529 Maximum Contribution

February 25, 2008

In addition to buying your home, sending a child to university is one of the largest expenses you'll ever. According savingforcollege.com the price of a college program for a child born today will be $ 312,166. This is an important investment for the whole family, so it is important to start saving now.

One way to save is to invest in a tax deferred 529 plan (also known as a specialist school plan). With a 529 plan, the funds grow free of federal income tax and the state. With growth in tax-free money for college savings accumulate faster. When it's time for college, withdrawals are exempt from federal taxes when used for qualified educational expenses.

There are two types of 529 plans: prepaid and savings plans. With a prepaid plan, you enter into a contract to record a certain amount to lock in college costs at prices set today (in terms of Illinois sets tuition and mandatory fees). The prepaid account may transfer out of state schools, under certain conditions.

You can buy as little as one semester of coverage and pay a lump sum or in installments. Most of these schemes require either the owner or beneficiary of the plan to a resident of the state.

With the savings plan, you can start small and make your own pace. Because your contributions are not part of a contract, however, they do not block the price of college today. The savings accounts are, however, cover the eligible expenses of higher education including books, supplies and room and board. The money can be used in accredited colleges in the country. There are also many different investment options available that you can choose.

Although many states offer 529 programs, of Illinois College savings program has additional benefits for Illinois residents. Under certain conditions, qualified 529 contributions can be deducted in computing Illinois taxable income up to $ 10,000 per year for the taxpayer. In addition, unlike other education savings programs, 529 plans do not impose limitations on the income of people who wish to contribute. In addition, grandparents can contribute to a 529 plan as well.

To stretch your training budget continues to investigate potential income and gift tax benefits of a plan of 529. Your financial advisor can provide more information and help you choose a plan designed to fit your needs and investment strategy.

Tom McGee is the managing director of Harris Private Bank in Naperville. He can be reached at tom.mcgee @ harrisbank.com