ROCHESTER, N.Y., April 29 /PRNewswire-FirstCall/ -- Savingforcollege.com, the premier Internet destination for objective information about 529 college savings plans, has released a new study demonstrating that by investing their stimulus rebate in the "age-based" option of a 529 plan, a family of three can outpace tuition inflation and more easily afford college.
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A $1,500 tax rebate received by two parents and a newborn child-the maximum rebate for a family of three-would grow in a 529 plan to $9,575 over the next 18 years, based on average performance in 529 plans between 2003 and 2007. This compares to the growth in tuition from $1,500 to $4,000 over the same 18-year period based on tuition increases at private colleges during the last five years. Thus the 529-plan investment would have grown at more than twice the rate of tuition inflation and provided an extra $5,575 to pay for room, board, and other college expenses.
The study traced the historical five-year investment performance of age- based options in over 30 different 529 plans to develop a performance index for each year from newborn to age 17. Returns ranged from 12.91 percent for the newborn cohort to 6.73 percent for the 17-year-old cohort. In a 529 plan's age-based option, the account is more conservatively invested as the beneficiary approaches college age.
"Of course, no one can say whether future returns will match the experience of 529-plan investors over the past five years," says Joseph Hurley, founder of Savingforcollege.com and coordinator of the rebate study. "But one thing is certain: You won't be gaining on college costs by using your stimulus rebate to purchase a new high-definition television."
A 529 plan is a state-sponsored college savings plan or institution- sponsored prepaid tuition plan that allows parents and others to invest tax- free for the future college expenses of a named beneficiary. Forty-nine states plus the District of Columbia currently offer a 529 plan. Details and links for every 529 plan can be found at http://www.savingforcollege.com/.
The table below shows the five-year investment performance in age-based options for each one-year interval from newborn through 17 along with the projected account balance at the end of the beneficiary's 17th year. The balance is then compared to tuition inflation over an equivalent time period. For example, under these assumptions, the investment of $1,500 for a 10-year old would grow to $2,936 by the time she reached age 18, while $1,500 worth of tuition would inflate to only $2,320.
Annual
Age Years to Return 529
Cohort Enrollment %[1] Balance[2] Tuition[3] Excess
17 1 6.73 1,601 1,584 17
16 2 6.98 1,713 1,673 40
15 3 7.90 1,848 1,766 82
14 4 8.80 2,010 1,865 145
13 5 9.19 2,195 1,970 225
12 6 9.31 2,400 2,080 319
11 7 10.10 2,642 2,197 445
10 8 11.11 2,936 2,320 616
9 9 11.25 3,266 2,449 816
8 10 12.01 3,658 2,587 1,071
7 11 12.07 4,099 2,731 1,368
6 12 12.14 4,597 2,884 1,712
5 13 13.01 5,195 3,046 2,149
4 14 13.13 5,877 3,217 2,660
3 15 13.18 6,651 3,397 3,255
2 16 12.91 7,510 3,587 3,923
1 17 12.91 8,480 3,788 4,692
Newborn 18 12.91 9,575 4,000 5,575
[1] The one-year return for a beneficiary in this age cohort based on the
average of historical performance in age-based options collected from
more than thirty 529 savings plans for the five years 2003-2007.
[2] Projected balance in 529 plan at age 18, based on $1,500 invested for
this particular age cohort and experiencing growth based on the Annual
Return % for each successive age cohort.
[3] Future cost at age 18 of current $1,500 in tuition for this age
cohort, using a 5.6 percent average annual increase based on average
private-college tuition increases from school years 2001-02 to
2006-07. Data source: The College Board, Trends in College Pricing
2007 (October 2007).
Note: Past performance is not a guarantee of future returns. Investments
involve risk and may lose value.
About Savingforcollege.com
Savingforcollege.com is an independent research, consulting, and publishing company providing financial professionals and consumers with comprehensive and objective information about Section 529 plans, Coverdell education savings plans, and other college investing strategies. The firm is headed by Joseph Hurley, the "529 Guru," whose book, The Best Way to Save for College - A Complete Guide to 529 Plans, was the nation's first and is still the most comprehensive assessment of 529 and other college-savings plans.
In December 2007, Savingforcollege.com was acquired by Bankrate, Inc.
About Bankrate, Inc.
Bankrate, Inc. ("Bankrate") owns and operates Bankrate.com, a leading Internet consumer banking marketplace. Bankrate.com is a destination site of personal finance channels, including banking, investing, taxes, debt management and college finance. Bankrate is the leading aggregator of more than 300 financial products, including mortgages, credit cards, new and used auto loans, money market accounts and CDs, checking and ATM fees, home equity loans and online banking fees. Bankrate reviews more than 4,800 financial institutions in 575 markets in 50 states. In 2007, Bankrate.com had nearly 60 million unique visitors. Bankrate provides financial applications and information to a network of more than 75 partners, including Yahoo! , America Online , The Wall Street Journal and The New York Times . Bankrate's information is also distributed through more than 450 national and state publications.
For more information contact:
Kayleen J. Keneally
Senior Director, Corporate Communications
kkeneally@bankrate.com
(917) 368-8677
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