Archive for Thursday, August 10, 2006

Congress offers permanent break for college savings

August 10, 2006

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Before members of Congress left for their summer break, they gave parents and anyone else trying to save for a child's college education a welcome break.

Included in the Pension Protection Act - passed by the House and Senate and expected to be signed by the president - was a provision to give permanent tax-exempt status to 529 college savings plans.

This is a significant development for plans intended to help pay for the cost of a college education. Federal tax-exempt status had been scheduled to expire Dec. 31, 2010.

A 529 plan operates much the same way 401(k) retirement savings plans do. States, like employers, arrange for an investment company - in Kansas, it's American Century - to set up and manage their 529 savings plans. Each plan can have a number of investment options.

There are two types of 529 plans: prepaid tuition plans and savings plans. A prepaid tuition plan allows people to pay a child's tuition in advance. The more popular savings plan allows people to invest in a tax-free investment account.

Although the 529 plans are sponsored by states, you can invest in any plan regardless of where you live.

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