529 Plan Basics
“I don’t remember growing older. When did they?” As the words from Fiddler on the Roof imply, before you know it the children are grown and they are planning to head off to college. Are you ready for the financial burdens that are coming your way? You should start saving!
Per the article: Saving for College: Making the Grade with 529 Plans , of the tax incentives designed to encourage college savings, 529 plans provide the best method to accumulate sufficient funds. Based on current rates, the cost to attend college and live on campus will run about $240,000 for a four-year in state public university and about $600,000 for a private university. These costs are estimated to increase at about 8% per year which translates to a cost of more than three times the current rate by the time a child born today is ready to attend college.
There are two types of 529 plans which must satisfy five requirements to receive tax-exempt status. For further information about the types of plans and the requirements, please give us a call.
The contributors to the plan do not have to be related to the beneficiary, but each state does set a maximum account balance that currently ranges from about $235,000 to $387,000. The maximum for Michigan accounts as of 12/31/10 was $235,000. There is no Federal income tax deduction for contributions to a 529 plan, but the earnings do grow tax-free and, with certain restrictions, the distributions are also tax-free. The State of Michigan also offers a deduction of $5,000 for individuals and $10,000 for joint filers for contributions to a 529 plan sponsored by the State of Michigan.
There are two websites which are recommended to assist you with the selection of the plan which would be best for you and the plan beneficiary. These websites are www.savingforcollege.com and http://www.collegesavings.org/.
If you would like additional information on 529 plans, including rollovers, federal transfer tax, and gift tax, as well as, any proposed future changes, please call our office.