Alabama’s PACT has been broken

Published 3:02 pm Wednesday, April 29, 2009

There are alternatives to funding a child’s college tuition in addition to the Alabama PACT (Prepaid Affordable College Tuition Program).

In the past, many people have relied on the PACT for funding this future expense, some believing it was guaranteed by the State of Alabama.

Now that financial problems have occurred with this program, people are searching for other methods of saving for college.

One alternative method for paying for tuition is 529 Savings Plans. The primary benefit of this program is the contributor retains control over it, which means unlike with some other college savings vehicles, the child cannot use their college money for other purposes.

Secondly, although contributions are not federal-income-tax-deductible, assets in a 529 Savings Plan — including gains or earnings — can be withdrawn federal-income-tax-free for qualified educational expenses such as tuition, fees, room, board and some supplies.

All 529 Savings Plans are run by individual states in association with investment management companies.

Money in the account can be invested in more aggressive investments when the child is younger and moved to cash or more conservative investments as the child nears college age. Remember there are fees, charges and tax ramifications associated with a 529 Savings Plan, and the underlying investment options are subject to market risk and will fluctuate in value.

Plus, anyone can contribute and the money can be withdrawn to pay for tuition or fees at any accredited post-secondary public or private school in the U.S.

According to a 2007 College Board study, “Education Pays,” people with a bachelor’s degree earn more than 60 percent more than those with only a high school diploma. Over a lifetime, the gap in earnings potential between a high school diploma and a B.A. exceeds $800,000.

Jeff S. Waters is a financial advisor with Eagle Strategies LLC. He can be reached at 358-7120 or by emailing him at