529 plans allow people to save for college and the costs of higher education. In MN this is called the “Minnesota College Savings Plan”. This flexible plan allows any U.S. citizen over 18 years of age to open an account on behalf of a beneficiary.
There are numerous benefits that go along with the College Savings Plan. There are no federal or state tax deductions for contributions to the fund. However, all of the account earnings are considered “tax-free investment income”, meaning they are not subject to federal or state income tax.
Any distributions for qualifying higher education expenses (including tuition, books or supplies are also tax free. Room and board is also permitted as an education expense if the student is enrolled more than half-time. If a non-qualifying distribution is made, the earnings are taxable at the state income tax rate for your tax bracket. Furthermore, federal law assigns a 10% penalty on earnings to dissuade non-qualifying uses of College Savings Plan accounts,
With a 529 plan it is possible to invest up to 14,000 annually without tax penalties, no matter what the net income of the investor is. The investor retains full control of the account and determines payouts. The funds can be used at many eligible public and private colleges worldwide. Even if the plan beneficiary does not choose an eligible college the funds can be transferred to another beneficiary, as long as he or she is a member of the previous beneficiary’s family.
College Savings Plans have a low minimum opening balance of only $25. Investors are required to contribute $15 to the account per pay period. The maximum account balance is $350,000 and there are very low annual asset based fees associated with the account. Investors are allowed to choose between 11 different investment options for their funds, all of which are managed by financial professionals.
To learn more about College Savings Plans, go to mnsaves.org