Education Saving Programs

If you would like to save money for a csuhchild or grandchild to go to college, then a Qualified Tuition Program (QTP) may be the answer. It is also sometimes referred to as a Section 529 plan. You can set one up for any person not just your child or grandchild. You could even set one up for yourself.

Unlike most programs there are no income restrictions when making contributions because the contributions are not tax deductible in the year that they are made. There is also no limit to the number of different QTP accounts that you set up for different people.

These programs are established and maintained by a state but the funds are usually held in the typical mutual fund company. There are two basic types of Section 529 plans. First and most popular, this plan allows a taxpayer to contribute to an account for paying higher education expenses anytime in the future. Secondly, the taxpayer can prepay a beneficiary’s higher education expenses at an eligible educational institution. Obviously, this limits the beneficiary when it comes to choosing a college to attend. Most colleges and universities are eligible educational institutions. Any vocational school or educational institution that is eligible to participate in a student aid program would also qualify.

There are several benefits to setting up a QTP for your child or grandchild. The contributions within the fund grow tax deferred until the earnings are withdrawn. Even then, they are not taxable if used to pay for higher education expenses or rolled over to another family member. The longer the fund exists the greater the earnings that are not subject to tax.

The contribution to the fund is treated as a gift at the time of the contribution. The contributions are considered gifts and so are eligible for the annual gift tax exclusion of $14,000 per person. That means that a taxpayer could make ten contributions to different individuals for a total of $140,000 and they would all be considered gifts.

Here is another perk of Section 529 plans. You are the custodian and in control of the funds until they are withdrawn.

Remember, above all else setting up a Section 529 plan is an investment decision. Be sure to weigh the pros and cons of a Section 529 account with other methods of investing before you commit yourself.

Whatever you do, support young people getting an education. It will make them more independent and give them greater earning potential. Plus, they will be better citizens if they are better educated.


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