How can a 529 plan be beneficial for the financing of college expenses?
There are two kinds of IRC section 529 plans: a prepaid tuition plan (PTP) and a college savings plan (CSP). A PTP allows parents to pay for college tuition presently and guarantees the purchase of up to four years of future tuition at current market prices. In contrast, a CSP provides participants the option to contribute to a portfolio of funds in order to use this investment to defray qualified college expenses. The earnings of the CSP are exempt from federal income tax when used to pay for QHEE, and any taxpayer can contribute—regardless of income level or relationship to the student. Contributions made to New York’s only 529 plan, a CSP, are allowed up to a maximum aggregate balance of $235,000 (www.nysaves.com). For gift tax purposes, an accelerated giving option allows for the funding of CSP plans in one year up to five times the 2006 annual exclusion of $12,000. Negative aspects of certain CSPs include high plan fees, which can result in this being a poor choice for short-term
