529 College Savings Plans:

The inflation rate for college has been running close to 10% per year so it is important to start saving as early as possible.

The 529 college savings plan is tailor-made for parents who want to help with college expenses. Named after Section 529 of the IRS code, 529s are investment plans sponsored by individual states and managed by an independent investment firm or state agency. 529 savings vehicles offer tax-deferred growth and distributions used to pay for qualified expenses such as tuition, room and board, mandatory fees, books, and required computers that are tax-free.

With 529s, the account owner, not the beneficiary, directs the use of distributions. As the 529 account owner, you can choose to change the beneficiary to another family member at any time. You can even take the money back at any time, for any reason. However, unqualified distributions are subject to income tax and a 10% penalty on the earnings.

Sound too good to be true? It gets better. In addition to being a problem-solving college savings vehicle, the 529 plan doubles as an estate planning tool. That’s because although assets in the 529 are in your name, the value of the 529 account is removed from your taxable estate. No other investment vehicle allows you to retain full control over the account, including the right to take the money back at any time, while reducing the value of your estate.

The 529’s flexibility as a college savings and estate planning tool means that it’s here to stay. Your only remaining worry might be that you stash too much cash in the plan. Remember, however, if the child you first name as the beneficiary doesn’t drain the plan, you can change the beneficiary to a another