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his state university in the fall. Even though he will receive in-state tuition rates, the school is still very expensive. His parents have set aside money for Jim in a 529 plan, but have told him that they will not be contributing any other money. Jim is on his own to pay for whatever the money in the 529 plan won’t cover. Jim decides that he is going to apply for financial aid because he doesn’t want to deplete his 529 account. Because Jim is from a wealthy family, the university turns him down. Had Jim’s parents just used the education IRA, Jim would have a very limited amount of money to help him pay for tuition, books, room and board, etc. But by investing in the 529 plan, there is a great potential that Jim’s parents contributed more money to the 529 than they could have to the education IRA.

Fortunately, for those who get turned down for financial aid, there is an appeals process. On the average, 10 percent of those turned down for aid appeal. Out of that 10 percent, half receive an increase in financial aid.

There are some downsides to the 529 plan, though. When com- pared with education IRAs, there is decreased flexibility in the types of securities you can invest in. While some plans offer age-based port- folios, others offer just fixed portfolios. An age-based portfolio is a method of investing which the younger the child is, the riskier the investments are. As the child grows up and approaches college age, the portfolio changes to a different mix of investments that provide less fluctuation. The goal of age-based portfolios is to achieve a high rate of growth while the child is young and has plenty of years before heading off to college, while reducing the amount of value fluctua- tion as the child gets older. Plus, as the child gets older, you want to be sure that you can access the money and convert it to cash to pay the tuition bills.

A good rule of thumb is to keep about 80 percent of the portfolio in equities, with the rest in bonds and cash, from the time the child is born until age 12. After age 12, gradually reduce the amount of equity back into bonds and cash to help reduce volatility. By doing this, you also help decrease any impact a market downturn would have on the account.

The ability to move from one account to another requires that you change plan sponsors. As with IRAs, if you do change plan sponsors,

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