Q: I am a single parent. I will soon be debt-free and then I can set aside a little money for my daughter's college. Should I put it in a savings account or are there better options? I will only have four years to save.
A: Four years is not a long time horizon; however, you still need to be willing to take on some investment risk in order to grow your money.
A savings account will earn very little income at these low interest rates and you will owe tax on that interest income. But a well-diversified portfolio in a 529 plan offers better upside potential. And your earnings would grow tax free, and withdrawals would be tax free when used for college expenses.
In addition to federal tax benefits, many states offer tax deductions for 529 plan contributions. But some of the states are considering reducing or eliminating the tax deduction as they grapple with mounting budget deficits. Investors need to be very careful in choosing their own state's 529 plan solely on the basis of a state tax deduction that may or may not be there in the future.
It's wise to shop around before you choose a 529 plan. One of the best sites to compare and contrast plans is http://www.savingforcollege.com/. It provides a 5-Cap rating for each state's 529 plans, based on such things as performance and risk. A 1-Cap rating is the worst and 5-Cap is the best.
That four-year time horizon makes your asset allocation challenging. It requires you to look more at the investment markets and be willing to make investment choices that might go against popular logic.
For example, you would naturally consider an age-based portfolio option or bonds and cash as your most conservative options. However, with interest rates at record lows and the possibility that they will rise over the next four years, you would be investing in bonds at exactly the wrong time, because bond prices fall when interest rates go up.
And an age-based portfolio for an 18-year-old would be weighted heavily in bonds and cash. Given the real possibility that interest rates will rise, you might need to put more of your 529 plan into stocks to avoid the interest-rate risk in bonds.
You could place it in stable value funds, but your returns would be meager over that time horizon. Stocks, given all the volatility, have produced the best long-term total returns, but it requires taking a bit of risk.
If your daughter goes to a four-year college, you could continue to invest inside the 529 plan while she attends college, so presumably your time horizon is longer than just the four years she has until she begins college. In addition, many kids take a gap year after high school to travel and save money for college, which may give you an additional year to grow your investments.
John Gugle, NAPFA -registered financial adviser
Alpha Financial Advisors, Charlotte
Finance board moving forward with scale house audit - Stamford Advocate
STAMFORD -- The Board of Finance is moving forward with an outside audit of the transfer station despite the recent arrests of two private garbage haulers.
Stamford police charged Wayne Margarum Sr. and Wayne Margarum Jr., of Stamford-based Margarum Refuse, with felony larceny Thursday for allegedly defrauding the city of more than $300,000 in tipping fees. On Friday, Board of Finance Audit Committee Chairman John Louizos said he still plans to move forward quickly with an outside review of the Harbor View Avenue scale house.
The police investigation will serve as a foundation for the audit, which will also look into whether the facility is in compliance with city policies and procedures, Louizos said.
"The police have their methods; they have their standards in terms of collecting evidence and probable cause," Louizos said Friday. "That doesn't necessarily encompass our potential scope. For us to move along with the audit we'll gather the information and then see whether there needs to be a forensic analysis in certain areas."
The Board of Finance has authorized up to $25,000 for an operational and internal controls compliance audit at the scale house. On Wednesday, the board's audit committee met to review a scope prepared by Interim Director of Administration Pete Privitera.
"We are handling it incrementally," Board of Finance Republican Jerry Bosak said Thursday. "It's a starting point, and we're open to moving forward into the forensic option."
Four firms have already responded to the city's request for proposals, Privitera said. On Wednesday, the audit committee decided to shorten the list to two companies: J.H. Cohen and Blum Shapiro.
The other firms, O'Connor Davies Munns & Dobbins and McGladrey Pullen, were passed over because they are the city's current and former auditors.
The firm selected to perform the audit will review all contracts and other documentation related to private haulers, as well as drop-off tonnage records dating back to July 2008.
The auditor will also be asked to identify trucks whose weight varied by more than 2 percent from weigh-in to weigh-in, review cash-handling procedures and reconcile the transfer station's accounts to the Controller's general ledger, according to the RFP.
Board of Finance Independent member Kathleen Murphy sharply criticized the review, which she described as "woefully inadequate."
"I think the scope of the audit was defined in there to be too narrow," Murphy said Friday. "This is just a check the box review. Did they move this paperwork from here to there? There's no investigatory nature."
Murphy said auditors should be tasked with examining the transfer station's records for bulky waste in addition to municipal solid waste.
"You look at what's going in and what's going out," Murphy said. "If you're only going to look at what's partially going in, you're not going to be able to draw any conclusions."
Controller David Yanik said the scope of the audit was designed to target private haulers.
"That's the hotspot right now," he said. "That's where we know we have a problem. So let's confirm that this is limited to a single hauler, or it's not. Then you have to find out systemically what went on that enabled fraud among all haulers, or a single hauler."
A wider scope would have exceeded the audit's $25,000 budget, Privitera said.
Louizos and Bosak blasted Murphy for criticizing the audit after she voted to approve the review at the finance board's last meeting.
"The audit, in terms of cost and scope, initially was voted on unanimously, 6-0," Louizos said. "I think for her to then come in after the fact and then take a different position was unfair."
Police have been investigating the scale house since April, a month after city officials received an anonymous tip and conducted a spot audit at the facility. The review uncovered a 3,000-pound weight discrepancy for a truck owned by Margarum Refuse, and police then began looking into whether Margarum had manipulated the weight of his truck to cheat the city out of tipping fees.
Ten different private haulers using 20 different trucks have dumped garbage at Stamford's scale house from April 2009 through June 2011, according to the audit's request for proposals.
The facility historically weighed trucks once a year to reduce waiting times at the entrance, but Solid Waste and Recycling Supervisor Dan Colleluori said city workers are now weighing every truck as it enters and leaves the scale house.
The scale house review will be the finance board's first outside audit of the fiscal year, which ends June 30. A final report on the audit is due Aug. 15, according to the request for proposals.
The Board of Finance has a $242,000 audit budget this year and $300,000 for next fiscal year. Board Chairman Tim Abbazia, who sits on the audit committee but did not attend Wednesday's meeting, did not return a call for comment Friday.
Kate.King@scni.com; 203-964-2263; http://twitter.com/kcarliniking
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