Take Full Advantage of 529 Plans

Congress has given you a terrific way to save for college.  Don't let it slip by.

So-called "529" plans are investment vehicles which permit money you set aside for a child or grandchild's education to grow tax free.  If the funds are in fact used for college, they are never taxed.

Many states have offered further benefits to these plans, including creditor protection in the event of bankruptcy and state income deductions for contributions up to certain limits.  More than half of states offer some sort of creditor protection and more than 30 states offer at least some income tax deduction.  Though they may provide for recapture of the deducted income if the account is moved to another state.

An odd aspect of 529 plans is that although they are authorized under federal tax law, they depend on state legislation.  So each state has its own plan or plan operated by an investment company.  While investors may take advantage of any plan offered by any state or investment company, some of the state benefits only apply to their own state plans.

Another advantage to 529 plans is that permit automatic investment.  A donor can provide that a certain amount is deposited into the plan each month, allowing the account to grow over time almost painlessly.

A final change that makes 529 plans more attractive than formally is that the internal costs of many plans have come down in recent years and some plans now provide for investment in low-cost index funds.

Comments

[Steve Krauss]

"A final change that makes 529 plans more attractive than formally..." Of course you mean "formerly," right?

[Hangextra]

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