My Thoughts on Alabama's Revamped College Counts 529 Plan

Recently one of our clients asked for my opinion of Alabama's 529 college savings program. I had to confess that I had not looked at it but would do so and give him my thoughts, which I did. Understanding that this is not a comprehensive discussion of 529 plans in general or the Alabama 529 plan in particular, please allow me to share my thoughts with you as well.

Alabama has an excellent 529 Plan. They offer choices in Target Portfolios, Age-Based Portfolios and Individual Fund Portfolios. Those are offered on two platforms: 1.) Direct (the Do-It-Yourself option) and 2.) Advisor Plan (pay someone to do it for you option). It appears to me that both platforms offer the same investment options but, as you might expect, the difference in costs between the two platforms are significant.

Internal costs, commissions and/or fees paid from the original investment proceeds negatively effect investment performance. So, at the risk of alienating my fellow investment advisors, my recommendation is that you use the "Direct" platform. It is user friendly and there is not an investment choice in the Advisor Plan that is not significantly more expensive than those under the "Direct" platform. If you are not confident in your investment selections chose the Age-Based Moderate Portfolio applicable for your beneficiary's age. The investment allocations start with a somewhat aggressive selection of investments and move over time to more conservative alternatives as the beneficiary nears college age. That is a good strategy for any specific funding need. I like the strategy, the investment choices and the costs.

Please note that there are no guarantees on the investment results or the principal invested in these plans. The investor can lose every dollar invested in these plans just like most other investments. The old PACT plan sponsored by the State was closed in 2009. Alabama’s sponsorship of this 529 plan triggers the tax-deferral and tax-free benefits afforded under IRC Section 529. To make Alabama's plan more attractive, however; the State allows a tax deduction of $5,000 per Alabama tax return per year ($10,000 if married filing jointly). So, a quick 5% tax-advantaged return is a nice way to start any investment program. So this could be an annual purchase until you reach your goal(s). Just be sure you can use the tax deduction, if that is a consideration. By the way, this includes rollovers from existing 529 plans. This program is available to Alabama residents, non-residents and part-year residents and can be purchased by parents, grandparents, aunts, uncles or total strangers for the benefit of anyone that can use it.

All the details are available at www.collegecounts529.com. After reading the first level of information select the investment options tab, scroll down to a box entitled "Risk Considerations" and click on a blue highlighted area called "Program Disclosure Statement". Do this for the "Direct" and "Advisor Plan". You can scan most of the information but compare the costs and investment results. When evaluating any investment always remember that past performance is no guarantee of future results.

If we can be of further assistance give us an old-fashioned phone call at 205-824-8813.

We would enjoy hearing from you.

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