Keep an eye on gold, bonds in 2011

First, on Dec. 13, Dennis Gartman shared some gold data that I think tells an important story.
Back in the early days of the gold bull market, I remember arguing with people that, in my view, gold prices would be driven by demand for the metal as an investment, not by interest in using it for jewelry.
That was a novel thought in those days, as "analysts" used to focus only on what jewelry buyers were likely to do. In those days, that was deemed to be all one really needed to know about gold.In the wake of the tech-stock bubble bursting, I knew that, once it became clear the Federal Reserve was going to try to print money as a way out of that mess, the dollar would have problems and gold would be a beneficiary.
Of course, as the real-estate bubble inflated, leading to an even larger disaster, there was no question that even more money-printing would follow. This bolstered the case for gold. Thus, my argument was always based on investors being the drivers of the gold bull market.

From baubles . . .

That, in fact, has been the case. But I was still surprised to see just how potent investment demand has become. According to Gartman (the data likely originated with the World Gold Council), in 2000, investment demand accounted for approximately 2% of demand for gold, while about 80% of demand came from the market for gold jewelry.By 2005, the jewelry share had declined to about 60%, while investment demand had risen to about 20%. Nowadays, jewelry usage is about 40% and investment demand is just over 40%. (Gold also has industrial and other uses, which accounts for the remainder of demand.)
As Gartman notes, "The ETFs are having their very real impact."

However, that is not quite accurate. The gold-based exchange-traded funds themselves aren't what made such an impact. It is the investment demand that has had the impact; the ETFs are merely the conduit by which much of that demand is expressed. What is really remarkable is that with investment demand at 40% of gold production, the number of gold bulls with any substantial allocation is still minute.
Perhaps by the time this bull market has run its course, investment demand will approach 100% of annual gold production, though we can never forget that nearly all the gold that has ever been produced (enough to fill just two Olympic-size swimming pools) is still in existence. So it's not just the gold that gets dug out of the ground each year that is available for sale, but potentially almost all the gold in the world. Of course, someone who has bought gold would need a reason to sell it, with some sort of financial prudence on the part of governments and central banks being the most likely catalyst. But as readers of my column (at least) should know, we are still millions of miles away from that.

It can't be bad news, so it must be good

As a lead-in to my second point, I wanted to comment a bit on Best Buy, which announced its results Dec. 14. Not only did the electronics retailer miss estimates, but it was also forced to lower guidance prospectively, as demand has not materialized the way the company had hoped. As a consequence, its stock price was smacked for 15%, although the market itself impressively fought off more rising bond interest rates to close about even (the Dow Jones Industrial Average ($INDU) closed with a 0.4% gain).
Normally, I would have expected the major indexes to take a bit of a licking on that news, as Best Buy has always been deemed to be a well-run retailer and a good barometer of business (especially at this time of year).
However, the denial currently runs so deep regarding what is next for the economy and the stock market that, apparently, the bulls were able to convince themselves that somehow Best Buy's results were company-specific. Thus, businesses associated with Best Buy, which in the past would also have been sold in sympathy, were given a pass. It is quite similar to the treatment we saw when Cisco Systems reported its results Nov. 10.
I mention those two companies because they, as well as others, illustrate a consequence of government money-printing. The additional liquidity goes where it goes (usually into stocks, since the Fed's low-interest-rate policies make more conservative alternatives less attractive), psychology gets deranged and nonsense passes for knowledge.
The net effect is to increase the riskiness of stocks generically, as "normal" market reactions become suppressed, creating an unhealthy environment.

Treasury misery loves company

A variation of that same theme seems to be what has stopped the bond-market rout from being regarded as bad news. Apparently, a school of thought has "evolved" that the decline in the bond market is not about the Fed losing control of the printing press, as I have maintained, but about economic activity surging. Thus, the weakness in bonds is (supposedly) good news.
How anyone can conclude that, given the data, I don't know. But even if you agree, you can't escape the reality of higher rates. So if you really think that bond weakness is linked to the economy catching fire, and you extend that argument out, then you should be expecting even higher rates and more inflation, though the latter is certainly not on the radar of any such Pollyannas.

10 ways to guard against ID theft

Identity theft is often in the news, but there are a lot of misconceptions swirling around about how to best protect yourself.
While some identity thieves focus on getting your credit cards and maxing them out before you even realize they're missing, an increasing number are using one piece of information about you -- often a credit card number -- to steal your entire identity. Though many folks worry about keeping their credit card information secure when shopping online, the top methods that identity thieves use to steal personal data are still low-tech, according to Justin Yurek, the president of ID Watchdog, an identity theft-monitoring company. "Watch your personal documents, be careful to whom you give out your data over the phone, and be careful of mail theft," he says.
No one is immune to identity theft, but a little knowledge about how identity thieves operate -- and a little common sense -- can help you stay a step ahead of them.
1. Thieves don't need your credit card number in order to steal it. Conversely, they don't need your credit card in order to steal your identity. Identity thieves are crafty; sometimes all they need is one piece of information about you and they can easily gain access to the rest. As a result, says Heather Wells, recovery manager at ID Experts, an identity protection company, today it's crucial to lock up important documents at home. "Secure birth certificates, Social Security cards, passports, in a safe deposit box or in a safe hidden at home," she says. "And that includes credit cards when not in use."

2. The nonfinancial personal information you reveal online is often enough for a thief. Beware of seemingly innocent personal facts that a thief could use to steal your identity. For example, never list your full birth date on Facebook or any other social-networking website. And don't list your home address or telephone number on any website you use for personal or business reasons, including job-search sites. 3. Be careful with your snail mail. "Follow your billing cycles closely," says Lucy Duni, the vice president of consumer education at TrueCredit. "If a credit card or other bill hasn't arrived, it may mean that an identity thief has gotten hold of your account and changed your billing address." Al Marcella, professor at Webster University's School of Business and Technology in St. Louis, and an expert on identity theft, suggests when you order new checks, you pick them up at the bank instead of shipping them to your home. "Stolen checks can be altered and cashed by fraudsters," says Duni. And never place outgoing mail in your post office box or door slot for a carrier to pick up. Anyone can grab it and get your credit card numbers and other financial information. Take it to the post office yourself.
4. Review all bank and credit card statements each month, preferably once a week. Watch for charges of less than a dollar or two from unfamiliar companies or individuals. Thieves who are planning to purchase a block of stolen credit card numbers often first test to check that the accounts haven't been canceled by aware customers by sending a small charge through, sometimes for only a few pennies. If the first charge succeeds, they'll buy the stolen data and make a much larger charge or purchase. They're guessing -- often correctly -- that most cardholders won't notice such a tiny charge. In addition, many of the fraud alerts you can set on your accounts aren't triggered by small dollar amounts. Reviewing your credit report on a regular basis is also a good idea, although by the time a fraudulent transaction reaches your credit report, it's often too late.
5. If an ATM or store terminal looks funny, don't use it. "Make sure there is no device attached to any ATM card slot you use," says Wells. "As a general rule, the mouth of a card receptacle on an ATM machine should be flush with the machine or have only a very slight lip." If it looks or feels different when you swipe your card, or has an extra piece of plastic sticking out from the card slot, it may be a skimmer, an electronic device placed there by thieves that captures your credit card information when you swipe it. If you notice it after you've already inserted your card, you should alert your bank so they can watch for any fraudulent charges to your account.
6. Identity thieves love travelers and tourists. Scott Stevenson, the founder and CEO of Eliminate ID Theft, an ID-theft-protection company, cautions travelers to be alert to strangers hovering around whenever using a credit card at an ATM or phone, and to avoid public wireless Internet connections unless their laptops or PDAs have beefed-up security protection.

Best Vanguard funds for your 401k

When it comes to investing for retirement through 401k's, investors have a lot of options. Investment management company Vanguard continues to use its heft and low costs to pick off competitors. It has been winning investors with new funds (up to 20 in 2010), free trading in Vanguard's exchange-traded funds, lower minimums for its low-cost Admiral shares and other consumer-friendly features.
Yet, while all this will help Vanguard gather assets and reduce costs for you and me, the longer the fund list grows, the more confusing it can be to separate the winners from the losers.
To make matters worse, the major drawback to investing in a 401k is that your options are limited to the funds made available by your plan's administrators. Typically, they choose middle-of-the-road funds deemed safe enough to keep employees from losing their shirts, and the administrators from losing their jobs.

So unless you use your 401k plan's brokerage option, you aren't likely to be able to invest in any Vanguard fund you like (and even the brokerage service may not have access to all Vanguard funds). In the case of Vanguard Precious Metals and Mining Fund (VGPMX), that's a good thing. The fund is incredibly volatile, with a maximum cumulative loss of 69.8% in the most recent bear market versus 50.9% for Vanguard Total Stock Market (VTSMX) and 51.0% for Vanguard 500 Index (VFINX). So much for gold funds being a safe haven.On the other hand, you also aren't likely to have access to some funds that you probably should have in your portfolio, such as the Vanguard Emerging Markets Index Fund (VEIEX), which I highly recommend for 401k investors (not for all of your money, of course, just a 5% portion).
In fact, I believe that as the global economy continues healing, having an allocation to emerging markets will become a virtual requirement for investors with long-range objectives, including retirement. That's why I'd suggest you ask your plan administrator to add this fund to the mix of choices your company includes in its 401k plan. (I'm also doubtful your 401k gives you access to the terrific Vanguard Health Care (VGHCX) fund, which offers investors exposure to the growing demand for medical products and services in emerging economies.)
Below are several additional Vanguard funds I'd like to see in your 401k portfolio. Use them if they're available to you. If they're not, request them. You might need to enlist your colleagues to persuade your benefits department to add them, but remember that what's at stake is your retirement. Your 401k plan should be serving you.
As a retirement savings vehicle, a 401k is inherently geared toward the long term. You don't want to just save your money, you also want to see it grow. Consider that even at a retirement age of 60 to 65, you could live at least an additional 30 years. Invest too conservatively and you could outlive your money.
To prevent this, my first recommendation is a trio of Vanguard funds run by the redoubtable team at Primecap Management: Vanguard Primecap (VPMCX), Vanguard Primecap Core (VPCCX) and Vanguard Capital Opportunity (VHCOX).
All three funds are closed to new investors outside of established 401k plans, but they may be available to you. If so, consider yourself lucky and place some of your money with this group of managers who take a value-oriented approach to growth stocks. Their funds are the largest single component of my retirement and nonretirement accounts, as well as those of my wife and kids.
If the Primecap funds are closed to you, Vanguard Wellington (VWELX) is an excellent choice as the core fund for your 401k. Since its inception in July 1929, it has aimed for strong relative returns in good and bad markets by focusing on one very important investment discipline: diversification.
It's a balanced fund, so approximately 60% to 70% of Wellington's assets is in high-quality blue-chip stocks and the remainder is in top-notch investment-grade government and corporate bonds. You can easily get the entire bond exposure you need in your 401k portfolio from this fund. Vanguard Wellington has the flexibility to invest as much as 20% of its equity assets in foreign securities, an important part of a diversified portfolio.

How to Protect Your Credit After Divorce

The end of a marriage is often associated with heartbreak and emotional upheaval, but your former soul-mate could also be walking away with half of your assets and leave you in a bad credit situation.
However, there are many ways to protect and rebuild your credit after a divorce, several of which require little effort but help significantly. Here are a few tips to help you rebuild your credit score after divorce:

Review Your Credit Report
The first step to rebuilding your credit is to get a copy of your credit report and thoroughly review the report. You want to ensure that your ex’s debts are not showing up on your credit report. If any do, you should contact the creditor to have your name removed from the account so that the debt comes off of your credit report.
Cancel All Joint Cards and Accounts
The last thing you want after your divorce is for your ex-partner to go on a shopping spree with a credit card in your name. Therefore, make sure you cancel all joint credit card accounts after making sure that everything is paid off and cleared. While closing your account can lower your credit score it is a worthwhile trade-off. You want your credit and your ex’s credit to be as separated as possible.
Apply for a Low Limit Credit Card
If you don’t have any credit in your name because you shared most cards and loans with your spouse, apply for a credit card with a low limit. The low limit will help you avoid temptation to spend money you don’t have, while helping you to rebuild your credit. Begin by purchasing low cost items throughout the month and pay your balance in full and on-time at the end of each month to build good credit history.
Open a Checking Account in Your Name
Opening a checking account solely in your name is a smart decision to make while you are going through a divorce. You need an account to hold funds that your spouse does not have access to, plus it can also help you protect your credit by ensuring that you have funds available to make at least the minimum payments on credit card and other debts held in your name.
Make Timely Payments on Your Accounts
This might seem obvious, but many people forget how important it is to make your payments on time. A “slow pay” credit history (one where the payor habitually fails to pay the creditor on time) can dramatically lower your credit score. When you receive a bill, have a system in place to remind you to pay it by the due date.
If Necessary, Consider Bankruptcy
If you are so deep in debt after your divorce that you cannot keep up with monthly bill payments, then you may need to consult with a bankruptcy attorney. While bankruptcy is extremely damaging to your credit in the short-term, it can be used to deal with being the situation of being so far in debt that it will be nearly impossible to recover from. Once you have had your slate wiped clean after bankruptcy, you can work on rebuilding your credit and avoiding the problems that created the excessive debt you had in the first place.


While a divorce has the potential to significantly damage your credit, it is possible to emerge from a divorce with your credit rating intact. By following these suggestions, you will be on-track to rebuilding your credit after your divorce.

What Is A Secured Credit Card?

Just like bank loans, where there is secured and unsecured borrowing by businesses, credit cards as a form of consumer debt can also be either secured or unsecured. Credit cards, as most of us know and use, are unsecured.  The money is lent to card users without any collateral against it and it is up to consumers to pay back the account balance later and if not, the card issuer loses (well, they will go after you but there is no guarantee they get their money back).  When the possibility of not paying back by a credit card holder becomes a serious concern, either because of the applicant’s bad credit in the past or no established credit at all, a card issuer would require certain amount of funds to be deposited as collateral before a credit line can be issued.

How A Secured Credit Card Works

The potential card holder must first open a savings account, also known as collateral account, with a card issuer for an initial amount from $300 or $500 up to $5,000 or $10,000.  The credit line can be equal to the amount deposited or at a percentage of it.  As purchases are made on the card, the funds are not deducted from the account and the funds will stay in the collateral account as long as the card holder makes monthly payments for at least the minimum amount.  Some credit card issuers may pay interest on the deposits.
Like regular credit cards, purchases are billed every month and there will be interest charge on any outstanding balances after each grace period.  Many secured credit cards may require an annual fee and one-time setup fee.  A secured credit card functions like any other credit cards and there is no difference in the appearance of a secured credit card and a regular one.

Why Do Secured Credit Cards Exist?

Even though some consumers are cutting back on credit card use to reduce debt and are turning to debit cards or simply paying cash, credit cards cannot be replaced as long as current consumer credit reporting system remains in place.  Consumer credit rating (your credit score) relies heavily on consumer credit card data that are submitted by credit card issuers and analyzed by the three credit card bureaus. Without credit cards and the data collected about how they are used, a consumer’s credit worthiness is much more difficult to be determined.  Most will need to use a credit card if they wish to build a credit history or repair past credit.  Credit cards, secured or unsecured, can be used for that simple reason.  But for some people, a secured credit card is the only solution.

Who Needs a Secured Credit Card?

Starting with no credit history or a bad credit history makes it hard to apply for a regular, unsecured credit card (think about it, why would a credit company want to loan money to someone that hasn’t proven they can pay OR hasn’t paid in the past). However, applying for a secured credit card can be easy and fast when personal funds are used to guarantee the repayment of future credit card bills.  Because a secured credit card works the same way as a regular credit card in terms of using it for purchases and paying monthly card bills, over time the card holder can establish a positive pattern of card uses by paying back on time.  Ultimately, the data collected by the card issuer is reported to credit card bureaus and good credit will be reflected in the credit report (and in turn will raise your credit score).  Moreover, after a certain period of time, such as a year, based on the card holder’s responsible use of the secured credit card, the card issuer may switch to issuing a regular, unsecured credit card.
A secured credit card certainly isn’t for everybody. But it can be a great tool to help establish credit or develop good credit habits.  I’ve even wondered if it’s not one of the better ways for a person to first get a card.  Think of it, if you know you’re money is on the line you will have a great incentive to develop good spending and paying habits.  I can think of so many people who got their first credit card (unsecured) and went wild with their new credit, quickly using up their credit limit.
If you do decide to get a secured card (if you need one to build credit trust), remember the goal is to build up your credit quickly so you can move to an unsecured card and get your collateral deposit back.  Also look into cards that have little or low fees, shop around for the lowest APR you can find, and make sure you understand the details of where your collateral money is going and what it takes to get it back.

12 New Rules for Your Money

In this era of high unemployment, flat home prices and do-it-yourself retirement savings, some traditional rules of saving and investing are due for an overhaul.

Renting may beat buying. Buying wins hands down when home prices are rising. But when they're flat or falling, it makes sense only if you get a great deal, your monthly payment won't exceed rent on a comparable home by much, and you'll own the home long enough to recoup your costs for both buying and later selling your home.
Consider a Roth. Although the traditional rule of tax planning is never to pay a tax bill today that you can put off until tomorrow, Roth IRAs and Roth 401(k) plans stand that rule on its head. With a traditional IRA or work-based retirement plan, you get an upfront tax deduction, but every dime you withdraw in retirement is taxed at your ordinary income-tax rate. With a Roth, you forgo the upfront tax break, but all withdrawals -- including decades of earnings -- can be withdrawn tax-free. If income-tax rates rise, a pot of tax-free retirement income could be a financial lifesaver. To contribute to a Roth IRA, your income in 2010 can't top $120,000 if you're single or $177,000 if you're married. Anyone, regardless of income, can now convert a traditional IRA to a Roth IRA, but you'll owe taxes on the entire amount. There are no income-eligibility limits to contribute to a Roth 401(k), but not all employers offer them. 

Focus on dividends. Invest in stocks that pay dividends. Your options should continue to expand -- more companies are paying dividends, and many of the elite dividend-paying members of Standard & Poor's 500- stock index are upping their payouts to shareholders. True, dividends do not guarantee that a stock will be a winner. Some failed big banks used to pay high dividends, while high-fliers Apple and Google don't pay a penny. But during periods of market volatility, when stock prices tend to bounce around in reaction to political and economic gyrations rather than accurately reflect corporate fundamentals, dividends can provide a predictable income stream. That's not going to make you rich, but it is a comfort when other traditional sources of income have slowed to a trickle 
Personalize your emergency fund. The standard advice is to keep enough in savings to cover three to six months' worth of expenses. But a lot depends on the stability of your job and the predictability of your income. The greater the risk your income could drop, the larger your emergency fund should be. If you think your job is in jeopardy, aim to save at least a year's worth of expenses; ditto for individuals with erratic incomes, such as those who work on commission. Retirees should keep two to three years' worth of expenses in money-market funds, short-term CDs or other liquid investments. The goal is to keep enough cash on hand so that you don't have to sell stocks or rack up expensive credit-card debt if you have an emergency, but not so much that you miss out on the higher returns you can earn on longer-term investments. 
Think McCottage, not McMansion. If you decide you're ready for home-ownership, stick with the traditional (and temporarily forgotten) rule of thumb that you can afford a mortgage equal to up to three times your annual gross income. Most lenders will limit your total monthly housing payment -- including principal, interest, insurance and taxes -- to 28% of your gross income (and your total debt load to 36%). With a down payment of 20% and a 30-year fixed rate of 5%, a couple with a $100,000 income can afford a mortgage of up to $300,000. (Federal Housing Administration mortgages require just 3.5% down, but the smaller your down payment, the bigger your mortgage and the less house you'll be able to afford.) Calculate your eligibility based on a 30-year fixed-rate mortgage. Then decide whether you would prefer a lower-cost adjustable-rate mortgage with an initial fixed rate geared to how long you plan to stay in the house.
Age 66 is the magic number. Although you can begin collecting Social Security benefits as early as age 62, your benefits will be reduced by 25% or more. Better to hold out for full benefits at your normal retirement age -- 66 if you were born between 1943 and 1954; older if you were born later. Once you reach your normal retirement age, you can continue to work while collecting benefits without fear of bumping up against the dreaded earnings cap, which trims $1 in benefits for every $2 you earn over the prescribed limit. In 2010, the earnings cap is $14,160. If you're willing to wait until age 70, you can collect the maximum retirement benefit for you and your surviving spouse. 
Cut your credit-card debt, but not your cards. Minimizing credit-card debt is a great goal, but closing old accounts could hurt your credit score. About one-third of your FICO score (the credit score most lenders use) is based on your credit-utilization ratio, which is the total of your credit-card balances divided by the total of your credit-card limits. What counts is how much you've charged, regardless of whether you pay your balance in full each month. A good target is to use 20% -- or even less -- of your available credit. If your card company has raised your interest rate or imposed an annual fee, you might want to close the account and take a temporary hit to your score. But don't do it within three to six months of applying for a loan.
Lock in your retirement income. Without a pension, you're on your own to figure out how to make your savings last a lifetime. You can use a portion to buy an immediate annuity, which will guarantee monthly payments for the rest of your life. The older you are and the higher interest rates are, the bigger your annuity payout. But you might want to wait for rates to rise before locking up your money. 
Think single-digit returns. Reality check: You should be happy to get 6% a year if you've dialed down risk in preparation for retirement and downright joyous if your overall investments earn 8% annually over the next ten years. Think of the past no-growth decade as a bridge from the unsustainable high returns of the 1980s and 1990s to an era of more-moderate performance. It's time to set a lower total-return target, not only for stocks but for your other investments, too. The performance of large-company U.S. stocks has been flat since 2000, and small-company stocks are losing steam. With interest rates near record lows and economic growth and inflation subdued, bonds and commodities aren't likely to post double-digit returns, either. Emerging economies, such as China and India, will continue to grow, but as their economies mature, investment returns will moderate. 
Retire your mortgage when you do. A house is a long-term investment with attractive tax deductions for mortgage interest and property taxes. It's great during your highest-earning years, but a monthly mortgage payment represents a major portion of most household budgets. One of the best ways to reduce your costs in retirement is to pay off your mortgage by the time you retire. It's best to whittle away at your loan during your final years on the job, making extra payments if necessary. Unless you have a big chunk of savings to pay off your home loan, you could run low on cash and be forced to borrow for future expenses, such as buying a car or replacing a roof.
Spread your assets around. There's no good formula for the right percentage of stocks in your portfolio -- especially the old 100-minus-your-age rule. A fresh idea is to start with 50% and slide the percentage up or down based on your personal situation. If you're 30, you can tilt your long-term money heavily toward stocks but keep your short-term savings in easy-to-access accounts. If you're 60 and have a secure pension and little debt, you can angle for some growth with your long-term investments, perhaps putting 65% in foreign and domestic stocks. Cast a broad net. There are many high-powered alternatives to stocks -- such as emerging-markets bond funds, currency funds, commodities and exchange-traded funds -- that weren't common when the traditional advice was to invest heavily in blue chips.
Save early for retirement. Paying off debt should be a top priority, but don't let your single-mindedness get in the way of your long-term goals. If your employer offers a matching 401(k) contribution, save at least enough to capture the match. Otherwise, you're walking away from free money. Ideally, you should aim to save 15% of your gross income for retirement (include your employer match in that calculation). If your boss doesn't kick in some cash, that's an even better reason to save on your own, either through your employer-based plan or in an IRA. You can start small -- say, 3% of your gross pay -- and allocate a portion of future raises to retirement savings. As you eliminate your debt, you can save even more. The magic of compounding will do the rest.

529 College Savings Plans explained

The basics of investing in 529 plans

Section 529 plans have become a popular way to save and invest for your child’s college education. If you’re new to 529 plans, you might wonder how they work. These 10 common questions and answers will help get you up to speed.
1. How does a 529 college savings plan work?
Also known as a Qualified Tuition Program, a 529 college savings plan is a great way to save and invest for a child’s future college education.
2. What are the tax advantages of a 529 plan?
Any earnings in a 529 plan have the potential to grow free of federal income taxes. And when you withdraw funds for your child’s higher-education expenses, you generally won’t pay federal taxes, and you may not have to pay state taxes.¹
There’s no federal income tax deduction for contributions to a 529 savings plan. But many states offer state tax deductions for contributions.
3. Who can open a 529 plan? Who can contribute?
It’s not just parents who can open 529 plans—anyone can, like a relative or a family friend.
And even if you didn’t open the 529 plan, you can still contribute to it. For example, a grandparent can contribute to a 529 college savings plan set up by the child’s parents.
4. Who has access to the money in the plan?
The assets remain in the control of the person who opened the 529 college savings plan—for example, a parent. So decisions about how the funds are used are always in your hands.
5. What can the money in a 529 college savings plan be used for?
Funds can be used to pay for qualified higher-education expenses1, such as tuition, fees, books, as well as room and board at colleges, universities and vocational schools. For 2010, the costs of computers and certain computer technology have also been deemed as qualifying expenses.

College Savings Tip #2

If your child receives money as gifts on birthdays and holidays, make it a habit to deposit the cash in your child’s 529 college savings plan.

6. How should I invest the 529 college savings plan?
Most 529 plans offer a variety of investment options, including stock mutual funds, bond mutual funds and money market funds. Consult a financial advisor to determine your best investment choice. Please remember there’s always the potential of losing money when you invest in securities.
7. Are there contribution limits?
The total contribution limit depends on your plan, but most 529 college savings plans offer a contribution limit higher than $200,000.
You can contribute up to $65,000 ($130,000 for married couples) in a single five-year period without incurring gift taxes, as long as there are no other gifts made to the child in the same five-year period. ²
8. What if my child doesn’t go to college?
Every Section 529 college savings plan has a designated beneficiary. If that person doesn’t go to college, the account owner can change the beneficiary to another family member, like a sibling.³
You can also withdraw the money, but earnings will be taxable, and you’ll generally pay an extra 10% penalty tax on top. ²
9. What happens if the parents divorce or declare bankruptcy?
A 529 college savings plan is an asset of the account owner, often one of the parents. In a divorce settlement, the 529 plan will be treated as an asset—for example, in some states, it can be split into two separate 529 college savings plans.
What about bankruptcy? Depending on many factors, including which state your 529 college savings plan is in, it might not be protected from creditors.
10. Do I have to choose my own state’s 529 college savings plan?
No—you can compare the features of 529 plans offered by other states and choose the one that is most suitable for you.
Generally, a student can use a 529 college savings plan to attend college in any state. Qualified higher-education institutions include all accredited post-secondary institutions that are eligible to participate in Federal Student Assistance Programs. This broad list includes public universities, private colleges, graduate schools, vocational schools and even some foreign schools.