Member
Benefits
 What
you should know about 529 college-savings plans
If you've looked into saving money for your child's
or grandchild's education, you've faced a bewildering array of options.
The 529 college savings program is the newest, hottest option for
college wealth-building, but many members are confused about the
529 program and what this program allows.
The "529 College Savings Plan" is the result of a
1996 revision to the IRS tax code. This tax code, section 529, allows
states to set up a college-savings alternative to prepaid tuition
programs. In Missouri, the 529 College Savings Plan is better known
as "MOST" (Missouri Saving for Tuition). MOST was developed under
the guidance of Governor Bob Holden while he was the Missouri State
Treasurer.
Almost every state in the nation has developed a college
savings plan, and large financial companies are cutting deals with
individual states to run their plans and market them nationwide.
You can participate in any state's college savings plan.
Be sure to consult a trusted financial or tax advisor
before selecting a plan. Fees vary widely among state plans, charges
aren't disclosed in a standard form, and some states have layered
their own restrictions on top of the strict federal rules governing
these plans.
Some rules on contributions
-
Anyone may contribute to the account, regardless
of his or her income or state residency.
-
Maximum contributions to an account vary
from state to state, but typically they exceed $125,000.
-
Contributions may total $10,000 per year
per beneficiary ($20,000 for couples filing jointly) without
triggering federal gift taxes, or you can make a $50,000 contribution
($100,000 for couples filing jointly) in a single year and pro-rate
it over a five-year period without triggering gift taxes if
no other gifts are made to that beneficiary.
-
A person making a contribution to a college
savings plan cannot make a contribution to an Education IRA
in the same year.
-
In Missouri, contributions up to $16,000
per couple filing jointly or $8,000 per person are exempt annually
from state taxes.
Key Features
-
Proceeds may be used at any accredited post-secondary
school in the United States.
-
Contributions are invested in professionally
managed portfolios.
-
Earnings accumulate tax deferred for federal
tax purposes until withdrawn.*
-
Earnings are free from state income taxes
for Missouri residents participating in MOST.
-
Money withdrawn from the account to pay
for qualified education expenses is federally taxed at the beneficiary's
tax rate (usually 15 percent).
-
Beneficiaries receiving 529 income remain
eligible for the HOPE scholarship and Lifetime Learning Credit
in the same year.
*Earnings in the account representing
capital gains will be taxed as ordinary income when withdrawn. Taxes
due may be higher than if the assets were held outside the account.
Withdrawals
-
Earnings withdrawn for non-qualified expenses
are generally taxed at the owner's tax rate and are subject
to an additional 10 percent penalty.
-
If the beneficiary wins a scholarship, the
owner will be refunded the scholarship amount without penalty.
-
There are still questions about whether
the assets in these accounts will be considered scholarship
funds, thereby affecting a beneficiary's financial aid.
-
Only the account owner can make withdrawals.
Therefore, the owner can use it for the intended child or can
transfer it at will to another family member, or withdraw it
for his or her own use (tax and penalty will apply).
To learn more about 529 college savings plans or to
enroll in the Missouri Saving for Tuition (MOST) 529 program, contact
Reliant Financial Services, MNEA's endorsed member-benefit provider,
at (800) 471-7717.
|
