Going back to school and saving money

A reader wonders if she can use a college savings plan to cut costs. Money Magazine's Answer Guy doesn't see real benefits.

By George Mannes, Money Magazine senior writer

NEW YORK (Money) -- Question: After I retire in a few years, I would like to attend classes part time at the local community college. Would it make sense to open a 529 plan to reduce my income taxes? - Joan Stratton, Stateline, Nev.

Answer: You can open a plan, but it may not be worth it in your case. Though 529s are employed mostly for kids, you can indeed use one to finance your own higher education, even if you're not aiming for a degree.

Looking for some answers? Send us your questions about investing. E-mail answer_guy@moneymail.com.

Your investments in a 529 grow tax-free, you can withdraw money tax-free for qualified educational expenses, and you can put leftover cash toward another relative's schooling. But Answer Guy doubts you'll have enough 529 income to make the benefits worth the setup hassle.

One reason: Given how soon you'll start, you'll want a safe investment, which likely means a low-yielding one. Also, you won't have a big account balance: Community college tuition is cheap, and part-time students, unlike full-timers, can't get the 529 tax break on room and board.

And since Nevada levies no income tax, you won't get the deductions that other states grant on 529 contributions. Depending on future tax code provisions, you may be able to nab a federal tax break based on your tuition and fees. For now, though, learning will have to be its own reward.

Question: I know it's not wise to put a large portion of your portfolio in one stock. Is it also a problem if spouses keep all their savings in a single mutual fund family? - Dennis Darrah, Plainfield, Ind.

Answer: Don't sweat it. There are good reasons to buy mutual funds from different families, but the meltdown risk you're concerned about isn't one of them. With stocks, you're right: It's risky to have concentrated holdings. If a stock plummets la Enron (or even a blue chip on a bad day), a lot of money goes pffft.

But if a fund company collapses, your money is safe. That's because a company and its funds are two different entities, explains Mercer Bullard, a securities law professor at the University of Mississippi School of Law.

If Brand X FundCo files for bankruptcy, its creditors can't suck up the assets of the funds it manages. What you should keep an eye out for, if all your holdings are from one family, is concentrated holdings due to overlapping portfolios and an organization-wide investment style.

You may have five different funds, but if they're all small-cap value, you're not diversified enough. Morningstar's Instant X-Ray (see the Tools section at morningstar.com) will help you uncover any such problems with your portfolio, whether it comprises one family's funds or is more eclectic. Top of page

College cost reduction bill introduced

Student loan investigation widens

Looking for some answers? Send us your questions about investing. E-mail answer_guy@moneymail.com.