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  3. Save for College [A]In this article, we’ll look at the rules for 529 Qualified State Tuition Plans. We’ll explore the difference

Save for College [A]In this article, we’ll look at the rules for 529 Qualified State Tuition Plans. We’ll explore the difference

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问题                             Save for College
[A]In this article, we’ll look at the rules for 529 Qualified State Tuition Plans. We’ll explore the difference between this savings vehicle and some of the other traditional education savings methods and see why this plan is the best yet!
The cost of college
[B]You may never have thought you could get excited about big sums of money you won’t be spending on yourself until you read about this new college savings plan. The 529 plan offers the most painless way to save money for higher education to date. And if the child decides not to go to college, you can roll it over to someone else that does want to go, including yourself! The 529 Plan is a savings plan for college education. You have a couple of options when you open an account.
    One option lets you prepay tuition at a qualified educational institution at today’s tuition rates.
    Another option lets you save money in a tax deferred account(earnings only)to be used to pay for education at future tuition rates.
[C]The idea, with either option, is that the investment earnings will grow to meet the higher costs of future education. The savings account option is typically considered the more attractive of the two and is what we will focus on in this article. The 529 plan is a state sponsored investment program. That is, the state sets up the plan with an asset management company of its choice, and you open a 529 account with that asset management company according to the state’s predetermined plan features. You are the owner of the account, and the child for whom the account is set up is the beneficiary(收益人). You won’t deal directly with the state, but rather with the asset management/investment company.
State-to-state variations
[D]Because each state can control some of the features of its own plan, there are variations from state to state. Most plans follow the same general scheme(and federal requirements), but make sure you compare plans among states other than your own. Most states don’t require residency in order to participate, so shop around different states for the best deal.
The benefits: tax treatment
[E]All of the account’s earnings are exempt from federal tax when they are withdrawn if they are used for qualified education expenses. This means that, unlike the taxes you have to pay on earnings from regular stock investments, you won’t pay any tax on the 529 account earnings unless you end up using the money for something other than higher education. Earnings are currently tax deferred in most states, as well.
[F]A break on the earnings tax isn’t the only tax advantage, either. Although your contributions aren’t pre-tax(you pay state and federal tax on the money you put into the account), there are some states that let you deduct a portion of your contributions from your state taxes. More states will probably follow suit in the coming years.
The benefits: account control
[G]Unlike Education Savings Accounts(ESA), the account owner always has control of the money. This helps lessen that parental anxiety that the junior will take the money and tour Europe or buy a Porsche instead of going to college. There are no restrictions on who can open an account for whom. You can open an account for your child, a friend’s child, a relative, the paper boy, or even yourself.
The benefits: income eligibility
[H]Did you know that with an ESA, you aren’t eligible to contribute if you make more than $ 110,000 per year($220,000 for married couples)? Unlike ESA, your income does not affect your eligibility to open a 529 account. Contributions to 529 plans also qualify for the $ 11,000($ 22,000 for married couples in 2002)annual gift tax exclusion. You can also contribute up to five years of gifts during the first year, meaning you can put in up to $ 55,000($ 110,000 for married couples). This is a great benefit in situations where inheritance money enters the picture. Your account can grow up to $268,000 in some states. You can contribute as little as $25 to $50 per month.
The benefits: how the money can be used
[I]In most states, there is no age limit or time limit for when the money has to be used. Your child can put off college indefinitely, in which case you have the option of rolling the account over to another child as long as that child is in the same family of the first beneficiary. In case you’re wondering just who is considered " family" , the plan defines family members as " the original beneficiary’s spouse, children, sisters, brothers, nephews, nieces, first cousins, and any spouses of those persons. "
[J]Your child can go to any accredited(官方认可的)degree granting educational institution, whether it is public, private, two-year, or four-year. There are even some international schools that qualify. In most states, qualified education costs include tuition, books, room, board, transportation, and even computers. In the event that your child gets a scholarship, then the remainder of the 529 account can be rolled over to another sibling(or relative), or it can be cashed out with no penalty other than the tax paid(at your rate)on the earnings. The same rule applies in the event of the child’s death or disability.
The benefits; investment control
[K]If the thought of turning over your hard earned money to the state makes you a little uneasy, rest assured that the state doesn’t control your money. In fact, most states are signing on with well known, successful investment companies such as TIAA CREF, Vanguard and Fidelity. The number and types of investment options vary by state, and once you select your option you can’t change it. You can, however, roll your money over into another state’s plan if you’re not happy with your chosen investment option. There is no penalty to roll the money over into another state’s plan, and you can do it once every 12 months. Most states have no residence requirement for their 529 plans.
[L]Many plans are also offering investment choices that are age-based. This means that if you’re starting early, perhaps when your child is age one to three, the investments can begin aggressively in stocks then gradually shift to bonds and money market accounts as your child gets closer to college age. Some state plans offer several levels of options for aggressive, moderate and conservative investments.
[M]If you can’t reach the risk level you want in one plan, you can always open a second 529 account in the same or another state. You can have as many accounts as you want and can also contribute to both a 529 plan and an ESA. That way, you can diversify your investments in the event that the plan doesn’t offer the investment mix you would like.
You don’t need to pay tax for the 529 plan earnings if you use it for higher education.
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