The cost of a college education continues to rise faster than the general rate of inflation. One year at a private college currently averages over $36,000; similar time at a publically-supported state school averages nearly half that. Most families will find that total college expenses are actually much higher. Qualified tuition programs, known as 529 plans, may help families to meet these expenses. Recent tax law changes have made these plans more attractive than ever.
Authorized and generally sponsored by each of the fifty states, 529 plans allow families to save for future educational expenses in a federal income tax-deferred account. Almost anyone can contribute to a child’s account and the money can be used for tuition, room, board, and books at any accredited U.S. college or university. As of the beginning of 2002, withdrawals for these educational expenses are tax-free. Individuals can choose to join their state-run program or one offered by another state.
529 plans allow donors to contribute as little as $25/month or as much as $250,000 a year to a single account while maintaining control over withdrawals. Remember, contributions of up to $10,000 per year are covered by the gift exclusion. Contributions to 529 plans have no income or age restrictions; the investment grows tax-free and tax-exempt (when used for qualified expenses), and beneficiaries can be changed among family members. 529 plans include both prepaid tuition programs (usually chosen when a student is expected to attend an in-state public institution) and the more versatile college savings plans managed by investment firms. Before choosing to participate in a 529 plan, see your tax advisor. More information about these and other educational savings plans can be found on the web at
