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Tuition 'options' no gift to parents

July 18, 2002|by BOB MAGINNIS

Pennsylvania officials yesterday said they'll give parents who are putting their money into college savings plans for their children nine new ways to invest. They also said they couldn't guarantee any earnings, which leads us to wonder why they offered the options at all.

Investors have to be a little shell-shocked now, after an economy bashed by the terrorist attacks of Sept. 11 got gut-punched by revelations of cooked corporate books and less-than-honest accounting. If you don't know how much a company is earning, who can tell if it's good buy?

Despite that, Pennsylvania forged ahead with options, even though there's already a plan in place that guarantees parents will have enough to cover tuition - no matter what happens with inflation.

In announcing the new options, state officials note that because the earnings are tax-free under Section 529 of the Internal Revenue Code, parents lose the tax-free benefit if they try to bundle it with higher-education tax credits.

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But the value of the current plan is that it's guaranteed. If you invest enough cash today to cover the cost of tuition at a state school, then when your child is ready to enter college, his or her tuition is covered, regardless of how much the investments did or didn't earn.

In the new plan, the investments could potentially earn more, but there is no guarantee that when your child is ready for school that earnings will cover the costs.

The original purpose of these tuition accounts was to encourage people of limited means to invest in their children's education. Now, despite the recent downturn in the market, the state is suggesting that investors might get lucky with the new options.

Such investors don't need to get lucky. They need to save for their children's education in a way that ensures that whether the market takes another tumble, or another batch of corporate crooks surfaces, the children can go to college. Encouraging parents to dream about anything else is setting them up for the possibility of a nightmare.

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