Choosing an education fund that you can self-manage
Q I have between $4,000 and $5,000 to start an account for our new baby, for school or a nest egg. Should I use the money to buy one lump sum amount of stock or a mutual fund - or divide and invest it in some way?
A "If you are earmarking the money for school, consider an education IRA or a 529 college investment plan," says Pat Schipper, with Prism Financial Group, Overland Park, Kan.
Ms. Schipper prefers education IRAs, because assets in these account can be managed by parents, unlike 529 plans, which are typically managed by administrators. On the other hand, you can often contribute substantially more money to 529s, though rules vary from state to state. With education IRAs, you could set aside $500 this year.
Do that, and put the rest of your $4,000 to $5,000 into mutual funds, Schipper suggests, splitting it between large-cap and small-cap funds, with a small 15 percent position in international funds and 10 percent in balanced funds.
Schipper also suggests you do this in your own name. You will owe a small capital-gains tax at the end of the year. But early next year, because of changes in the tax law, you can increase the education IRA contribution to $2,000.
She suggests you keep putting in small contributions each year. Withdrawals are tax-free, if used for educational purposes, she notes.
To fund an IRA, contact a no-load fund company such as Janus or Vanguard, she says. To find out more about 529 plans, call the College Savings Plans Network at 877-277-6496.
Q When I buy an individual municipal bond in the primary market when it is first issued, I receive a prospectus that includes information about the issuer, taxing authority that will pay interest and principal, "calls" and other facts important to investors. But when I buy a "used" muni bond in the secondary market, through a broker, no prospectus is available. Do issuers provide them on request? How do I get this information?
T.M., Montpelier, Vt.
A "We call the issuer and ask for a copy of the prospectus or those pages in the prospectus that are of interest to our client," says Mike Huffman, a financial planner with Fraser Management Associates, Burlington, Vt. Usually the issuer will fax the information on request, Mr. Huffman says.
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