If you are considering a 529 college savings account for your child, there is a promotional offer that could get you a good start.

Ohio 529 College Savings Plan, rated as one of the best 529 college savings plans by Morningstar multiple times,  is offering a $100 bonus for its popular CollegeAdvantage 529 plan. From now to November 18, 2011, if you open a new CollegeAdvantage direct account and make at least $100 deposit, then you will receive the $50 bonus around March 15, 2012. The requirement of a new direct account means that if you open an account through, say, a broker or an adviser, then you are not eligible for the bonus. As you may know, CollegeAdvantage is a direct sold 529 plan, meaning that you can open your account directly with the plan  administrator, the Ohio Tuition Trust Authority and there’s no need to use a broker or adviser. Once you open an account before the deadline, all you need to do is making a deposit of $100 or more. That’s it. The process is rather simple, but you do have to wait until next March to see the bonus in your account. So that’s a bit long.

I have been a customer of Ohio CollegeAdvantage plan since early 2007 and am quite pleased with the selection and performance of the funds, as well as the administration of the plan. Since joining the plan four years ago, I have seen CollegeAdvantage reduced administrative fees of its funds and offered sign-up bonus multiple times to attractive new customers, all done without hurting the plan’s overall rating. As Morningstar pointed out when recognizing CollegeAdvantage as one of the best 529 plans that, by managing the plan directly, the Ohio Tuition Trust Authority is able to reduce costs of the plan’s large selection of investment options that include mutual funds (from Vanguard), bonds (from PIMCO), and CDs. These funds, containing both active funds and index funds, are constructed into four age-based portfolios that allocate stock and bond funds in the portfolio based on the account beneficiary’s time frame of entering college. If you prefer, you can also build your own portfolio by choosing each individual fund the plan has to offer, giving you a lot of flexibility and control of what and how to invest.

Also, since CollegeAdvantage is nationally available, you can join the plan regardless your residence, even though out-state participants won’t enjoy some tax benefits as residents of the state of Ohio do. I opened my account in 2007 when we lived in New Jersey and I chose CollegeAdvantage over NJ 529 plan because of its selection, cost and performance. Tax benefit is a consideration when selecting a 529 plan, but it’s not a deciding factor, at least that’s the case for me.

If you are interested, you can go to Ohio CollegeAdvantage to open an account using promo code KIDS and get $50 bonus for free.

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Anybody who’s ever opened a 529 college savings account for their child knows that while these accounts tend to be some of the best options around for college saving there’s one little rule about them that tends to hover over your head like a black cloud.  I’m talking about the provision where the money in the account HAS to be used for higher education expenses or it will be taxed and penalized.

Nobody knows with 100% certainty if Junior is going to head off to college someday.  While saving in a 529 college savings account requires a small leap of faith, you’ll be happy to discover that there are options for you other than biting the bullet and eating the penalty if your child does in fact choose to forgo college.  Assuming that you’re kid doesn’t get an academic scholarship to college (which would, in fact, allow for a penalty-free withdrawal from a 529), here are a few things you can do with that unused 529 account.

Change the beneficiary to another child

If you have another child in the house, your choice might be as simple as this.  There’s no penalty involved if you want to change the beneficiary on a 529 account and in many cases this change can be completed with a simple form or a phone call.  If one child doesn’t plan on going to college, simply change the beneficiary his or her sibling and you’re all set.

If another child is not an option, other family members can work as well.  According to IRS rules, other family members who could be named as beneficiaries include brothers, sisters, nieces, nephews, cousins and even in-laws.  In other words, you have a lot of options for people you could name as beneficiary.

Change the beneficiary to yourself

If none of those choices seem to fit the bill (or you’re just looking to head back to school yourself), you can always name yourself as the beneficiary.  People may assume that 529 accounts are just for kids or teenagers but the 529 account is open to anybody who wants to save money for college.

If you’re looking to head back to school to complete your undergraduate degree, get an MBA or even take an elective course or two at a local community college, you can use the money to pay for your own tuition bills and get the same tax benefits that anyone else would receive.

Leave the money where it is

Nobody in your immediate family looking to head off to college any time soon?  Your best bet might just be to leave the money sitting where it is.  The nice thing about 529s is that there’s no mandatory withdrawal deadline for the money.  Unlike IRAs that have required minimum distributions upon reaching retirement age or UGMAs that require you to transfer ownership over to the minor beneficiary upon reaching a certain age, 529 money can sit in the account indefinitely.

That means you can wait until your child possibly changes his or her mind on college, you want to take a class or two in your free time or a grandchild comes along that you want to gift the money to.

You do actually have a number of choices available for your college savings if you think you won’t be using it on your child’s college bills.  Knowing them will help make sure that money stays in your pocket.

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College can be a big expense for you as the cost of getting a college education keep going up every year. However, if you’ve been working at saving for it all along, things will certainly be much easier to handle, especially when college is still years away. So what can you do if you don’t have a savings built up yet? These tips below can help you prepare for college.

Estimate your overall expenses

Determine what you need in order to pay for your schooling. When looking at the cost of college, you’ll need to figure in more than just how much money you need for tuition. Find out how much matriculation fees will be and if there are any other fees associated with entrance into your school. Add in textbook fees, and dorm, food, travel and lab expenses.

Start Saving Now

There’s no better time than now to start saving money for college. Make it easier on yourself by decreasing unnecessary expenses, which will in turn free up money that you can put away. You may even want to make a direct deposit to your savings account from your paycheck. Having interest work for you now instead of against you in the form of college loans can be a great motivation for starting today.

Invest It

The way you invest your funds depends on how long you have before you need to use it. If you have some time before you will be taking your capital out, invest it more aggressively through stocks. If you are closer to entering college, put it in bonds.

Don’t Dip Into Your Parent’s Retirement

Although it may be tempting to allow your parents to take money out of their 401(k) or other retirement plans, it may be wiser to find other ways to pay for higher education. Big monetary penalties come from withdrawing funds from retirement accounts early. Additionally, higher education can be very expensive. If you put retirement funds toward education, your parents may not have enough time to reestablish their retirement in time to retire on.

Look for Tax Breaks

Section 529 Plans allow you or your parents to either purchase tuition credits at their current value, or to place them in a savings mutual fund that becomes more conservative as you near college. Prepaid tuition only covers the cost of the classes and mandatory fees. The savings option can cover room and board, textbooks and other education costs as well as tuition. With these plans, you or your folks can make a one-time contribution, add to it periodically, or establish an automatic deposit. Keep in mind that even though these funds are managed professionally, they are not immune to the economy.

Apply For Scholarships & Grants

While these resources won’t help you save for school, they can save you money if you receive them. Research on your own and talk to your counselor about scholarships and grants you might qualify for. Prepare in advance so you can meet the requirements such as completing essays and tests.

Summary

Preparing to pay for school will help you in the long run as tuition increases. Instead of planning to pay off student loans, plan to save that money so it can make interest for you. Look for ways to cut down on expenses, including those from education, and consider marking your money for a Section 529 plan.

This is a guest post from Kimberly Bowen. Kimberly is a staff writer for NorthOrion, a website dedicated to helping you make informed education and financial decisions.

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Investment research firm Morningstar last week released its annal ranking of 529 plans. The 2010 survey covered 52 largest state-based college savings plans currently available. As it did in the past, Morningstar focused its research on key metrics of 529 plans, such as investment choices, performances, tax incentives and, mostly importantly, costs, when evaluating and ranking plans. As 529 plans continue to gain popularity among parents who want to save for their children’s future education(the total assets in 529 savings plans are $119 billion), plan administrators have kept improving their plans to make them more attractive. In the latest study, Morningstar noticed that 30 of the nation’s 82 plans have reduced fees in the past 18 months since its 2009 ranking was released.

Five plans were named 2010 Best 529 College Savings Plans by Morningstar. Among them, CollegeAdvantage plan, which I use for one of our daughters, has been recognized multiple times as the one of the best plans. Even though we can get tax incentives from Virginia Education Savings Trust (VEST) Plan, we continue to use CollegeAdvantage because we like the plan’s investment choices and its low-cost approach. Plus, the CollegeAdvantage referral program has helped us tremendously in the past couple of years.

• T. Rowe Price College Savings Plan and Maryland College Investment Plan: “Both of these plans are sold directly to college savers and are run by T. Rowe Price. They feature nearly identical asset allocation and underlying funds. These are two of the few direct-sold 529 plans that emphasize actively managed funds, rather than index funds. As a result, college savers pay more than they would for an indexed-only plan, but they’re getting a strong set of funds run by experienced managers.”
• CollegeAdvantage 529 Savings Plan: “This 529 plan, managed by the Ohio Tuition Trust Authority, mixes sought-after money managers from a number of firms. Vanguard runs a set of age-based indexed options, while another track of investments mixes active managers from PIMCO, Vanguard, Oppenheimer, and GE, along with some Vanguard index funds. Morningstar has found it’s usually more expensive to offer multiple firms’ strategies in a single 529 plan, but this plan’s total expenses are among the lowest for their respective strategies.”
• The Vanguard 529 College Savings Plan: “The cost of buying index funds in 529 plans went way down in 2010 when Fidelity first announced steep fee cuts within the plans it manages, particularly among indexed options. Vanguard–the industry’s leader in indexing strategies–has followed suit, though not for every plan it manages. The Vanguard 529 College Savings Plan, sold through the state of Nevada, features an expense ratio of 0.25% on its age-based options, making it a top choice for college savers. “
• CollegeAmerica: ”This Virginia-based plan is the nation’s largest, and it’s no wonder why. American Funds, a broker-sold family of funds known for its patient, risk-aware investing style, offers its complete lineup here for advisors to mix for their clients. Many broker-sold 529 plans are significantly more costly than their namesake mutual funds, but these are barely higher, and the funds’ long-term records are enviable.”

BTW, Morningstar has recently launched a new 529 College Savings Plans Screener to help parents research and compare hundreds of plans and funds. It’s a very nice tool, but you will need a Morningstar Premium membership to use it.

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If you’re one of the millions of Americans who is looking for the best way for the skyrocketing costs of a college education, you’ve no doubt heard of the 529 plan.  529s are the tax-advantaged plans offered up by the government for the express purpose of saving for college.  And every state now offers its own plan presenting a menu of investment options either directly or through a broker.

Most people will assume that they are limited to their own state’s 529 offering (see best 529 plans of 2010).  For example, if you live in the state of New York, your college savings options are limited to the choices in the New York 529 College Savings Program.  Not true!  With a couple of exceptions, you are free to select any state’s 529 plan for your investment.  In fact, there are several instances where it’ll make more sense to invest outside your state’s plan.

Numerous 529 programs offer perks such as state tax deductions for contributions and tax-free withdrawal of earnings to state residents who open an account.  That means in many cases the best option will be the 529 program in your home state.  However, if your state’s program doesn’t offer these incentives or charges high management fees, it may be time to start shopping around.

Start by checking out www.savingforcollege.com to see how your state’s plan compares to others across the country.  The website has a great tool for comparing plans and it allows you to filter by criteria such as fees charged, tax benefits and investment options.  You’ll be able to select the features that you want your plan to carry and the tool will give you the best choices available.

In the process though, make sure you’re examining the factors that give you the greatest chance for success.  The best place to start is by looking at the fees and expenses charged by the fund.  This is important because this is perhaps the easiest way to enhance your return.  If you have one fund that charges 0.5% in fees and a second identical fund that charges 1.5%, the lower fee fund is going to come out ahead every time.  Just a 1% difference in return each year can make a huge impact in 18 years.  A higher the expense ratio means more of the fund’s return that is taken away from you.

Another important factor to take a look at is the plan offerings themselves.  A good plan will have choices on both the conservative and aggressive ends of the spectrum as well as age-based options that become gradually more conservative as your child nears college age.

Plans from Utah and Virginia are generally the most highly regarded for their combination of low cost, broad investment options and easy access to your account.  New Jersey and Nebraska have seen their 529 plans fall in the “worst of” category recently as they’ve been hampered by high fees, overly aggressive investment options and a lack of flexibility.

When it comes to saving for college, you actually have more choices than you think.  Knowing what’s available to you and how best to take advantage of it can be the difference between a strong financial plan and years of college loans.

Photo credit: NASCAR says

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