529 Plan: Avoid The TaxmanThe rising cost of education is pushing parents to start investing earlier for their children's college expenses. By the time a child 2 years old in 2005enters the gates of a public university in the year 2023, tuition is expected to be nearly three times as much as it is today.
Before parents push their offspring to reach genius status or introduce them to athletics in the hopes of earning a full ride to college, there's a new program that makes the looming cost of education a little easier to handle. In 1997, federal lawmakers realized the college expenses were growing at a fast rate -- almost 6 percent a year -- and passed legislation that created state-sponsored college savings plans, called 529 plans. North Carolina's version of the plan was rolled out in June. The passage of the 1997 Taxpayer Relief Act created the 529 plan, which differs from other prepaid tuition plans. Unlike other custodian mutual-fund accounts -- which require the donor to report annual, taxable interest earnings to Uncle Sam -- all earnings on the 529 plan are tax deferred. The plan can be more attractive than traditional mutual-fund accounts. The tax breaks and low minimum monthly payments make college saving possible for families of all economic levels. |