I am a big fan of planning for the future and when new children are born we often think more about planning for their and our own future. I want to discuss the possibilities of 529 plans (usually called qualified tuition programs by the IRS) as part of that planning. 21 percent of all Americans have taken some college courses. Where I live the percentage is among the highest in the country at over 50%. Right now 63% of high school graduates go directly to college. A substantial number of people are now going to college well after high school. So there is a fairly high chance that one or more of your children or grandchildren will participate in some level of higher education.
We all know that college costs are unreasonably high and to pay for college you should do some advance planning. While there are many ways to put money aside for college, there are few as versatile as 529 plans.
The basic concept is simple. You put money in this plan which earns income tax free . The plan is for the benefit of a specific individual. Here are a few of the benefits of 529 plans:
• Funds earn income tax free.
• Distributions are not taxable as long as they are used for the beneficiary’s qualified educational expenses
• There is a state tax deduction when the contribution is made in many states.
• The funds remain in your name and under your control.
• If the beneficiary gets scholarships, you may transfer the funds to a different beneficiary like a sibling or a different grandchild. If the beneficiary gets scholarships you also have the option of withdrawing the funds and paying tax on them but no penalty.
• If the beneficiary does not go to college, you may transfer the funds to a different beneficiary, or continue to save it for the beneficiaries children, or cash it out and pay taxes but no penalty as mentioned above.
• If the money is put in a plan by a grandparent who controls it, when the child is 18 and has to fill out financial aid forms, the FAFSFA forms do not require them to list the 529 as a resource. (It may be required for some other programs or applications).
• You can contribute up to $13,000 per person for each beneficiary each year up to a total of $100,000 to $335,000 or up for each account depending on your state.
• Anyone can contribute to the account.
• There are no income limitations.

So you can see there are good reasons to put some of the funds you were planning on saving anyway into 529 plans for children or grandchildren and in several cases it may be even more advantageous for grandparents to put money into 529 plans than parents. If you think there is a chance your any of your children or grandchildren may go to college, you should consider several options for saving and paying for their college with 529 plans taking a high priority in those options.