plans: Everyone can invest
With the annual cost of a private college education in 2006-07 in the U.S. averaging $30,367, including tuition, room and board, and $12,797 at a public university, according to the College Board, many grandparents are exploring ways to help their grandchildren pay for the escalating cost of higher education. One of the easiest ways to offset college costs and reap tax benefits involves opening a 529 college savings plan.
IRA holders who have turned
70½ years old are required to withdraw
money from their IRAs, called the required
minimum distribution. If they don't need
all of this money to live on, they could start
a 529 college savings plan for their grandchildren,
says Jeff Coghan, director of Smart529 college
savings at The Hartford insurance company
in Simsbury, Conn. "That way the money
stays tax-deferred," he says.
The Internal Revenue Service
code authorized 529 college savings plans
in 1997, with the states granted the right
to determine their own plans. Hence, every
state has its own 529 college savings
plan, which offers different minimum and maximum
deposits and tax benefits. In fact, maximum
contributions in 529s range from $218,535
(Louisiana) to $344,000 (Pennsylvania) with
a median of $235,000, says Mark Kantrowitz,
publisher of FinAid.Org, a Web site dedicated
to student financial aid.
encourage anyone who can to invest in a 529
plan. The more financial resources students
have, the more options they have for their
educational pursuits," says Marty Guthrie,
the director of governmental affairs at the
National Association of Student Financial
Aid Administrators, or NASFAA, based in Washington,
The 529 college savings plans are "a way of giving money to the child that ensures it will be spent on education," Kantrowitz says. If grandparents give money to a grandchild as a gift, it can be diverted to other items such as a car or a vacation.
Do the homework
Guthrie recommends that anyone who is considering
opening a 529 use Web sites such as collegesavings.org
which offer state-by-state descriptions and
portfolio returns of each plan. Analyzing
results can be complicated because plans include
adviser-sold plans with sales charges and
plans without sales charges, and returns vary
greatly. For example, West Virginia Cornerstone
Smart 529 Aggressive Growth had the highest
returns of all plans with sales charges, 11.77
percent over the past three years as of Dec.
31, 2006, while West Virginia Director Smart
529 Stable Value returned only 0.87 percent.