Saving and paying for the future

by Staff Writer

Published: July 2,2001

JACKSON — Mississippi’s newest college savings program has already attracted the attention of Money magazine, which named it one of the more attractive programs in the country for state tax benefits.

The Mississippi Affordable College Savings Program (MACS) kicked off on March 20 — in time for the 900 people who immediately signed up to reap the tax benefits of the 2000 tax year and start saving for the high costs of higher education.

Tuition for a four-year Mississippi public university averaged $3,407 in 2001, but with tuition inflation averaging 6 1/2% per year, the cost of sending a child to an in-state university in 2019 will come close to $14,000 a year.

The state started MPACT (Mississippi Prepaid Affordable College Tuition Program) in 1998 to help families pay for college, and followed up with MACS this year to fill in the gaps that MPACT does not cover. Both are state-sponsored college savings programs with big tax savings for investors, but they attract two very different types of investors.

“It’s return versus risk,” said Mississippi State Treasurer Marshall Bennett, whose office runs both programs.

MPACT is the cautious investor’s answer to paying for college because the plan locks in tuition at today’s prices. MACS takes a riskier approach but offers flexibility in what the money can be used for. While MPACT is tuition only, MACS money can also be used for room and board, books, computers, even Internet service.

And unlike MPACT, which is a guaranteed contract with a fixed price depending on the age of the child, MACS allows participants to put as little as $15 a month into the program, much like they would a savings account.

What happens to that money is where MPACT and MACS differ. MPACT guarantees tuition will be paid for regardless of the market; MACS money takes a ride on the stock market and the state accepts no risk for how it fares. MACS investors do have three choices for investing their money, depending on their comfort level — a money market option, a 100% equity option and a managed allocation option that takes the biggest risks early in the child’s life and becomes less volatile as college nears.

Bearing in mind that not every child will go to a Mississippi university, MPACT and MACS investors can withdraw the money to pay for higher education anywhere in the world.

With the safety of MPACT and the flexibility of MACS, which should a parent choose? Bennett advises using both.

“Tuition is only about a third of college expenses, so the ideal thing to do would be to buy the MPACT contract for tuition and then shovel as much money as you can afford into MACS for the other college expenses,” he said.

Madison resident Danny Chandler, a self-described MACS and MPACT ambassador for the state, took Bennett’s advice and added MACS to his savings plan as soon as it became available.

“MPACT is my primary education fund, and MACS is my supplemental fund,” said Chandler, who is saving for his seven-year-old son.

Chandler said he likes MACS because anyone — aunts, uncles, friends — can open an account for a beneficiary. And by contributing to MACS, the giver gets a gift as well — a state tax deduction, he said.

The MACS program offers state income tax deduction for contributions up to $10,000 per year for individuals and $20,000 for joint filers. Payments into MPACT are tax deductible and earnings are exempt from Mississippi income tax. In addition to state tax advantages, families will also get a break through the new federal tax law. Starting Jan. 1, 2002, any withdrawals used for qualified college expenses will now be free of federal income taxes.

Other states are offering their college savings plans to Mississippians, but Bennett advises caution to investors who are contacted by broker dealers.

“Out of state plans do not get the state tax advantages of tax exemptions in Mississippi or tax deductions. If you are a resident of the State of Mississippi, you`d be crazy to buy another state`s plan,” said Bennett. “Many of those out-of-state plans have fees that go up over 125 basis points because you`re having to pay commissions for people who sell it to you. High net worth individuals probably don`t care, but you`re tacking on another $500 or $700 in fees. Why do that and not get the tax advantages you would by buying the MACS program?”

Based on calls he has received from people confused about the differences in Mississippi plans and out-of-state plans, Bennett is considering asking the Secretary of State’s office and/or the Securities Exchange Commission to open an investigation into whether outside sales people are properly disclosing details of their plans.

Bennett is planning a MACS ad campaign for the fall, including fliers to be sent home with children in grades kindergarten through sixth grade, to inform parents statewide of the new choice.

To date, about 1,000 kids have been enrolled in MACS. About 12,000 kids are enrolled in MPACT, with about $75 million invested.

For information on MACS, call 1-800-486-3670. For information on MPACT, call 1-800-987-4450. Visit the web site at www.collegesavingsms.com.

Contact MBJ Staff Writer Kelly Russell Ingebretsen at kelly@msbusiness.com or (601) 364-1027.


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