MyEducational Savings

Section 529 Plan

Saving for college is a necessity for most families. In addition to traditional savings and investment accounts, the Federal Government provides incentives to families through Section 529 Plans and Coverdale Education Savings Accounts.

Qualified Tuition Plans, Section 529 Plan, are a great way for families to save for college. The plans are unique state to state, some allow you to pre-pay tuition (in today’s dollars) and all offer a 529 savings account. Benefits are good and apply as long as the funds are used for qualified education expenses and generally the following applies:

Exempt from federal income taxes on account earnings,
Contributions and earnings may be exempt from state income taxes,
Contributions up to $250,000.00 per student,
Anyone, such as grandparents, can contribute to an account,
Transferable to another family member,
There are no set annual contribution or income limits, and
Plans are portable from state to state.

Qualified educational expenses include tuition, fees, books, course supplies, equipment, and housing. Each plan will have unique fees, investment options, return rates and failure to use earnings for qualified higher education expenses will result, at minimum, in a 10% penalty as well as loss of income tax benefits. Additional information is available from the National Association of State Treasurers through The College Plan Network .

Coverdale Education Savings Accounts are trust funds and are set up by banks or other financial service providers. The maximum annual contribution is $2,000 and returns are exempt from federal income taxes as long as the funds are used for qualified educational expenses (tuition, tutors, fees, books, course supplies and equipment, and housing) from elementary through college.

All funds will have to be used by the time the student reaches the age of 30, and they can be transferred to another family member at any time. There are some income restrictions; you can save the maximum if your family income is less than $220,000 married or $110,000 single, benefits begin to phase out at $190,000 for married people and $95,000 for those that are single. It is important to note that plan fee’s, investment options and return rates can vary. Also, failure to use earnings for qualified higher education expenses will result, at minimum, in a 10% penalty and a loss of income tax benefits.