Posted: 05 Sep 2010 04:46 AM PDT

As we begin September, many families turn their attention from summer vacation to school. As children grow older and college draws nearer, parents increasingly wonder how they will meet the cost of their children's college education. The costs can be daunting.

For a baby born today, the cost of attending a four-year private university is projected to be $445,000 on average, excluding textbooks, supplies, and transportation, based on 6 percent inflation of today's college costs as provided by the College Board. In order to fully meet that cost, you would need to save more than $900 each month from the child's birth until they reached 18, assuming an 8 percent annual return in a tax-free investment vehicle. While many children may receive loans, grants, scholarships, and work-related income to offset some of these projected costs, the monthly savings necessary can be meaningful.

Here we review the primary savings tools available to meet educational costs.

Custodial accounts

Long before the now popular Section 529-type plans became available, Uniform Gifts to Minors Act (UGMA) accounts, and subsequently, Uniform Transfers to Minors Act (UTMA) accounts, were the savings vehicle of choice for children. UGMAs and UTMAs allow an adult to control the account for the benefit of the child.

However, once the child reaches the age of majority (21 for a Massachusetts UTMA), the assets in the account are owned by the child, who can then spend the assets as they wish. Another potential drawback of UTMAs is that they count as an asset of the child for federal financial aid purposes, which reduces possible aid relative to assets held in a parent's or grandparent's name. UTMAs do not have contribution limits, though taxes may be incurred on earnings.

Education Savings Accounts

Education Savings Accounts (ESAs) allow investments to grow and be withdrawn federally tax-free for qualified educational expenses at private primary and secondary schools, as well as colleges. ESAs have seen limited usage, however, due to eligibility requirements and annual contribution limits. To qualify for the maximum annual contribution of $2,000 per beneficiary, a married couple filing jointly must have a modified adjusted gross income of less than $190,000. ESAs are considered an asset of the donor for federal financial aid purposes.

Section 529 accounts

Section 529 accounts, named after a section of the Internal Revenue Code, are now the dominant savings vehicle for college expenses and are offered by all 50 states, the District of Columbia, and a consortium of private colleges. No income limitations exist for contributors and lifetime contributions for some plans are in excess of $300,000 (and you may have more than one 529 account per beneficiary). Like ESAs, Section 529 accounts are considered the donor's asset and are federally tax-free vehicles as long as they are used for qualified educational expenses.

Section 529 accounts come in two flavors: prepaid tuition plans and savings plans. In Massachusetts, the U.Plan is the prepaid tuition plan, while the U.Fund is the savings plan, though you are not limited to the in-state plans.

With a savings plan, the donor selects from the available investment options and the account is subject to market risk.

A prepaid tuition plan is just that: It allows a donor to prepay a beneficiary's tuition at predetermined prices. State-sponsored prepaid tuition plans are often available to in-state residents only and are best suited for those planning to attend one of the plan's participating colleges.

Though other savings vehicles can be used to meet educational expenses, the most prominent have been featured in this article. For additional details on educational savings vehicles, you may want to access www.savingforcollege.com.

Louis E. Conrad II is a Lexington resident and president of COMPASS Wealth Management, LLC in Lexington.

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Personal Finance: Interest rates could sap profits - Philadelphia Daily News

Posted: 05 Sep 2010 12:00 AM PDT

Posted on Sun, Sep. 5, 2010

You can lose money in the safest of bonds, even U.S. Treasury bonds and general-obligation municipal bonds.

I'm not talking about the potential for the world's debt problems leading to governments' collapsing and failing to pay interest. Rather, I'm referring to the way people usually lose money in safe bonds, even when the government keeps paying interest as promised.

The way you lose is this: Rising interest rates poison the value of existing bonds. So when interest rates start rising, the bonds with low interest rates you bought recently will probably be worth less than they are now. That's because another investor won't want to buy your bond, which maybe is paying 3 percent, when that person can buy a similar new bond paying 4 percent. So if you want to sell your bond, you will lose money.

Keep in mind: You don't have to worry if you plan to hold on to an individual bond until it matures. You will keep getting interest payments, and when your bond matures you will get back your principal. The only downside: If serious inflation kicks in, the low interest you have settled for today won't seem like much if prices rise for everything.

Although individual Treasurys are safe if held to maturity, bond funds can be riskier. Your fund could be loaded with low-interest bonds. So if interest rates rise, those bonds will lose value, and you will, too, as your mutual fund shares decline.

Bond fund managers try to mitigate the risks by buying a variety of bonds, but anyone can have trouble in a rising rate environment. This is important for retirees needing access to bond funds for income but less important to younger people saving for retirement, because with time a fund adjusts to higher rates.

Because interest rates are so unusually low at the moment, given recession threats, financial advisers have been warning people to prepare for the possibility of higher rates in the future.

Here's what advisers suggest.

Beware long-term. Although investors can pick up some extra yield by buying bonds that mature in more than 10 years, Envision Capital Management Inc. president Marilyn Cohen suggests concentrating on those that mature in five years or less. Bonds that mature quickly suffer more modest losses than those that mature in many years.

To cut risks, she said, individuals could construct what's called a bond ladder, with a bond maturing in one year, another in two, another in three and so on. That way if interest rates go up, one of your bonds will mature each year and can be reinvested at a higher interest rate.

Blend approach. For clients who do not want to risk losing money, Atherton Trust chief executive officer Kraig Kast said his firm goes beyond the safest of bonds to create a variety that should hold up in different rate environments.

For example, he said, about 12 percent of a conservative portfolio would go into preferred stocks and solid common stocks paying a high dividend. About 35 percent would go into corporate bonds for companies rated "A" or above by rating firms. With stocks and corporate bonds, the firm concentrates on companies that make products people will need regardless of the economy, such as Procter & Gamble Co. or food producer Archer Daniels Midland Co.

With about 29 percent in state and local municipal bonds, Kast concentrates on essential services such as sewer and water. Most of the U.S. Treasurys in the portfolio mature in five years or less. For clients "scared to death about inflation," he chooses some Treasury Inflation-Protected Securities, or TIPS, although they currently pay little interest.

Know the risks. To increase yields, some investors put money into high-yield bond funds, but they are considered similar in risk to stocks.

Yet in small doses, Cohen noted, adding some riskier bonds to portfolios could be OK. Cohen said 401(k) investors did this when they choose a well-diversified bond fund.

Gail MarksJarvis is a personal-finance columnist for the Chicago Tribune. E-mail her at gmarksjarvis@tribune.com.

Personal Finance: Woes of 1914 ring a bell - Sacramento Bee

Posted: 05 Sep 2010 12:00 AM PDT

This Labor Day, it's hard to find many reasons to celebrate the working life. If you're unemployed, jobs are unbearably scarce. And if you've got one, chances are your pay increases are stalled, your 401(k) is capped and your retirement seems far, far away.

"The economy is stuck: It isn't getting worse, but it also isn't getting much better," said Alissa Anderson, deputy director of the California Budget Project, in releasing a report this week that notes that Californians hit hardest by the lagging recovery are 16- to 24-year-olds and the long-term unemployed.

"Economists have been telling us the recession is over," Anderson said, but the past year has been "a recovery in name only."

But we're not here to spread more bleak news. Recently, we ran across some bits of local history that help cast perspective on this relentless, seemingly endless recession we've been enduring.

For nearly 50 years, James C. Powell was a local manager for the Crane Co., a Chicago-based manufacturer of valves, fittings and plumbing supplies that maintained a Sacramento branch starting in 1910. His daughter, lifelong Sacramentan Betty Jane Powell, 89, has kept many remembrances of her dad's working life: The gold cufflinks shaped like water valves, the commemorative medallions, his office spittoon. And a stash of holiday cards mailed to Crane Co. employees each year.

Some of those nearly 100-year-old messages are uncannily reminiscent of 2010.

In 1914, the Crane Co. was helping drive the country's push into the modern age. Its shiny white porcelain sinks and bathroom fixtures were bringing indoor plumbing to homes, schools, offices and prisons. Its valves, fittings and steel pipe were appearing in everything from Chicago skyscrapers to industrial heating plants to gold-dredging equipment.

For years, its building on Front Street in downtown Sacramento was a beehive of activity.

But in December 1914, the good times were on hold. A stubborn recession had been dragging on for nearly two years. Business activity nationally was down 25.9 percent.

As the company wrote to employees on its Christmas card: "During the past year, business has been very much depressed all over the country and we have experienced great difficulty in keeping (our) plants running. (As) men laid off would undoubtedly have trouble finding employment, it has been our aim to keep the full force going, but it was necessary to shorten hours. … It is hardly necessary to say that the company does not make much money when shops are partially shut down."

Sound familiar? Ailing economy, shortened hours, laid-off employees.

Fast-forward to December 1931. In its annual report to stockholders, the company was again taking note of a depressed economy.

For the first time since its founding in 1865, the company reported an operating loss, of $7.9 million.

"The year 1931 was unsatisfactory in nearly all industries … and our business was no exception," the company wrote in its cream-colored annual report. The reasons: a falloff in construction and in purchases by railroads, utilities, oil companies and others. To curb its losses, the company slashed overhead and cut salaries, from executive halls to the sales floor.

But it was also predicting an end to the misery. "In our opinion, the country has touched the bottom of the depression and we may anticipate in the near future a slow, steady ascent to a sound business level."

Again, all too familiar.

Much has been written comparing the current recession with the Great Depression of the 1930s.

But it's worth reminding ourselves that there've been dozens of recessions, large and small, over the last 220 years of U.S. economic history. In fact, as many as 47 in all, according to some studies.

Yes, you can say this recession is different. It depends on what you're measuring.

University of California, Davis, economics professor Gregory Clark, who's studied the history of recessions, calls the downturns "a regular part of the economic diet," noting that almost every decade has claimed a recession, going back to the 1830s.

But as painful as it may feel, this one isn't as harsh, relatively, as some previously. Viewed from history's sweep, it shows up as "a gentle wobble," said Clark, but its impact has perhaps been felt more keenly.

"One of the oddities of this recession is that the shock to output (goods and services) isn't particularly enormous, but there's been a huge psychological shock to the U.S.," he said.

That's partly because previous recessions were often sharper but shorter, with wages and prices falling more deeply but regaining momentum more quickly. This one may feel worse, Clark concludes, because we all had built up grander illusions of wealth due to soaring home values and bulging stock portfolios. With so many invested in real estate and stocks, we felt richer than we actually were.

Then as now, the economic jolts were met with government reforms intended to contain the damage and prevent its recurrence. Back in 1914, it was the Federal Reserve. In the 1930s, it was Social Security, the FDIC and other New Deal programs. Today, it's federal stimulus spending, new consumer protections and extended stretches of unemployment benefits.

You can argue forever whether those measures are the right ones. Ultimately, the cure is jobs, jobs and more jobs.

In a survey this week, Chicago-based consulting group Challenger Gray & Christmas Inc. pointed to at least one hopeful sign: Job cuts announced by companies in August fell to their lowest level in a decade. Overall, announced layoffs for January- August this year are down 65 percent from the same period in 2009.

"Obviously, for the millions of Americans who are still out of work, the improvements are not coming fast enough," said Challenger Gray CEO John A. Challenger in a statement. "However, it is important to remember that the economy is digging itself out of the deepest hole this generation of workers has ever experienced. The recovery is not going to occur overnight and not without hitting some bumps in the road."

And while a plumbing supply company's message to its workers from nearly 100 years ago is hardly a definitive statement, it does remind us that we've survived this before.

Happy Labor Day.

Have a personal finance question? Call The Bee's Claudia Buck at (916) 321-1968.

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Personal Finance

Sunday, September 5, 2010

“Personal Finance Insights: Saving for college - Abington Mariner” plus 2 more

“Personal Finance Insights: Saving for college - Abington Mariner” plus 2 more

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