What is a 529 plan?
It is a government sponsored education savings program to help make learning more affordable.
Most parents dream of their children attending college from the time their children are very small.
The one thing we can all count on is that the cost of attending college will only continue to rise as your children grow. So like all other saving, the time to start is in those early years giving your money time to accumulate and grow to help with the affordability of your child’s college dream.
The following are a listing of some tax-advantaged alternatives which can be utilized;
1) 529 Plan –The Kansas State Program is Quest, which is run by American Century. A 529 Account is set up in the child’s name and yearly contributions can be made. Quest provides choices from investing aggressively through different levels down to conservative mutual funds to choose from.
Parents are given a tax deduction of $6,000 a year if married and filing jointly. Investment earnings accrue tax free and the withdrawal of all monies for qualified college education expenses are tax –free. Penalties are applied if monies are used for other than a qualified college expense.
Kansas also allows for parents to invest in any 529 Plan in the country and still receive the tax deduction.
2) A Coverdale Account also known as an Educational Account is an additional, college investment vehicle* that is a federal tax savings option.
This investment vehicle is independently set up by the owner of the account through a brokerage or a bank. There is an asset contribution limit of $2,000 a year per beneficiary for the purchase of stock, bonds, mutual funds, ETFs, etc.
Here, the donor must qualify within a certain income qualification. All monies and investment earnings accrued are tax free as long as used for qualified college expenses.
3) Finally, U.S. Savings Bonds can also be very, helpful in saving for college. The Series EE or I Bonds can be purchased by the parents or anyone for that matter except the person who is using the bond for college. The beneficiary of the bond cannot be listed as an owner or co-owner but their name may appear as the beneficiary on the bond. All interest earned by the bond, is tax free for college but is limited to tuition and required fees by the college.
Any monies used from a 529, financial aid or Coverdale account monies are counted first toward the qualified expenses* before applying the bond interest for tax free purposes.
*investment vehicle: a way to invest
*qualified expenses: qualifies for not getting taxed
This article is published on KansasMoney.gov. Find more information by contacting these state agencies: