Wednesday, August 26, 2009

College Saving: How To Avoid Losses, Save On Taxes

It is back to school time for kids and college students alike. As such dozens of news outlets are running stories on saving for college. Yesterday, I came across this interesting article from explaining how to save for college while avoiding losses. Check out the text of their article below, or for more information your can read this article on the RDTC Tax Help Blog titled Top 10 Tax Planning Tips for Families with Children.

As parents of young children see teenagers head off to college for the fall semester, they may be fretting about how they'll be able to meet the rising cost of tuition when their time comes.

That includes looking at 529 plans that offer special tax benefits on college savings and are named after the Internal Revenue Service code that regulates them. Accounts can be set up through a state agency or pre-paid university and college programs.

Let's look at the tax advantages, the home-state factor and the best way to protect the account from market losses.

Q: What are the tax advantages of a 529 plan?

A: Earnings in 529 plans are not subject to federal tax, and in most cases you do not pay state taxes as long as you use the money for eligible college expenses. That typically means tuition, room and board, and mandatory fees. Books and computers also qualify when they are required.

Money taken out of the account for reasons other than college expenses will be subject to income tax and a 10 percent federal tax penalty.

The Securities and Exchange Commission offers an introduction to 529 plans with some basic information on taxes and other issues on its Web site at:

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