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USA Today Rates College Savings Plans

  • July 10th, 2002

USA Today has given the College Savings Plan of Nebraska top honors in its review of 43 state college savings or '529' plans.

These plans, named for Section 529 of the Internal Revenue Code, can be ideal for grandparents with taxable estates'“over $1 million for an individual or $2 million for a married couple'“who wish to help grandchildren with college and reduce their taxable estates at the same time. Funds contributed to 529 plans are invested, usually in mutual funds, to pay for a child''s college tuition, room and board, or other expenses. Under the tax law passed in 2001 the earnings from these accounts are tax-free beginning in 2002 as long as they are used for qualified educational expenses. Perhaps best of all, contributions to 529 plans are removed from the contributor's estate but the contributor (the plan owner) still retains control over the funds and can even take back the gift if necessary.

The biggest problem with setting up a 529 plan is choosing the right one. Although authorized by federal law, these college savings plans must be sponsored by state government or a private educational institution. In general anyone can participate in any state's plan, but the state plans vary widely. The states create their plans in conjunction with financial services companies that administer accounts and invest the plan owner's money until it is withdrawn by the beneficiary. Each state has its own rules and each financial services company has its own charges.

Along with the College Savings Plan of Nebraska, USA Today gave high marks to Virginia''s CollegeAmerica, the Michigan Education Savings Program, the Tennessee Baccalaureate Education Savings Trust, and the Minnesota College Savings Plan. All of the top-rated plans featured below-average fees and expenses, which can be critical when the stock market is stagnant or declining.

For the full USA Today article, click here.

To compare the various state plans, go to the Web site www.savingforcollege.com.

For more on 529 plans, click here.

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Last Modified: 07/10/2002

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