for college: best strategies
for the year
There's a lot to love about these plans. Earnings in a 529 grow, and can be withdrawn, tax free as long as they're spent on bona fide higher education expenses. These tax breaks won't expire in 2010; they are now permanent.
In coming months,
529 participants may also find
it easier to snag state tax
breaks, too. Roughly half of
all states offer tax incentives
to residents who open an in-state
plan instead of opting for one
elsewhere. Pennsylvania, Kansas
and Maine recently started offering
"full parity" for
529s. That means they've extended
their tax perks to any resident
who invests in a 529 plan, even
one from out of state.
Experts predict that "full parity" offers will become more commonplace.
to say how many more will follow,"
says Jacqueline Williams, chair
of the College Savings Plan
Network. "But clearly some
states are beginning to say
'We feel it's important to enhance
these plans.' "
And there's good
news for those who find the
prospect of picking the best
529 plan daunting. The College
Savings Plan Network is making
big improvements to its Web
so consumers can quickly compare
and assess their options.
to help you get critical information,"
Williams says. "You'll
be able to see if your state
offers a tax deduction or matching
funds, then compare it to other
states. You can do that today,
but we're going to make information
about fees, expenses, (investment)
performance more readily available."
Consider prepaid tuition plans
There's also great news for
prepaid college tuition plans.
Offered by 18 states, these
plans let families lock in tuition
at predetermined prices at public
universities. These can be great
deals if you're fairly certain
that your child will attend
State U. Students who, instead,
go to private colleges can still
use the funds in the account,
but there may be a savings shortfall.
Also, now that prepaid savings plans are counted as the account owner's asset (parents, in most cases), that means a student's eligibility for financial aid is not at risk.
"This does make prepaid plans more attractive and puts them on par with any kind of investment you might have," says Chris Hunter, program manager at College Savings Plan Network.
Apply for financial aid
Even the most diligent planners
may wind up short on cash when
tuition comes due. For that
reason, be ready to seek out
You must start with the Free Application for Federal Student Aid, or FAFSA. Get it from a school's financial aid office or apply online at the Department of Education's Web site, http://www.fafsa.ed.gov. If forms make you light-headed, rest assured.