A plan for college savings

As a financial planner for more than a decade, one of the most important goals that I help clients plan for is saving for a loved one’s college expenses.

When it comes to the benefits of college, statistics tell the story. The average college graduate will earn $800,000 more than the average high school graduate by retirement, according to the Federal Reserve.

The challenge is saving the tens of thousands of dollars needed for tuition at most universities.

I remind clients that every dollar saved is that much less than they will need to borrow for college. The good news is that Rhode Island residents are fortunate to have a strong option for higher education savings in CollegeBoundfund, the state’s 529 college savings program.

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As a father who invests in College-Boundfund for his two sons, I recommend that my clients also take advantage of the plan for these reasons:

n Rhode Island families can open an account with an initial investment of just $25.

n While 529 plans grow tax-free at the federal level and can be withdrawn tax-free for qualified expenses, Rhode Islanders have the additional benefit of being able to deduct contributions to CollegeBoundfund from their Rhode Island state income taxes, up to $1,000 for married couples filing jointly and $500 for individual filers. Contributions exceeding the annual limit can be carried forward and later deducted.

n The $25 annual account fee is waived for Rhode Island investors. Over 18 years, that results in a $450 savings. Plus, investment fees have always been reasonable.

n Saving for college should begin at birth and CollegeBoundbaby makes that easy. New parents simply “check the box” on the Rhode Island Birth Worksheet at the hospital to receive a $100 grant funded through a partnership with CollegeBoundfund and AllianceBernstein. The grant will be invested in a CollegeBoundfund account.

n Whether investing with the help of a financial professional or on one’s own, families can choose from a wide variety of active and passive investment options depending on the family’s investment objectives, time horizon and risk tolerance.

n For those looking for a very conservative option, CollegeBoundfund is one of a few plans that offers a Principal-Protection Income Portfolio. The PPI is designed to avoid the fluctuations in value typically associated with bond funds and money market instruments.

When it comes to selecting a college savings plan, I often find one of the first questions clients ask is: Should I select the plan that was the “top performer” this year? While short-term performance is important for meeting savings goals, it is not the full picture. A volume of academic data cites the dangers in chasing performance. The more complete question to consider is: Will this plan allow me to meet my long-term goal of saving for college?

The CollegeBoundfund is one of the oldest 529 plans in the country, established more than 15 years ago. Over that time, the plan, managed by AllianceBernstein, has seen performance ups and downs just like the stock market. But in aggregate, the program has certainly met expectations.

The goal of saving with a 529 plan is to financially empower more young people to pursue higher education, and there is no doubt CollegeBoundfund has done just that. •

Greg Silva is a financial consultant with Webster Investment Services, located at Webster Bank in Cranston.

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