Prepare Early for College

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Prepare Early For College

Christine Selzer

Special To The Dispatch

OCEAN CITY – The cost of a college education weighs heavily on parents today.

To help parents meet this mounting challenge, many states offer college savings plans that encourage investment by offering significant tax advantages.

State-sponsored college savings plans, also known as Internal Revenue Code Section 529 plans, help families pay both college tuition and room and board, as well as other expenses. Each state designs its own plan, so you’ll need to evaluate each state program.

You can contribute up to the maximum set by the plan, and the assets can grow tax deferred until withdrawn. When withdrawn for higher education expenses, the earnings are taxed at the child’s rate, which most often is 15 percent. Some states exempt earnings from state taxation.

Each state sets a limit for lifetime contributions to an account. Many states have set generous limits of over $ 100,000 per beneficiary. The assets in most college savings plans can be used for almost any accredited post-secondary school in the country, including public or private, community, graduate or vocational- education schools.

In general, anyone can contribute to a state-sponsored college savings plan, regardless of income level or age of the beneficiary. Most plans have no residency requirements and are open to anyone in the United States. You can open an account for a wide range of people, including children, grandchildren, nieces or nephews.

Since these plans require investment management and administration, states often select financial firms to manage their programs. Often, contributions are invested in portfolios of investments that range from conservative to aggressive strategies. Since funds cannot be moved by the account holder once invested, you may want to make sure that the plan you choose offers flexible investment portfolios with many choices.

If higher education may be in the future for your children, grandchildren or other loved ones, talk with your financial consultant about participating in a state- sponsored college savings plan today. Because the assets have the opportunity to grow tax- deferred, contributing the most you can now makes sense for many people.

(A Merrill Lynch Senior Financial Advisor. She can be reached at 410-213-8520.)

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