Suddenly we hear ads about 529 College Savings Plans all over the radio and find news stories all over the Internet, and presumably TV and newspapers. Yahoo!ing “529 College Savings Plans” reveals hundreds of stories about these “tax-advantaged savings plans.” Google showed more than one million links. Hmmmm.
The best site she’s found is from the SEC, the U.S. Securities and Exchange Commission. Be sure to read this carefully before you go any further. The IRS has a Q&A, but it’s not as detailed as the SEC site.
Not that IFO opposes tax advantages for anything – au contraire! She just wonders why all the advertisements and “news” stories have suddenly appeared. Several reasons come to mind:
1. It’s end of the year – time to look at one’s portfolio and consider other or new investment ideas.
2. The market has reached an all-time high and appears to be either stalling or getting ready to fall. Time to rope in those retail investors!
Have we warned, “When stock market news gets on the front page, it may be time to sell?” If not, consider yourself warned, though if you have huge cap gains you may not want to sell anything right now.
OTOH, if you do have such gains, plus some losses and loser stocks you want to get rid of, this might be a good time to “re-balance.” That’s a term we don’t like, but it works here.
3. Stock brokers are looking for new business. There may have been a government or industry association conference featuring talks on the 529 plans. This happens when the government wants to do some social engineering project. IFO vividly remembers a mortgage lenders trade association conference she covered. The conference included a lecture on “D paper” – loans of lowest quality borrowers. Lenders were shown how much money they could make by selling loans of this type. Can you say, “Real estate bubble?”
3. Many older people with IRAs are finding that the government REQUIRES them to take out some money every year now – no matter what. That is called the Required Minimum Distribution. IFO gives her RMD to charities, thereby not having to pay income taxes on the money she has “distributed.” But brokers might be advising their IRA clients to look into 529 plans.
Investment lesson: look into these 529 plans, but, as usual, do tons of research before you make up your mind.