May 25, 2010 in Business

Choose Guaranteed Education Tuition today for college tomorrow

John Schram
 

Q. With the recent birth of our first child we were wondering about saving for college and heard that there was a program to lock in tuition prices. Sounds good, but what are the drawbacks?

A. The Washington State Guaranteed Education Tuition program, or GET, is a state program that is guaranteed to keep pace with rising tuition. You can use it at nearly any public or private college in the country.

One hundred units purchased equals one year of tuition and state-mandated fees at the highest priced university in Washington. One can use the difference, if tuition is lower at your school, for room, board and other higher education costs.

The value of your GET account is guaranteed by the state to keep pace with resident undergraduate tuition and state-mandated fees. The state picks the investments and assumes all the investment risks.

This prepaid tuition program falls legally within the bounds of tax code section 529, which also supports investment accounts that defer earnings in the accumulation phase and distribute funds free from taxation if used for higher education costs. The GET program reduces the need for other state support by encouraging savings.

A child can be enrolled every six months (in March and September) or any time from birth to 12 months. Friends and relatives can purchase units as well. The units are easily purchased and tracked online and can be transferred to another family member if not used for the primary beneficiary.

This year’s huge unit purchase price increase (from $76 to $101) has prompted many potential buyers to consider other options. Recent economic conditions have led to the creation of a solvency report which confirmed the need to significantly increase the tuition unit purchase price. The GET website even claims “at the new unit price you should not expect to realize a gain before 5 years.”

For this year a simple rule of thumb is to buy units only for children 10 and younger while thinking of it as the most conservative portion of your savings strategy. As with any plan, a diversified approach of account types, investments and personal efforts should combine in a way for you to achieve the goal.

Account types include 529 investment and 529 prepaid tuition, Coverdell education accounts, UTMA accounts, and savings in the name of a parent. Investments generally include stocks, bonds and cash alternatives (CDs, money markets). Complete your trifecta with personal efforts such as zero parent debt; excellent student grades and/or athletic excellence; combining AP credits, community college and university coursework; and sticking to a strict four-year college time frame.

John Schram is a certified financial planner and member of the local Financial Planning Association chapter. Readers are invited to submit questions on financial planning to be answered in this space each Tuesday. Send questions to askaplanner@spokesman.com.


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