Archive for Thursday, August 10, 2006

Congress offers permanent break for college savings

August 10, 2006


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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