Dave asked about tax-deferred plans to help parents come up with college tuition, the cost of which is rising faster than Governor Schwarzzengroper can shovel cash money into the Greenback Brothers Crematorium in Sacramento.
Saw an article last week in the local rag outlining the rules and regs pertaining to financial aid in our fair state, where college tuition is already lower than your state charges. It's all a little complicated, tied to family size and parental income. This is so even if the student is completely self-supporting and disowned her parents at 16 to become emancipated. Go Fish.
As usual, parents whose taxes support the aid programs will discover that their own children will be ineligible. Cuz the parents earn too much. Pretty egalitarian.
So, you got that? No?
Okay, press one. Here it is in English: Many of you will pay for your own kid's tuition as well as for the trouble maker that sat next to your little angels on the school bus.
Yes, we're at the part where I swore and throw the newspaper across the room.
529 Plans can be helpful and CNN-Money has a great explanation of the mechanics of these plans here.
Ten FAQ (cribbed directly from CNN-Money because that was a lot less work)
Q. What's so great about 529 plans?
A. You never have to worry about annual taxes on dividends and gains, and withdrawals are tax-free too. What's more, if you invest with your own state's 529, you may get state-tax deductions on contributions or exemptions on withdrawals.
Q. Can anyone open a 529 account for any child?
A. Generally, you ("the account holder") can open an account on behalf of nearly any child ("the beneficiary"), regardless of your income. Grandparents, for example, can save on behalf of grandchildren. You can even put away money for someone who's not a family member. A handful of states open their plans only to state residents -- but most are available to everyone.
Q. Can two people open an account for the same child?
A. You can open more than one account in a single state for the same child, and more than one person can fund a 529 for the same beneficiary. No matter the number of accounts, the state's maximum contribution limit still applies to the beneficiary. States don't have to count balances in out-of-state accounts when determining whether you've met your limit, but some have started doing so.
Q. What if I need to tap the plan?
A. You can make a withdrawal anytime, but you'll pay taxes plus a penalty on the earnings -- usually 10 percent -- if the money is not used for higher education.
Q. Does my child have to go to a state school?
A. No. You can use the money at any accredited degree-granting school, whether it's private, public, undergraduate, or graduate.
Q. What kind of educational costs can the money be used for?
A. In all states, tuition qualifies. Most states also permit 529 money to be used for other costs, such as room, board, fees and books.
Q. What if my child doesn't go to college or has money left over?
A. You can take out the money, paying taxes and penalties. In most states, you can leave money in the plan indefinitely, in the hope that your child will eventually go to college. A third option is to name a new beneficiary on the account. If your child dies or becomes disabled, most states will waive penalties on withdrawals.
Q. Can I switch investment options?
A. Not without going through the rollover process described above. An easier alternative is to open another account for the same beneficiary and invest future contributions in a different fund.
Q. Can I also fund a Coverdell Education Savings Account?
A. Absolutely -- that restriction changed at the beginning of 2002. You can contribute up to $2,000 annually to a Coverdell, regardless of how much you contribute to a 529.