A lesson on 529 vs. prepaid plans

Ask an expert

March 31, 2013|Ask an Expert

Q: I'm interested in setting up a college plan for my grandson in California. Is a state prepaid plan or the 529 plan the better way to go? — J.M. Winter Springs

A: The benefit to the state prepaid plans is that the investment risk of funding your grandson's college education is borne by the state. The drawback is that many states such as Florida have a time period where they can discontinue the plan and return your investment, if the state finds itself unable to continue with it.

A 529 is an account that you own and control and has many estate-planning benefits. The drawback is that you bear the investment risk and have the responsibility of ensuring that it is adequately funded to meet your grandson's college expenses. — Larry Breen

Q: Are bonds good or bad investments right now? — P.A., Merritt Island

A: They should be part of a diversified portfolio when interest rates rise and bond prices fall. If you want a fixed rate you need to hold the bonds to maturity. — Cary Carbonaro


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