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COLLEGE SAVING 529 PLANS 

The latest opportunity for pre-funding college, 529 Plans, are relatively new and vary from state to state.  The plans are authorized under Section 529 of the Federal Internal Revenue Code, but are established and administered by individual states. All states now offer 529 Plans except Georgia and South Dakota and most even welcome non-residents to participate in their plans. 

Advantages of the 529 Plans: 

1. Although contributions aren’t tax-deductible, under the 2001 Tax Act earnings can be withdrawn tax-free to pay for tuition or college expenses. 
2. Unlike Educational IRA plans, annual contributions are not quite as limited.  Maximum contributions can total as high as $158,750.00.
3. A 529 plan will not have a major impact on financial aid in the same way pre-paid tuition plans do.  Pre-paid plans are considered a “resource” that reduces a family’s aid eligibility dollar for dollar.  Currently a 529 plan is treated as a parental asset, of which only 5.6% is considered available to cover college costs each year.
4. Contributions can be made by parents, relatives or friends.
5. The plan proceeds can be switched to another child if the first doesn’t need it.

 Disadvantages of the 529 Plans: 

1.      Some state plans accept applicants only if they are in-state residents.

     However, a few permit non-resident enrollment.   

2.   Other resources may limit a student’s ability to qualify for aid based on the formula used by a particular educational institution. 

3.   A person taking an early withdrawal for purposes other than education must pay a 10% federal penalty tax in addition to ordinary income tax at the parents maximum rate.   Additionally, the state might keep all of the interest accrued. 

Each state has it’s own investment vehicles and plans.  Please give us a call for more details on each states 529 Plan. 800-878-4036

Securities offered through Sigma Financial Corporation. A registered broker/dealer. Member FINRA & SIPC.

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Copyright © 2007 R & D Financial Services Inc.
Last modified: 11/04/07