Thursday, February 09, 2006

Savings 101: tax-free 529 college savings accounts may not stay that way, but they'll still be a smart way to plan for your child's future

SO-CALLED 529 college savings accounts--inelegantly named for the section of tax code that gave them life--have been attracting parents of school-age kids since the code was enacted in 1996. The accounts grow tax-deferred, and withdrawals used for qualified higher education expenses became tax-free in 2002. The investing public has taken notice--last year, assets in the plans soared 49 percent to $52.3 billion and rose another 6 percent in the first quarter of this year, reaching $55.4 billion.

"I always thought 529s were a good deal, [even] before they became totally tax-free," says Joe Hurley, founder and CEO of Savingforcollege.com LLC. Now, he says, they're virtually a no-brainer for parents or grandparents who want to set a little something aside for Junior's education.

The law that made 529s tax-free is supposed to phase out at the end of 2010, but if you're worried, don't be. The odds of Congress letting this popular tax-saver expire are close to nil. Sometime in the next five years, legislators are almost certain to make it a permanent part of the code.

In the meantime, consider that tax-deferred college savings accounts would still be a good deal for most of us. Contributions, for example, remain under the control of the donor until used, which means Junior can't take the money and buy a new car. The money is similarly considered part of the donor's assets when it comes to financial aid calculations, which means your student can qualify for more aid. The accounts also offer some helpful estate-planning benefits. And finally, at least half the states offer tax deductions or credits to residents who contribute to in-state plans.

Just remember that not all 529s are created equal. Compare investment options, tax benefits, fees and services of various state plans at Hurley's site, www.savingforcollege.com. It's a free service that rates programs on a scale from one to five, depending on how they fare on various criteria. Many of the best 529 programs are sold directly to investors rather than through a broker, so the more homework you do on your own, the better off you--and Junior--will be.

SCOTT BERNARD NELSON is assistant business editor at The Oregonian and a freelance writer in Portland, Oregon.

COPYRIGHT 2005 Entrepreneur Media, Inc.
COPYRIGHT 2005 Gale Group

Wednesday, February 08, 2006

utility stocks have gone back to basics

In the days before deregulation of the utility industry, electric and gas stocks provided investors with a steady income stream that ranked low on investment stress. That all changed during the hotshot '90s, as many utility companies bought into businesses they knew little or nothing about, like telecommunications or home security. Now the tide has turned, and gas and electric companies are getting back to what they know best--power.

"Many [utilities] went into risky businesses and lost as their share values dropped," says Barry Abramson, coportfolio manager of the Gabelli Utilities Fund (GABUX). "The management that survived learned their lessons, and now many are in better shape with a 'back to the basics' business strategy,"

That stick-to-your-knitting attitude has worked for Abramson and his stock selections in the GABUX portfolio. Up nearly 24 percent year-to-date through November 28, the fund has about 70 stocks in "its portfolio: 5 percent in telecom, 15 percent in gas utilities and 80 percent in electric utilities.

Abramson prefers regulated utility companies. He invests in all sizes of companies and seeks out those that may be ripe for a takeover. But don't expect this five-star Morningstar fund to be a razzle-dazzler. Basic utility companies aren't made that way. For conservative investors, this fund is worth a look.


* Web site: www.gabelli.com

* Toll-free number: (800) 422-3554

DIAN VUJOVICH is an author, syndicated columnist and publisher of fund investing site www.fundfreebies.com.

COPYRIGHT 2004 Entrepreneur Media, Inc.
COPYRIGHT 2004 Gale Group