529 Tax Friendly Savings Plan
State-sponsored college tuition savings plans are growing in popularity as families grapple with paying for higher education. About three dozen states now have these plans, commonly called 529 plans after the section of the tax code that governs them. While Georgia does not offer a 529 plan, more than a dozen states allow nonresidents to invest in their plans.
You don't get a tax deduction for putting money into a 529 plan, but taxes are deferred on the earnings until you withdraw the money. If the money is used to pay qualifying higher education expenses --- such as tuition, books, room and board --- the earnings are taxed at the student's tax rate. That can be a big saving, because college students usually are in a lower tax bracket than their parents, said Abram Claude, a vice president with Fidelity. In general, the programs work like this: Anyone --- such as a parent or grandparent --- can set up an account for a child. Anyone can contribute to the plan. Each state sets its own rules on how much can be contributed, either annually or over a lifetime. These vary widely, from a lifetime limit of about $ 175,000 in Montana to a $ 2,000-a-year limit in Iowa. Other states base the cap on an estimate of how much it would cost to attend a state institution. |