529 College Savings Plan – Part II | 06.13.08

Posted in Financial Aid By Kristin Morris

Last month I blogged about the 529 college savings plan and received some excellent questions that I felt would be beneficial to share with everyone (along with the answers of course).

I pretty much just gave a snapshot overview of what a 529 plan was , but I’m going to get down to the nuts and bolts of it for you today.

Q: David, you are obviously very smart on financial matters and I would appreciate more details about the 529 plan if you get a chance. I live in Vermont; do I have a good plan here? If not, can I get into another state plan?

A: You’re right, I am a financial master, and semi-good looking too. To answer your question Vermont is a Top 5 plan based on performance over the past 3 years. They even offer a tax credit to the residents of the great state of Vermont. Your state’s 529 plan is certainly solid, however, it is perfectly within your province to open a 529 plan in another state if you’d like. Just because you live in Vermont doesn’t mean you can not open a 529 plan in Oregon. Also, your child would not then be required to attend a school in Oregon either as many assume – this would simply mean your 529 account was located in that state.

Q: What are some of the main differences between state plans?

A: One of the biggest differences between plans is who is running the plan. For example in Massachusetts you have but one option, Fidelity. In Nebraska it’s the Union Bank and Trust Company of Lincoln, Nebraska, and in Indiana it’s JP Morgan.*

Another thing to keep in mind is what types of fees are involved with each plan. Are there monthly/yearly maintenance fees, program management fees, or start-up fees? Obviously the higher the fees the less desirable the plan, unless of course that plan is performing at a very high level to overcome said fees.

Q: Is their a contribution minimum? I can only afford to put $50 per month away?

A: These differ greatly from plan to plan and for residents vs. non-residents. For example in Kansas the minimum contribution is $1,000, but only $250 for a Kansas residence. Each subsequent contribution is $50 per month, but just $25 for Kansas residence. In Louisiana it’s just $10 total to open an account while in Illinois, Nebraska, & Utah there are no minimum payments at all! Keep in mind that some states also offer lower contribution minimums if you set up ACH.

Other things to keep in mind are state tax deductions. For example, residents of Arkansas have a deductible in computing Arkansas taxable income up to $5,000 ($10,000 for married taxpayers) when they contribute to their state 529 plan.

Also, about half of the state 529 plans offer rewards programs as well. For example, Massachusetts has partnered up with American Express and offers rewards points that go directly into your child’s 529 plan.

I hope this information is helpful! If you still have further questions or just want to tell me how fabulous I am, fire away! I love to hear that I am a financial mastermind, look out Bernanke – I have some thoughts on this countries monetary policy too.  Happy Saving.

*This information was accurate as of June 13, 2008 – but is subject to change.


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4 Responses to “529 College Savings Plan – Part II”

  1. Stephan Windsor says on July 13, 2011 at 11:18 am:

    I would like to borrow some of the cost of my daughter’s college education and then use distributions from either our 529 Plan or from our Educational Savings Account to pay back the loan after she finishes college. Is paying off a education loan an allowable use of 529 Plan or ESA distributions?

    Reply To This Comment
    • Student Loan Guru says on July 13, 2011 at 2:32 pm:

      @Stephan- No, unfortunately loans do not qualify as Qualified Higher Education Expenses. If you were to take out this money for that purpose, the principal would be subject to taxes and you’d be hit with a penalty fee. 529 funds are only intended for tuition, fees, books, and other supplies, along with a capped amount for room and board.

      Reply To This Comment
  2. Andrew says on July 3, 2008 at 8:40 pm:

    Great summary on 529 plans.

    -Andrew
    529 Plan Guide

    Reply To This Comment
  3. John says on June 19, 2008 at 10:40 am:

    Dave, Your advise is more valuable to me than anything Bernanke might be able to tell me. We live in New York and participate in a New York 529. My oldest child has just completed his first year of college. In the Fall of 2007 both my wife and I put $5,000 each into his 529, meeting the maximum for tax benefit for 2007. In January of 2008 we withdrew the $10,000 to make part of the Spring 2008 College bill. Can I do the same again in 2008, make the contribution then withdraw in 2009 or does the 2008 withdrawal preclude me from that tax saving tactic?

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