Tax Deferred College Savings Plans

Saving for College: the 529 Plan

One of life's major expenses is a college education. The state 529 plans offer another option for saving for college that may be useful to middle and upper class U.S.A.

Buy directly from Amazon.com The Best Way to Save for College - A Complete Guide to Section 529 Plans Joseph F. Hurley's enormously popular guide: the NEW 2002/2003 edition! $26.95

 You may be acquainted with the older prepaid tuition plan offered by selected state colleges, but there is a new variety that is not yet well known. This is the college savings plan.

Approximately 23 states currently offer these plans and about 17 of these are available to out of state residents.

What makes these interesting?

• There are no upper bound income limits on participating.

• Depending on the state, up to $100,000 can be put in the plan.

• The money grows tax deferred until withdrawal.

• When the money is taken out for a child's education, it is taxed at the child's rate.

• You can use another state's plan for states offering that option.

• Special provisions can make it a useful estate planning strategy for saving on federal estate taxes.

• The money is invested, although the state will specify the allowable asset allocation depending on the child's age.

The Education IRA has the advantage of tax free withdrawal as long as the money is used for higher education. But the Education IRA has two distinct disadvantages:

• There is an upper bound income limit for participation.

• You can only save $500 per year per child.

Before leaping on the 529 "bandwagon", be aware of several considerations:

• These plans are relatively new. Congress has proposals in the works that can change the landscape relative to these plans, although some are quite favorable towards the plans.

• It is not well established how colleges will consider these plans when making financial award decisions.

• When the money is taken out to pay for education, the money taken out should not be the source of the money to pay the taxes due. That can cause penalties.

For those considering these plans we recommend first doing some research on your own. We give you a couple of links below to get started. And then, get the advice of a knowledgeable person such as a financial advisor. But don't assume that all financial advisors will know all about this area. Ask the advisor about his or her exposure to the 529 plans before committing to that advisor.

Here is an excellent link to help you get started on learning about 529 plans:

A source page of information on 529 plans
This website provides a wealth of information about the 529 plans. It includes a rating on the 529 plan for each participating state, articles from their newsletter, and links to other sites and articles All of the information has been maintained rigorously up to date as of the time of this article (4/2/00) and we would expect it to be so maintained in the future. We have not reviewed the book that is advertised on the site,

Return to top of page

Visitors to this page have also enjoyed our articles on :
Estate Planning and You  ,  The Investment Series ,  Finding Lost Money , Tax Savings on Education Expenses

Money  |  Family  |  Health  |  Fun  |  People  | Store | Home

Comments or questions?
E-mail to main@usboomers.com

Copyright 1999, 2000, 2001 by US Boomers Corporation. All rights reserved.

Disclaimer