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COLLEGE SAVING 529 PLANS 

The latest opportunity for pre-funding college, 529 Plans, are relatively new and vary from state to state.  The plans are authorized under Section 529 of the Federal Internal Revenue Code, but are established and administered by individual states. All states now offer 529 Plans except Georgia and South Dakota and most even welcome non-residents to participate in their plans. 

Advantages of the 529 Plans: 

1. Although contributions aren’t tax-deductible, under the 2001 Tax Act earnings can be withdrawn tax-free to pay for tuition or college expenses. 
2. Unlike Educational IRA plans, annual contributions are not quite as limited.  Maximum contributions can total as high as $158,750.00.
3. A 529 plan will not have a major impact on financial aid in the same way pre-paid tuition plans do.  Pre-paid plans are considered a “resource” that reduces a family’s aid eligibility dollar for dollar.  Currently a 529 plan is treated as a parental asset, of which only 5.6% is considered available to cover college costs each year.
4. Contributions can be made by parents, relatives or friends.
5. The plan proceeds can be switched to another child if the first doesn’t need it.

 Disadvantages of the 529 Plans: 

1.      Some state plans accept applicants only if they are in-state residents.

     However, a few permit non-resident enrollment.   

2.   Other resources may limit a student’s ability to qualify for aid based on the formula used by a particular educational institution. 

3.   A person taking an early withdrawal for purposes other than education must pay a 10% federal penalty tax in addition to ordinary income tax at the parents maximum rate.   Additionally, the state might keep all of the interest accrued. 

Each state has it’s own investment vehicles and plans.  Please give us a call for more details on each states 529 Plan. 800-878-4036

Securities offered through Sigma Financial Corporation. A registered broker/dealer. Member FINRA & SIPC.

Planning Services offered through Sigma Planning Corporation, a registered investment advisor.

Any information contained on this site does not constitute financial advice. The Website is intended to provide general information only and does not attempt to give you advice that relates to your specific circumstances. You are advised to discuss your specific requirements with an independent financial adviser licensed in your state.

We do not offer legal advice. All information provided on this website is for informational purposes only and is not a substitute for proper legal advice. If you have legal questions, we recommend that you seek the advice of legal professionals.

IRS Circular 230 Disclaimer: To ensure compliance with IRS Circular 230, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.

Asset allocation, diversification and rebalancing do not assure a profit or protect against loss in declining markets. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Past performance is no guarantee of future results.

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Last modified: 05/11/10