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For many parents, saving for a child's college education is thought to be as important as saving for their own retirement nest egg. Unfortunately, the biggest mistake parents make in saving for college is putting it off until the "extra" funds are available. Obviously, the longer you wait to start saving for college education needs, the more money it will take to achieve your ultimate needs.


The 529 College Savings Plans offer a multitude of flexibility and are thought of as one of the best ways to save for future college education costs. These plans are sponsored by individual states and generally invest contributions in predetermined portfolios geared to the child's age and timeframe to college entry. There are four primary advantages shared by all the state sponsored plans.

·         Tax free investment income: Tax-free growth within the plan as well as tax-free withdrawals from the plan are possible provided the funds are used for "qualified" educational expenses.

·         State income tax benefits: Most states follow the same tax-free treatment that the federal government allows. In addition, some states offer additional tax savings opportunities for residents of the respective states.

·         Plan to plan transfers: Most plans allow account owners to transfer from one state plan to another. However, be cautious of potential adverse state tax consequences.

·         Control: The account owner maintains control over the plan assets. The 529 plans may offer gifting and estate planning opportunities as well.


The 529 plans can work well for the early adopters and the procrastinators. As always, it is certainly advisable to consult with your financial advisor before you start a 529 program. Your Rea advisor would be happy to discuss with you the benefits of the various state sponsored 529 plans.


 -By Jim Fracker, CPA (Cambridge office)


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