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Funding College Education with 529 Plans
Financial Tips for New Parents Who Are Planning for Baby's Future

Paying for college has never been easy. And in the future, four years at a private college could cost more than you paid for your house. Next to retirement, this may be the biggest expense you and your family are likely to face.

First authorized by Congress in 1996, qualified state tuition programs, or 529 college savings plans, offer substantial benefits for investors. Named for their section in the Internal Revenue Code, 529 plans allow states to offer investors professionally managed, tax-advantaged portfolios to help meet rising college expenses. The benefits for investors include market-based returns from a portfolio of mutual funds and complete control over withdrawals for the life of the account. Proceeds may be used at any accredited post-secondary school in the United States.

Key Features

  • Investment earnings accumulate tax-deferred until withdrawn.
  • Residents of any state may set up a 529 plan and use the proceeds for tuition, room and board, and textbooks at any two- or four-year post-secondary school in the United States that offers undergraduate or graduate degrees.
  • The owner retains control over the withdrawals.
  • Contributions are invested in professionally-managed portfolios.
  • The account’s value is not part of the owner’s estate--and this may save a substantial amount of money for your heirs.

Contributions

  • Anyone may contribute on behalf of a single beneficiary, including parents, grandparents, other relatives, and family friends, regardless of income or state residency.
  • Maximum contributions vary from state to state, but typically exceed $100,000.
  • Contributions may total $10,000 a year per beneficiary ($20,000 for married couples filing jointly) without triggering federal gift taxes.
  • A contribution of $55,000 ($110,000 for couples filing jointly) may be made to a single account and prorated for a five-year period without triggering federal gift taxes, as long as no other gifts are made to that beneficiary.

Withdrawals

  • Any withdrawals used for qualified education expenses are free of federal tax under current law.1
  • If the beneficiary wins a scholarship, the owner will be refunded the scholarship amount without penalty.

What if your child doesn’t go to college?
Since you, the owner, retain control over withdrawals, you have the following choices if the beneficiary decides not to attend college:

  • Change beneficiaries (any new beneficiary must be related to the original beneficiary)2
  • Leave the assets in the plan for later use
  • Withdraw the assets3

College savings plans offered by each state differ significantly in features and benefits. The optimal plan for each investor depends on his or her individual objectives and circumstances. In comparing plans, each investor should consider each plan’s investment choices, fees and state tax implications. For more information on how a 529 plan can help you fund your children’s or grandchildren’s education, contact your financial advisor.

Editorial provided by courtesy of Sally Graff Osborne, Vice President of Investment with Wachovia Securities in Oak Brook, IL. Wachovia Securities, LLC, member New York Stock Exchange and SIPC, is a separate non-bank affiliate of Wachovia Corporation. ©2005 Wachovia Securities, LLC. Investments in securities and insurance products: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE.