Finance Writing Sample

Article for Save NC529 College Savings Program

Comparing 529 to Savings, Coverdell Accounts, Gerber Plan, IRA

Headline: It seems like there are so many different ways to save for
college, why should I choose the NC 529 College Savings Program?

529 vs. Other Plans

Savings Account

The traditional way to save for college has always been a good old-
fashioned savings account that provided slow, predictable growth over
time. But the fact is that savings accounts don’t pay nearly as much as
they used to: for the past decade, interest rates on savings accounts
have been stuck at less than 1 percent. Meanwhile, college costs are
expected to increase an average of 6% a year. Savings accounts simply
can’t match that pace, and you also have to pay tax on whatever you
earn. Furthermore, savings accounts are considered parental assets
when calculating financial aid eligibility; 529 accounts are not.

When you choose an NC 529 plan, we put your money to work in

various ways to yield much higher returns than savings accounts. You
choose the level of risk you want--we even have no-risk options that
yield more than traditional savings accounts. Your money in an NC 529
can grow tax-free, with compound interest, to keep pace with inflation
and rising education costs.

Coverdell Education Savings Accounts

Coverdell ESAs are very similar to 529s, allowing you to save tax-free
for education expenses and to invest in higher yielding investments for
growth. The Coverdell account even lets you use the money for
elementary and secondary school expenses. The big problem with the
Coverdell is its contribution limit: $2000 per child, per year, total, from
all contributors. And you have to use the money before the beneficiary
turns 30.

The great thing about the NC 529 is that you and others can give much
more than with the Coverdell—you can keep contributing until
contributions reach the maximum limit of $420,000. There is no yearly
cap on what you can give. So in prosperous years you and others can
add a lot, and in leaner years you can add just a little. And the
beneficiary can use the money even after he or she turns 30, which
means paying for graduate school is still an option.

Gerber Life College Plan

The Gerber Plan is an endowment life insurance product that helps you
save for college by charging you premiums every month. When it
comes time for your kid to start college (or in the event of your death),
the plan pays you a set amount. It’s marketed as an investment plan,
but the fact is your money doesn’t really grow. Independent analyses
have shown that the plan usually pays out roughly the same amount
you’ve put in over the years—which makes it a worse investment than
even a savings account. Furthermore, if you stop paying into it, you
lose everything you’ve put in. And you get taxed when you take money
out to pay for college.

The NC 529 plan doesn’t require you to keep contributing every month
in order to keep your original investment. You can give as little or as
much as you see fit, and you decide when you want to contribute. All
that money remains yours, grows over time, and can be withdrawn tax-
free when the time comes. You can even set it up to automatically
draft from your bank account each month, so you can make sure you’re
contributing regularly without taking on the risk of a Gerber Plan.

Individual Retirement Accounts (IRAs)

If you’re already saving for retirement, you may wonder if it would be

easier to just put extra money into your IRA and then use that money
to pay for college later. It’s a tax-advantaged account with investments
that grow, just like a 529--wouldn’t that work?

Unfortunately, it won’t, because tax- and penalty-free IRA withdrawals

can’t happen until retirement, which doesn’t fit the timeline for most
parents. You’re likely to need those college funds for your kids several
decades before that, and if you take them out of an IRA you’ll pay steep
fines and state and federal taxes. The good news is that the NC 529
works like an IRA for college, allowing you to grow and withdraw funds
tax-free, and to see how much you’ve saved for education so you can
plan. And starting and funding one is easy—you can even choose age-
targeted investments for your child like you do in your own retirement
fund.