529 College Saving Plans - benefits your kids and yourself

A 529 Plan is an educational savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Code, which created these type of plans in 1998. The Internal Revenue Code has allowed parents, grandparents and others to set aside money in special state-sponsored savings plans for a child's "qualified higher education expenses." The major benefit is that all the interest earned can be spent tax free so long as it's on qualified expenses.

The Code defines qualified expenses as "tuition, fees, books, supplies, and equipment necessary for the enrollment or attendance" at college. Issues have arisen as to what constitutes "supplies" and what "equipment" is "required for the enrollment or attendance" at college. For example, there has been some debate as to whether or not a laptop computer qualifies or not. Or, how about paying off a student loan from the prior year or providing a down payment for a used car to travel to and from college?

The 529 College Savings Plan is a wonderful vehicle to provide tax-free college savings; however, if you wish to pay for more than room, board, tuition and books, you should seek the counsel of a financial and legal professional before enrolling in the Plan.



by: Todd C. Ratner, Esq.

Comments

[David Little]

529 plans are great. Another advantage of the 529 is that if Mom and Dad fund the plan for their child, it is not included in Mom's and Dad's estates. It avoids probate, and is not subject to estate tax.