saving for college, there's no shortage of advice from friends, family and investments advisors. J.T. in New Jersey is looking into a so-called 529 accounts, but is worried it might hurt his child's chances of qualifying for financial aid. That's just one of the many angles he'll have to consider.
I am considering putting money in a 529 account to pay for my son's education 18 years from now. Will any of this amount affect my son's ability to receive "free money" in the form of scholarships and grants? Is it more beneficial to have a 529 pay for the education or to have scholarships/grants pay?
J.T. --Edison, NJ
Well, it’s always better to cover college costs with grants and scholarships -- because it’s someone else’s money. So-called 529 accounts offer some advantages -- especially tax breaks that let your savings grow faster. But they're by no means the only way. For an overview of what's out there, check out our recent story on the subject.
One of the downsides of 529s is that they come in so many flavors, they can be confusing -- which prompts many people to turn to a "pro" for advice. (In many states, you can apply directly and cut out the middle man if you like. And, in general, the plan offered by your state is the cheapest way to go.)
If you do get advice from a broker or financial planner, be clear on how they’re paid. Many get commissions from the investment managers of these plans, and some advisors will steer you to a plan that's good for them, but not necessarily good for you. Last year, the National Association of Securities Dealers issued an “investor alert,” warning that some brokers were recommending out-of-state plans even though their clients could have found lower fees with an in-state plan.
One other caution: The tax breaks you get from a 529 plan are currently set to expire in 2010. Unless Congress makes them permanent, there is a risk that 529 withdrawals after 2010 could be taxable.
No matter how you set up your savings, you do need to think about the impact it will have on your taxes and your prospects for getting financial aid. Under the current rules, some forms of college savings will be considered part of your assets and some won’t. So you also may want to consider putting some of the savings in your child’s name.
And keep in mind that there’s a lot of scholarship money out there that is not tied to financial need. Some of it is handed out by schools to attract top students, and some is offered by civic organizations and other groups based on academic achievement or winning essays.
Saving for college has a lot of variables attached to it that are almost as tough to forecast as the size of a tuition bill in 18 years. A lot can happen between now and then to your personal finances, the tax code and the formula for granting aid. And you really have no way of knowing how much scholarship or grant money will be available until your child applies. But don’t let that discourage you from getting started. By doing so, you’ll be way ahead of most other parents.
I am an Egyptian exporter of fine cotton products. I want some addresses of importers to contact.
Mohamed O. -- Cairo
There are a lot of resources on the Internet, but many of them simply want to sell you a directory of contacts. The names may or may not be very useful -- the problem is you won't know until after you've paid to see the list.
One organization you could contact is the World Trade Centers Association. They represent hundreds of trade centers around the world that help match buyers and sellers. (They also have a local office in Cairo.) You have to register to use their Web site, but it’s free.
Core inflation is listed at 2 percent - excluding food and fuel. Nobody can choose to not buy food and fuel. What is the core number based on and why does it matter if most of my budget is not counted and groceries are way more than 2 percent above last year?
Elizabeth K. --Ellsworth, Me.
The "core" rate of inflation tracked by economists, investment advisors and other readers of economic tea leaves really wasn’t designed for general consumption. As you point out, why would you or I care about an inflation rate that was accurate only if we decided to stop eating and turned off the furnace?
The reason these gurus "throw out" food and energy prices is that they’re looking for longer-term trends that might have an impact on the economy in the future. For most of the economic data they follow, analysts don’t pay much attention to a single month. The trends they’re looking for don’t matter until they show up for several months, at least.
Food and energy prices are among the most volatile commodities tracked by inflation watchers. They can move up and down quickly in any given month because they’re so vulnerable to supply and demand. A freeze in Florida can send orange juice prices soaring, but those higher prices won’t last. We’ve also seen that volatility this year with energy prices: gasoline prices surged over $3 a gallon in early fall because so many refineries got clobbered by hurricanes. But now that those refineries are getting back up and running, gasoline prices are backing down closer to $2 a gal.
These quick, temporary ups and downs can wreak havoc with your household budget. But they also tend to mask the longer-term, underlying trends that analysts are looking for. So if inflation jumps or falls sharply in a given month – but the "core" rate is unchanged – that’s a sign that things may not be as bad as they seem. To get the gurus worried, these core prices have to continue moving higher over a sustained period.