Planning for College with a Qualified Tuition Program

Qualified Tuition (Section 529) plans are now offered by over 40 states and were also enhanced by the 2001 Tax Law.  While the plans are offered by the state, there is no restriction on where the child may attend college utilizing the funds. One potential drawback is that there are usually limited investment options. It makes sense to look at several states’ programs to find one that offers the investment choices you desire.

With a Section 529 Plan, there are no income limits on the donors and contributions of up to $13,000 per year can be made.  In addition, there are special provisions to allow a “front-end loading” of up to five years of contributions to be made without gift taxes.

The big change made by the 2001 tax law is that beginning in 2002, withdrawals used for qualified educational purposes are excluded from federal income taxation.  The law also loosened what institutions qualify, but there are still some limitations.