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College savings plans got better

Posted: November 17, 2009 9:48 a.m.
Updated: November 17, 2009 9:48 a.m.
When 529 plans were introduced in 2001 they were hailed as a positive step forward from the UGMA (Uniform Gift to Minors Act), and UTMA (Uniform Transfer to Minors Act) plans for higher education by both investment advisors and purchasers for college savings plans.

The 529 plan gives benefactors more control and flexibility in providing benefits for themselves and the beneficiaries for higher education planning.

Following factors are a brief overview of the benefits of 529 plans and why they are more popular with those who wish to provide and plan for children and grandchildren's higher education. These factors help parents and grandparents in their college planning goals for themselves and their families.

n Tax-free distributions: Distributions for qualified higher education expenses will be exempt from federal and state income tax.

n More flexible rollovers between 529 plans: A transfer from one Section 529 plan to another Section 529 program for the same beneficiary will no longer be considered a taxable transfer.

n Increased limits for room and board: The allowable amount for room and board cost will increase for most students who live off campus.

n First cousins are now considered members of the family: Changing the beneficiary to a first cousin of the current beneficiary will no longer be considered a taxable transfer.

n Other changes: Certain necessary expenses for "special needs students" will be considered qualified expenses (dependent on certain circumstances); contributions can be made to an Education IRA and a Section 529 plan in the same year for the same beneficiary without incurring a penalty (federal gift tax limits apply); Hope and Lifetime Learning credits can be claimed in the same year as tax-exempt distributions from a Section 529 plan as long as they are not used to pay for the same educational expenses; and limited tax deductions for qualified higher education expenses will be allowed for taxpayers according to state regulations.

The 2009 changes allow for purchase of computers as a qualified expense.

When it comes to investing for a child's education, making informed investment choices is critical. It is imperative to have the advantage of professional management to provide you with a carefully planned strategy.

As with any investment goal, time and professional guidance are your greatest allies when saving for college. Your financial advisor will provide the professional expertise and management to help make the most of your legacy. The sooner you put your College Savings Plan to work, the greater potential there is for your educational gift. With the upcoming holiday season, what a great gift to give someone in your family.

Jim Lentini, CLU, ChFC, IAR is president of Lentini Insurance & Investments, Inc. His column reflects his own views and not necessarily those of The Signal.


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