For many parents, the cost of college education is one of the most daunting financial burdens they will bear. Fortunately, there are many investment vehicles available now that provide incentives to save for college. Chief among these options, which include prepaid tuition programs, Coverdell Education Savings Accounts (formerly called Education IRAs), classic and Roth IRAs and Custodial savings accounts, are the Section 529 Plans. These plans, modified by the Tax Relief Act of 1997 and further amended by the Economic Growth and Tax Relief Reconciliation Act of 2001, represent the best means by which to save money to pay for the high cost of college. Additionally, 529 plans can, in certain instances, reduce your income taxes and your estate tax burden.

Benefits of investing through 529 plans include:

1. Retain control: the person giving the money can retain control of how those funds are invested and disbursed.
2. Avoids Income Tax: 529 plans are tax deferred (and may be a tax free) investment vehicles. Currently, distributions from the plan are exempt from federal income tax as long as they're used to pay "qualified college expenses".
3. Potential state tax deduction: certain states offer a deduction from state income taxes on part or all of the contributions to their plans. To determine whether or not your state allows this deduction, please visit savingforcollege.com.
4. Estate Tax reductions: gifts placed in 529 plans reduce the taxable estate of the donor.
5. Access to college tuition assistance: guidance from the U.S. Department of Education says that a 529 savings account is treated as an asset of the account owner in determining availability for federal financial aid. And as of today, distributions from the plan should not impact a student's financial aid eligibility next year.
6. Growth potential: the investment strategy selected should generate returns that exceed general inflation and tuition cost inflation.
7. Flexibility and simplicity: 529 plans are relatively easy to set up, inexpensive to maintain and simple to access. Additionally, the donors can change the beneficiaries as times and conditions change. You can even set up a plan for yourself.
8. Portability: the full value of your account can be used at any accredited college or university in the country.
9. Availability: the benefits of the plan are available to anyone in the country, regardless of income bracket.
10. Contribution limits: only the current gift tax laws and the value of the Unified Credit limit annual contributions. Currently, annual gifts are limited to $11,000 per person, per year while the Unified Credit is currently $1,000,000 per person.

It is worth shopping the plans of various states to compare annual costs and investment options. In some cases, in may make sense to opt for another state's plan rather than invest in the plan offered by your own state.

A few drawbacks of Section 529 plans are that:

1. Each state has a limited palette of investment options from which to choose.
2. One can only change the investment option by changing the beneficiary or by moving the account into another state's plan.
3. There remains the possibility that the government, either on a state or federal level, will change the rules and take away the tax-free status of the withdrawals.

If you think that you can benefit by opening a Section 529 account, but would like some more information or would like to review your options, please complete and submit the Contact Us form, or call us on 800-PHON-WAM (800-746-6926). We look forward to hearing from you.