Usually.

My friend just had their first child and began researching 529 plans. A 529 plan is an education savings plan run by a state or an educational institution, it’s named after Section 529 of the Internal Revenue Code. The plan offers tax benefits to individuals saving for future education. In his case, he was looking at a savings plan, rather than a prepaid plan*.

And now he had a choice: an in-state plan with a tax deduction or an out-of-state plan with potentially cheaper funds. Specifically, he wondered if he should open a Maryland 529, which offers a tax deduction to Maryland residents, or a state plan offering Vanguard funds, which is known for lower mutual fund fees. The state plan he found was Nevada’s, which is run by Upromise but offers Vanguard funds. (Plan data provided by Saving For College, run by Bankrate)

College Investment Plan (Maryland)

• Program Manager: T. Rowe Price Associates, Inc.
• Residency Requirement: No.
• Maximum Contributions: No annual limit until account balance for beneficiary reaches $320,000.
• Account Maintenance Fee: $25 / yr, waived with automatic investments or balance greater than $25,000.
• Management Fees: 0.28% manager fee, 0.25% once program assets reach $2 billion.
• Tax Deductions: $2,500 per beneficiary per year by account owner is deductible with a 10 year carryforward on excess contributions.

The Vanguard 529 Savings Plan (Nevada)

• Program Manager: Upromise Investments, Inc. and Vanguard Group, Inc.
• Residency Requirement: No.
• Maximum Contributions: No annual limit until account balance for beneficiary reaches $310,000.
• Account Maintenance Fee: $20 / yr, waived if account owner or beneficiary is a Nevada resident or assets in account exceed $3,000.
• Management Fees: 0.65% manager fee, include underlying fund expenses.
• Tax Deductions: None.

Comparing just the Nevada plan against the Maryland plan, it appears that the Maryland plan is superior. What you’re trading off is the tax deduction versus the mutual fund fees, but the tax deduction is only available the year you contribute. In Maryland, the $2,500 deduction is worth $125 (5% state income tax) making it nearly a wash between the slightly higher account fees in Nevada.

It’s really a choice between T. Rowe funds vs. Vanguard funds. If you’re an index fund type of investor, the T. Rowe Price Equity Index 500 (PREIX) has an expense ratio of 0.35%. Vanguard’s 500 Index (VFINX) expense ratio is 0.15%, meaning T. Rowe’s ratio is more expensive by 0.20%. On a balance of $10,000, that’s a difference of $20 being whisked out of the account each year for nothing. While $20 doesn’t seem like much, that’s a fee taken out each year and one that will erode your investment’s growing potential.

If it were me, I think the Nevada plan is superior of the two because it offers access to cheaper Vanguard funds.

Five Best 529 Plans

Liz Pulliam Weston of MSN money recently looked at the 5 best college savings plans and listed Nevada as one of the top five. The other states included were Alaska, Nebraska, Rhode Island and Virginia. The Virginia plan offers access to some Vanguard funds too.

* A prepaid plan is an option where you “lock in” the price of an in-state public college education right now. You can always convert it to a private or out of state school later on based on some conversion tables.

(Photo: lednew)

One of my friends had a car that she loved but had to bring into the shop every three or four months, like clockwork, for one problem or another. This wasn’t some car she bought used on Ebay or some shady car dealership, this was a brand spanking new vehicle. I won’t slander the manufacturer by saying who made it but suffice it to say, the brothers on CarTalk have complained frequently about it’s expensive ball joints. So, knowing she’d been to the dealership so many times I wondered what the lemon law actually covers and what it means (in Maryland, the laws may differ for you wherever you are).

In order to qualify for protection, your car must be less than fifteen months old with less than 15,000 miles on it and either owned or leased by you and registered in Maryland. (If it’s registered elsewhere, check that state’s lemon laws) Now, this usually puts you within the manufacturer’s warranty so they should fix pretty much every problem you bring them. If they can’t, that’s when the lemon law protections come in.

First, write your dealer or car manufacturer a letter requesting the repair and send it via certified mail. If the manufacturer refuses to repair the problem with thirty days or if they do complete repairs and it “impairs the use” or “substantially reduces the market value” of the car, then you may qualify for a refund or replacement vehicle as long as the problem is from the following list:

The problem list is:

• A brake or steering failure that was not corrected after the first repair attempt, and that causes the vehicle to fail Maryland’s safety inspection; or
• Any one problem that substantially impairs the use and market value of the vehicle that was not corrected in four repair attempts; or
• Any number of problems that substantially impair the use and market value of the vehicle that have caused it to be out of service for a cumulative total of 30 or more days.

If you qualify, you’ll want to write a complaint to the manufacturer with the following information (sending it via certified mail!):

• List the make, model, year and VIN of your vehicle.
• Include the name of the dealership from which your automobile was purchased and the date of purchase.
• Describe the problem you are having.
• Describe what you have done to address the problem and include copies of repair orders and dates of repair attempts.

If the manufacturer can’t correct the problem you outline within 30 days, they are required to repurchase or replace your car. If they repurchase it, they must cover the full purchase price plus license fees, registration, and any other government charges and they have the option of reducing it by 15% because you got to use the vehicle and a “reasonable allowance” for damage outside normal wear and tear. if you

If your car is a lemon and the manufacturer is unable to correct the problem within 30 days of receiving your letter, the manufacturer must repurchase or replace your vehicle. If you previously contacted the manufacturer, you will want to send a follow-up letter by certified mail, return receipt requested, outlining your problem, the steps you have taken to resolve it and what action you want taken. (See sample letter C.)

The manufacturer can replace your vehicle with a comparable one that is acceptable to you, or buy it back, whichever you prefer. The repurchase price you are offered should cover the full purchase price including license fees, registration fees and other similar governmental charges. The manufacturer can subtract up to 15 percent of the purchase price for your use of the vehicle, and a reasonable allowance for damage not attributed to normal wear and tear. At this point, I’d contact the Consumer Protection Division to get their help. If you need more information, the Maryland AG office has more information.

Good luck!

This is not legal advice in anyway, I was just trying to understand the laws to help out a friend.

As I wrote this morning, I opted for the Maryland 529 College Investment Plan (CIP) over the Maryland 529 Prepaid College Trust (PCT) when I enrolled and I did so for a variety of reasons. First off, the Prepaid College Trust is like prepaying and locking in the rates of a Maryland educational institution today but for use sometime in the future (at least three years in the future).

Can Only Enroll Beneficiary After Birth

This made the PCT impossible for me because we don’t have any children yet. The CIP lets me name myself as the beneficiary and then roll that over to my child when he or she is born.

However, let’s say I have a child and the PCT was an option, would I still do the CIP? Yes, here’s why.

1. PCT’s “Legislative Guarantee”

With the CIP, my after-tax assets are put into various funds that grow tax-deferred (tax-free if spent on educational expenses). The PCT, it’s like Social Security, I pay into a system that will put it in a group of investments that will guarantee I can get a payout when my child enters college. If there is a shortfall, then the Legislative Guarantee says:

… the Governor to submit a request for the Prepaid College Trust in his/her annual budget if the Prepaid College Trust experiences a shortfall in any given year. As with the entire State budget, this request would require General Assembly approval.

What happens if they don’t approve it? What if there is a huge shortfall and no way to fund it? Those are questions that I don’t see answers for and one of the fundamental problems I have with these sorts of guarantees (like Social Security). I’d much rather prefer to have an account with funds in it that I know is there and isn’t spent elsewhere.

2. CIP: Potentially Higher Returns

With the CIP, I’m banking on market returns on my funds that may be outpaced by the increasing costs in education. According to their math, the University of Maryland’s tuition and mandatory fees increased 90% in 10 years, or 6.6% each year. Johns Hopkins University increased 63% in 10 years, or 5.0% each year. Now, if your think the market will return 11% on average, you’ll want the CIP.

3. Flexibility Over Price

If you’re certain that a Maryland college is where your child will be going (and the Legislative Guarantee placates your concerns over future fundability), then the PCT is probably your best bet because it guarantees the cost. If you’re not so sure, the PCT’s value for a college outside of Maryland is limited to the “Weighted Average Tuitions” of four year colleges. The increase in how much they’d pay per year for a public college outside of Maryland was a paltry 1.6%; that isn’t that impressive considering they spent the first half of the PCT FAQ telling us about the 90% in ten year increase in UMD’s prices.

Ultimately, the guarantee part was what concerned me but the Flexibility over Price issue was a close number 2. The potentially higher returns part wasn’t as big a factor as the other two but I felt is deserved some mention because ROI should always be on your mind when making investment decisions. Talk to a professional because you make any decisions, these are my opinions and I have little experience in this arena.

For those Marylanders (or outside Marylanders who are enrolled in either program) in 529 programs, how did you pick which plan to go with? For those who are thinking about it, what are the issues on your mind?

I’ve talked in the past about the Maryland 529 plan and today I pulled the trigger and enrolled. In Maryland, you get up to a $2,500 deduction each year on your state income taxes (if you contribute $2,500 to the plan) if you are a Maryland resident. It’s not a tremendous amount of money back in our pocket considering it’s a 4.75% tax ($118.75 rebate) but since I’ll be spending money on education in the future anyway, $118.75 for something I should be doing anyway makes it just icing on the cake. Plus ultimately it’s a hundred bucks and that’s not trivial, it’s just seems small percentage-wise.

In Maryland there are two programs, the Maryland Prepaid College Trust and the Maryland College Investment Plan, the latter of which is managed by T. Rowe Price. I’m doing the Maryland College Investment Plan because it gives you more flexibility in terms of where the money can be spent and I figure my kids are all going to be little geniuses and going to the most expensive private school that’s located the farthest away from where we’re living at the time. Whether or not they’re going to be geniuses probably has nothing to do with the expense or distance factor, but I can still dream and Murphy’s Law says the second half of that statement is an absolute certainty.

Signing up for the plan was trivial and took a maximum of ten minutes. I went to College Savings Plan of Maryland, located the Enrollment form for the Maryland College Investment Plan, and was signed up in about five minutes. You simply need to decide on a username, pick a six digit pin, then open up an account. I’ll be naming myself as both the Account Holder and the Beneficiary, as I don’t actually have any kids yet. You can always rollover the account to another beneficiary without tax penalty if the recipient and the original beneficiary are in the same family. If they aren’t, there are some tax penalties.

After setting up an account comes the time to fund it. Simply mail a check or money order of at least $250 and the account is up in a jiffy. You’ll have to specify which funds to put it in but that was pretty simple.

Fee-wise, Maryland was pretty good and they’re getting close to the next tier of assets, $2B, when the fees fall even farther. I was pretty surprised to learn that the fees are related to the assets in its control, something you never see with mutual funds or things like that. In fact, because they had so many accounts and over $1B in assets that they took away the application fee ($75) and lowered a few other fees.

If you’re thinking about a Maryland 529, I’d read over this Disclosure Statement and FAQ. It’s pretty comprehensive and written in easy to understand language so you won’t have to wade through lawyer-speak.

(Photo: lednew)

One of the things many young professionals face in the Baltimore region is whether to buy a home in the suburbs around Baltimore or in one of the hot young neighborhoods in Baltimore. Federal Hill, Canton, and Fell’s Point are essentially the three hubs of social activity in the city of Baltimore for anyone between the ages of 21-30 (i.e. lots of bars). When I made the decision, I opted for the suburbs of Columbia because of crime, prices, and taxes.

1. CRIME
Anyone who says they feel 100% entirely safe walking the streets of Baltimore at night, any street, is either packing a weapon (even then you’re not safe, you just feel safe), a fool, or incredibly lucky. Anyone who owns a car parked in Baltimore that doesn’t have comprehensive insurance is also a fool. Of my friends who live in the city, at least seven have had their cars broken into. One saw a stranger moments after being mugged. Two have told stories of their friends being mugged. Finally, my girlfriend wouldn’t feel safe walking around if I wasn’t around. The City of Baltimore Police Department website has a resource for looking up crime, but it doesn’t appear entirely accurate.

2. Hot Today, Not Tomorrow
Canton, one of the hot areas, sits next to an area called Patterson Park. Canton has nice renovated homes while Patterson Park has falled into a big of disarray. The actual park of Patterson Park is nice during the day but as one friend put it, he wouldn’t “be caught dead in that park after dark.” Twenty years ago Patterson Park was the swank, posh neighborhood and Canton was the dump by the docks. You don’t get rich buying high and selling low… every nice neighborhood in Baltimore City is high right now.

3. Baltimore City Property Taxes are 2.308%
The second highest property tax rate in Maryland is 1.11% in Baltimore County (Columbia is 1.044%). For a $300,000 home, you will be sending the City of Baltimore a fat check of nearly seven thousand dollars a year!

4. Baltimore Is Not That Nice
If you’re under 30, single, and looking for some nice bars - Baltimore has some nice spots for you. If you’re dating someone and want to show them a good time… you have about half a dozen dates available (plus however many Hippodrome shows come through town) and after that you’re basically left to your wits and some pretty good restaurants. It’s not like a New York City or a Boston in terms of character, history, and wealth of things to do on a Saturday afternoon.

5. Homes are too small for too much
While I don’t expect a home in the city to be the same size as a home in the suburbs, I do expect the prices to be within reasonable spitting distances in terms of square footage. It is widely believed that paying between $120-130 per square foot is a reasonable price in this area (when you don’t have a garage). My friends have homes that are 11′ wide and they’ve paid way over that benchmark (one has paid $160 square foot, but that doesn’t count a roof deck). I think it’s the case of young professionals, with no concept of home value, seeing what the sizzling hot market rate is and just simply paying it. Granted, I paid $295k for a townhouse with 2400 sq ft. so some would say I am a foolish young professional who has no concept of home value.

6. Who Would You Sell It To?
No one with kids is going to buy your house in Baltimore City, the schools aren’t good. No one in retirement is going to buy your house in Baltimore City, the crime is too prevalent and there isn’t enough to do. No one under the age of 20 is going to buy your house in Baltimore City because they don’t have the means to buy a $350,000+ home. That leaves young professionals between the ages of 20-35 as your potential market and home prices are getting to close to the max they’re able to afford. Suburbia is friendlier to retirees and families.

I think those are six compelling reasons against buying a home in Baltimore. I’m not anti-Baltimore, in fact I like it quite a bit, but I just wouldn’t buy a house and want to stay there for a long time. Columbia offers much more than Baltimore including extensive open green spaces with trails through the woods and around lakes. There are nice amenities like nice libraries and a stronger sense of community. Ownership percentages are a little higher in the suburbs and it shows, less garbage on the streets (if any) and better upkeep of the homes. While a lot of these may be subjective, it was enough to convince me that suburbs were a better choice.