MOST gets overhaul

MOST, which began in 1999 as a 529 college savings plan, allows married parents who file their taxes jointly to deduct up to $16,000 on their state taxes each year when they save money for their children's college tuition expenses. For single parents, the maximum is $8,000. The minimum annual contribution is $25.

The goal, Steelman said, is to use tax breaks to encourage parents to invest in their children's educational future.

“My goal, and it may be unrealistic and naïve, but I want every child in Missouri to have a chance to go to college,” she said. “I think (MOST) instills that confidence in a child to stick with it and go all the way (to college).”

Steelman and the state's Higher Education Savings Board, on which she serves as chairwoman, approved the changes Dec. 30, dropping TIAA-CREF as investment manager.

In TIAA-CREF's place will be a consortium of investment firms - American Century Investments, Vanguard Group and A.G. Edwards & Sons, along with loyalty incentive groups Upromise and Simply Brilliant, and marketer Fleishman-Hillard.

Upromise, which will function as the program manager, offers free membership and enables families to save for college while making everyday purchases at more than 20,000 grocery and drug stores, 14,000 gas stations, 8,000 restaurants, more than 350 online shopping sites and thousands of retailers. Upromise's partners include Coca-Cola, McDonald's and JCPenney.com.

Vanguard and American Century will serve as investment managers, and Vanguard also will operate as program outreach manager. With its headquarters in Valley Forge, Pa., Vanguard offers investment options in 14 state 529 plans with more than $10 billion in assets. Vanguard offers 130 funds to U.S. investors and 40 others in foreign markets, and the company manages more than $910 billion in U.S. mutual fund assets.

Mark Hughes, director of policy and communications for Steelman's office, said it's unknown how the changes will influence MOST's participation numbers, but he said he expects to see an increase from the present 90,000 accounts worth about $750 million.

Hughes said the increased interest should come from lower fees (62 basis points versus 65 basis points for direct investments) and greater investing options.

MOST will still offer two main ways to invest, either through an adviser or directly with the state. According to Hughes, TIAA-CREF offered eight adviser funds and two direct funds.

In May, he said, investors will have the choice of 24 adviser funds and almost 30 direct funds.

“It dramatically expands the investment options,” he said.

Hughes said a couple that invests the maximum $16,000 per year could save as much as $960 per year in state taxes. A married couple who elects to save the maximum for 18 years could save as much as $17,280 in state taxes.

Also, gains are exempt from federal income tax, though the federal tax benefit is set to expire Dec. 31, 2010, unless extended by Congress.

Steelman said parents need MOST's help because tuition costs are rising quickly.

Annual tuition and fees for in-state students at Missouri State University increased 42 percent, from $3,838 to $5,454 for 30 credit hours - or two semesters - over the last five school years, according to the school's Office of Student Affairs.

Steelman said she's not concerned about the money MOST takes away from state tax revenues. She notes that average college graduates will earn $1 million more during their lifetime than their counterparts without degrees.

“I see … graduating kids in Missouri with college degrees as an investment in the future of Missouri,” she said, “and not as any drain on revenue.”