Financial plan gives students chance to save for college

Matthew White

An increasingly popular way to meet the challenges of higher education costs is to invest in 529 savings plans, said Mark Evans, director of student financial aid.

The plans are named after Section 529 of the federal tax code and are similar to a savings account for education expenses. They can be set up at most lending institutions. Evans said 529 plans are “number one” among the primary college savings plans.

According to a study done by the College Board, the amount of money invested in 529 plans has increased by $20 billion in the last year, from $72.3 billion in 2005 to $92.8 billion in 2006.

Peggy Ruhlin, principal at the investment firm Budros Ruhlin Roe, cited some advantages of 529 plans.

“The biggest advantage is the account grows tax free, and when the money is withdrawn, there are no government tax consequences,” she said. “The plans are a government sponsored way to save.”

Ruhlin also said the plans provide a state-tax credit that can be used for deductions.

Evans said regulations concerning 529 plans have been changed, and so long as the plan is in the student’s name, it doesn’t have to be reported on the student’s Free Application for Federal Student Aid.

But there are some disadvantages.

“The plans can only be used for higher education costs,” Ruhlin said. “So if a child ends up not going to college, the money must be transferred to someone who decides to go.”

Evans said it is important for a family to find the best way to save.

“Each family needs to research all the possible options,” he said. “Some families can put away $200 or $300 each month and others can’t. The major theme is to start saving something, even if it’s savings bonds received as Christmas presents.”

For less-affluent families, Ruhlin said there are other strategies.

“You can save outside of any plan, through a mutual fund or regular savings account,” she said. “A parent or grandparent can save in a custodian account, which provides tax savings for them but not for the child withdrawing the money, or with the Coverdell Accounts, which have a yearly contribution limit of $2,000.”

Katie Hale, a junior political science major, said she would recommend 529 savings plans.

“My future was never certain, but for more and more people college is becoming the next step after high school graduation,” she said. “I’m paying full tuition myself, with no federal or state aid, and I wish my family had known something like this existed.”

Hale said saving money before college can be difficult, and she wished she had been able to save monetary gifts in a 529 plan.

Ruhlin said despite the alternative saving strategies, she recommends 529 plans for middle-class families.

“529 plans are the best option if you’re sure you’re going to college,” she said.

Contact student affairs reporter Matthew White at [email protected].