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Caroline

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Editor's note: This is part three of our three-part series on 529 plans — Caroline's interview with Sarah Henriksen, a vice president with Wells Fargo Funds Management. You can read part one here and part two right here.

CH: How much money do you need to start a 529 plan?
Sarah Henriksen: Typically you can open an account with as little as $250. And, many 529 plans waive this minimum if you set up an automatic investment into the account of as little as $15 per month. A program of regular investment cannot assure a profit or protect against a loss in a declining market.

CH: How much can an individual contribute to a 529 plan per year?
SH: We talked about the low limits for starting a 529 plan. On the other end, 529 plans have very high contribution limits. There is not a specific annual limit as long as you don't exceed the 529 plan maximum, which can be over $300,000 depending on the plan. One thing to keep in mind is 529 contributions are considered completed gifts to the beneficiary, subject to the annual gift limits. For 2009, the annual exclusion amount is $13,000 (or $26,000 for married couples), which means any contribution over that amount may be subject to gift tax. If you are looking to make a larger contribution in one year, you can contribute up to five times the annual limit without incurring gift tax by prorating that contribution over the next five years. This is a unique benefit of 529s, which is not available through any other investment vehicles.

CH: Is there a total contribution limit?
SH: Most 529 plans set their contribution limit with the goal of allowing families to invest enough for five years of college, plus graduate school. As you can imagine, this means the total contribution limit for most 529 plans is quite high. Depending on the plan, the limits can be $300,000 or more.

CH: How is the money withdrawn to make college payments?
SH: Another benefit of 529 plans is that the account owner controls when and how a payment is made. This means you can ensure your funds are used for school expenses and not concert tickets or the latest video game. And, most 529 plans offer a lot of flexibility for withdrawing the funds. You can choose to have funds sent directly to the school, to the beneficiary or even to yourself if you want to get reimbursed for expenses paid out of pocket.

CH: Can participants continue to contribute to the plan while the student (beneficiary) is in college and making withdrawals?
SH: Absolutely! A recent study from the American Enterprise Institute found that fewer than 60% of new students graduate from college in less than 6 years!* Chances are, your student will be attending school for years, and if he or she decides to attend graduate school, that can increase even more. 529 plans provide the benefit of being able to contribute while students are still in college in order to take advantage of the benefits the plan offers while they are attending.

CH: What is a good source to learn more about 529 plans?
SH: A great place to start would be on the Wells Fargo website at www.wellsfargo.com/investing/education/529.

*Diplomas and Dropouts Which Colleges Actually Graduate Their Students (and Which Don't) by Frederick M. Hess, Mark Schneider, Kevin Carey, Andrew P. Kelly. AEI Online, June 03, 2009.

Remember: 529 plans involve risks, including the possible loss of principal. Consult a program description for additional information on risks.

Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment management and administrative services to certain 529 college savings plans. Shares in these programs are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.

INVESTMENT PRODUCTS * NOT FDIC INSURED * NO BANK GUARANTEE * MAY LOSE VALUE

Caroline

Editor's note: This is part two in our three-part series on 529 plans — Caroline's interview with Sarah Henriksen, a vice president with Wells Fargo Funds Management. You can read part one here.

CH: What are the tax advantages involved?
Sarah Henriksen: 529s offer a number of tax advantages. For the average investor, they can typically be broken down in three categories: when the money goes in, while it is invested, and when it comes out. For money that is invested in a 529 plan, many states offer an upfront state tax deduction or credit. This will depend on whether your state offers this benefit and often time requires investing in your own state's plan. Because of this, it's important to consider any benefits your state's 529 plan might offer when deciding where to invest. While the money is in the plan, it grows tax-free. This means any earnings or growth in the account will not be taxed while it is invested. Finally, when the money comes out, as long as it is used for a qualified expense, it will be completely federal tax-free. Most states also offer state tax-free withdrawals as well. This can be an extremely valuable benefit especially if your account has increased in value over a number of years.

529 plans also offer unique tax advantages for families with estate planning needs, such as the ability to move assets out of your taxable estate, while still retaining control of the account. As always, it is important to consult your tax advisor to determine how these various benefits might apply to your situation.

CH: What can the funds be used for? Tuition? Books? Living expenses?
SH: The funds from a 529 plan must be used for higher education expense, but beyond that there is really a lot of flexibility. Qualified expenses include tuition, fees, books, and any supplies or equipment required for enrollment or attendance. Room and board is also considered a qualified expense for students enrolled at least half time. In addition, for tax years 2009 and 2010, computer expenses are also qualified, regardless of whether they are formally required by the school. I should also point out that if you need to take money out to pay for some other type of expense, this is possible. However, the earnings on any "non-qualified" withdrawal will be subject to income tax and an additional 10% federal tax.

CH: What type of schools can 529 funds be used for?
SH: 529 funds can be used for almost any post-secondary school across the country and even a number abroad. This includes technical, vocational, two- and four-year colleges, universities, and graduate schools.

Remember: 529 plans involve risks, including the possible loss of principal. Consult a program description for additional information on risks.

Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment management and administrative services to certain 529 college savings plans. Shares in these programs are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.

INVESTMENT PRODUCTS * NOT FDIC INSURED * NO BANK GUARANTEE * MAY LOSE VALUE

Caroline

Editor's note: This week we're featuring a three-part series on 529 plans. To bring you details about how 529 plans work, we interviewed Sarah Henriksen, a vice president with Wells Fargo Funds Management.

First, let me give some background. A 529 plan is a tax-advantaged investment plan for parents or others who wish to invest money for higher education expenses. They are state-sponsored programs, usually managed by a financial services firm. Tax advantages and a surprising degree of flexibility are just a few of many benefits that families derive from 529 plans.

CH: So Sarah, who can start a 529 plan? Does it have to be a parent?
Sarah Henriksen: 529 plans offer a lot of flexibility as far as who can start a plan. Generally, anyone of legal age can open an account for someone else. This can include parents, grandparents, aunts, uncles, even your neighbor.

CH: Can multiple individuals contribute to the same plan? (Parents and grandparents, for example?)
SH: Most 529 plans strive to offer a lot of flexibility by allowing anyone to contribute to the same plan. However, rules vary by plan so it is important to consider different plan features before opening an account. Note that most plans also allow flexibility to open multiple accounts for the same beneficiary; for example, if both the parents and grandparents want to maintain control over their own contributions.

CH: Who can utilize funds from a 529 plan (in other words, who can be the beneficiary)?
SH: Although some state pre-paid tuition programs impose age and residency requirements, with 529 savings plans there are no restrictions or age limits on who can use the funds. The beneficiary can be a newborn through adult. In addition to investing for a child's future education expenses, an adult looking to go back to school can open an account for his/her own higher education expenses.

CH: Can there be more than one beneficiary per plan? (In other words, can you have a single 529 plan for multiple children?)
SH: Only one beneficiary can be listed per account. However, it is possible to open an account for one student, and then later change the beneficiary on that account to a new student. The only requirement is that the new student must be a "member of the family" of the previous beneficiary. And of course, you can always open more than one account for each student. This may make particular sense if your students will be starting college at different times, which might make different investment options more suitable for their respective accounts.

CH: What if the named beneficiary decides not to attend college — what happens to the funds? Could another beneficiary use them?
SH: This is a common question parents have when investing for college, especially if their kids are young. Since you can never know for certain whether your child will attend college in the future, a nice feature of 529 plans is the ability to change beneficiaries to another family member. If your child decides to take a break from school or has funds left over, the money can also be kept in the account in case he or she returns to school. If it looks like the money will never be needed for higher education expenses, the money still belongs to the account owner and can be withdrawn at any time. At that point, however, the earnings on the account would be subject to tax and a 10% penalty.

CH: If the beneficiary is already in high school, is it "too late" to start a 529 plan?
SH: It's never "too late" to start a 529 plan. Any amount you are able to put away ahead of time is going to help when it comes time to pay for college. You will still enjoy the tax-free growth of the plan as well as potential state tax benefits, depending on where you reside. Most plans offer conservative investment options for families that have a shorter timeframe until they need to access their funds.

Remember: 529 plans involve risks, including the possible loss of principal. Consult a program description for additional information on risks.

Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment management and administrative services to certain 529 college savings plans. Shares in these programs are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.

INVESTMENT PRODUCTS * NOT FDIC INSURED * NO BANK GUARANTEE * MAY LOSE VALUE

Caroline

When it comes to your non-school expenses, who is paying them — you or your parents?

As you head off to college this fall, it might be a good idea to talk it over with your parents and make sure you're on the same page about which bills you'll pay and which bills they'll pay.

If you're just starting to take on some responsibility for your finances, it will be an eye-opener to learn just what it costs to keep you afloat. You may not have any idea about all the costs included in owning a car or renting an apartment. Your parents will definitely appreciate your asking about it!

Here are some of the biggies to think about:

• Cell phone : Are you still on your parents' plan or will you be getting your own plan? If you're on a "family plan" with your parents and siblings, take some time to look over the bill and maybe talk with a representative to make sure you've got the most cost-effective features. And think about the future: Will you be using more minutes/texting once you're away at school? Don't wait for a big bill to get things organized.
• Rent/utilities: Rent might be something you can pay on your own. But if your parents are shouldering your share, maybe you can afford to take on some of your utilities. Once you split these among your roommates, they usually aren't too bad. Plus it will be good training for the future — you might start thinking of ways to save energy  if you're facing the bill each month.
• Car expenses: Even if your car is paid for, there are still plenty of expenses that go along with it outside of gas — insurance for one. If your parents are paying your car insurance, you can help them out by getting good grades. Insurance companies sometimes give a "good student" discount , so have your parents look into it. Don't forget about oil changes, registration fees and general repairs. Even if you can't afford to help pay for all these things, you should know what they cost — someday all these expenses will be yours.
• Personal items/expenses (food, clothing, haircuts): Again, if you're just starting to pick up some of your own expenses, this might be a good place to start. Most of your personal expenses are things you can control, so it will help you learn to discipline your spending — you'll be more inclined to shop for bargains  or eat within your meal plan when the cost is coming out of your own pocket.

When it comes to your college expenses, what things are you paying for?

Caroline

If you're starting grad school  this fall, you probably have a million things on your mind, but I'm guessing health insurance isn't one of them — that is, unless you're studying public policy and have been following the health care reform debate  in Washington!

If you've been covered under your parents' health insurance policy while you were an undergrad, be sure to have them send in the proper paperwork to ensure that you're still covered this fall.

My stepdaughter is starting graduate school in a few weeks, and my health insurance company needs a fall transcript to keep her on our policy. You definitely don't want that to lapse!

As I mentioned in an earlier post, most insurance companies like to be reminded every semester that you're still in school. I'll be sending in transcripts every August and January for the next couple years — so remind your parents to do the same.

Delenie

I'm a college student, and I think it's never too early to start establishing your credit. In fact, it is key to build a good credit history in preparation for the future when you are looking to take out a loan to finance a car or a home. Employers may check your credit rating to get a sense of what kind of person they are hiring, so a good rating could project a positive image and take you a long way.

As for college students who are constantly looking for an apartment to rent, landlords may favor you because it shows that you will be more likely to pay your rent on time.

Recently, we received a comment from reader Jeff on guest blogger Chelsea's post about debit cards:

Our son is off to college this fall, and he's never had a credit card. Would you suggest that we help him apply for a credit card in his name and a small ($500) credit limit, or should we give him our credit card to use?

This was a particularly timely question, as I've just taken off my own credit card training wheels. 

See, for the last six months, I've had a joint credit card account with my mom to build my credit history. To avoid overspending and to prove to my mom that I was an accountable adult, we agreed that I would only use the credit card on big-ticket items since I already had a debit card for everyday purchases.

Another ground rule we set was that I would pay off the balance in full each month. This reassured her and gave me the opportunity to familiarize myself with the billing cycle and payment process.

Plus, I've learned a lot about credit and financial literacy while interning here at Wells Fargo this summer. That, combined with my mom's guidance, gave me the confidence to take off my training wheels and fly solo. I did some research on which credit card was right for me, applied, and qualified on my own! Now I just need to make sure I continue applying what I've learned over the last six months to build my credit responsibly.

What do you think of this training wheels approach to getting your first credit card? Would it work for you?

Staci

This week Wells Fargo announced the results of a recent survey, which shows that parents and their 18 to 22-year-old children don't always see eye to eye when it comes to managing personal finances.

I'm not surprised by this. When I was between the ages of 18 and 22, I didn't agree with my parents about personal finances, either. They wanted me to save more and to be less reliant on them for funds. I liked my allowance and wanted to spend it on ridiculous 90s fashion trends. 

According to the survey, here are parents' top three personal finance priorities for their children:

1. Find a job
2. Pay off student loans
3. Pay off credit cards and debt

Sounds pretty sensible to me, but the young adults surveyed had other ideas. Here are their personal finance priorities:

1. Buy a car
2. Find a job
3. Buy a home

Well, at least "find a job" was on both lists.

Tell me: When it comes to money, are you and your parents on the same page?

Caroline

As you might have noticed by now, I listen to a lot of National Public Radio.  And I recently heard yet another really interesting story  for college students.

Check out the link above for details — apparently lots of college students are paying for health insurance through their college or university, even if they are already covered under their parents' private health insurance.

The costs are often wrapped into the overall university bill, and aren't always easy to spot. The parent in the story found out health insurance through her son's college was costing over $1,000 per semester, and she didn't even realize she was paying for it.

This isn't true of all colleges. I quickly glanced at the Web site for the university my stepdaughter attends, and it appears that health insurance can be purchased through the college, but it is not automatically billed. It also appears that they will file to private insurance any claims not covered by the discounted Student Health Services.

Good news for me. But it's definitely something worth looking into for you and your parents, if you're not sure of your school's policy.

Caroline

If you're a high school senior, all the realities of college are probably getting more real by the day. Specifically, the reality of how much college costs.  Starting now, you've got just a few short months to pull together the financing for your first year.

That doesn't mean it's time to panic. It's time to get to a Financial Aid Night, if you haven't already attended one.

What's a Financial Aid Night? It's an evening dedicated to providing information and answering your questions about getting financial aid for college. Typically your school will host it with help from a bank or other lending institution.

It's a great time to go with your parents (yes, be sure to bring them) and get a good understanding of the financial aid process. You also learn more about grants and scholarships that are available. The knowledge you'll gain will help you move forward confidently to get money for college.

How does it work? There will probably be a presentation about the financial aid process and the opportunity to pick up brochures and information about loans and scholarships. You might also have a chance to visit with a banker to learn more.

If you haven't seen notices for a Financial Aid Night at your school, check in with your guidance counselor about when one might be scheduled. If you're really in the dark about financial aid, it's important that you attend sooner than later — deadlines rule when it comes to getting money for college.

If you've already attended a Financial Aid Night, let us know how it went. Did you find it useful?

Editor's note: Over the next few months, The Student LoanDown will be running a series of posts focused especially on high school seniors. We'll be attempting to cover lots of topics of special interest to this group as they count down to graduation and get ready to head off to college.

Caroline

In a year when nearly everyone is looking for ways to pinch pennies, be sure you don't overlook opportunities to save at tax time.

There are several valuable tax credits and deductions available to college students and their parents. We've put together an online guide to give you a brief overview of what's out there. Be sure to check it out to see if you qualify.

If you've got questions about filing taxes, check out this article.  It's got some great tips and advice — like to coordinate with your parents on filing to ensure your family maximizes its opportunities.

Of course, remember that we are not tax advisors, so be sure to check with your personal tax advisor with specific questions about your situation.