There is at least one place, however, where our being at the tail end of things is an advantage. South Dakota was one of the last states to set up a 529 college savings plan. Because we were able to benefit from the experience of other states, we have one of the best-designed plans in the nation.
A 529 plan is an investment plan, operated by a state, designed to help families save for future college costs. Plans can be set up by parents, grandparents, siblings, aunts and uncles, or other relatives. Contributions to the plan are not tax-deductible, but no federal tax is due on any funds—including earnings—that are withdrawn to pay for college. The money can be used for tuition, books, and room and board, and can be used for any accredited college in any state.
One big advantage to these plans is their flexibility. If you have established a 529 plan for a child or grandchild
A second advantage is that the donor retains control over the plan’s assets. Suppose you have a plan for a grandchild, who, at age 18, decides to join a cult instead of going to college. You retain the right to decide what to do with the kid’s 529 plan. It isn’t automatically handed over to the beneficiary to end up in the pockets of the Guru of the Fly-By-Night Temple.
Or suppose over the years you have put away a little money in 529 plans for your kids. Then you develop a debilitating illness and will be unable to work for several months. You can withdraw that 529 money yourself, paying a relatively small penalty of an extra ten percent tax on only the interest portion of what you take out.
Because of the many benefits, I’ve even had one or two clients set up 529 plans to fund ongoing education for their adult children. If the children choose not to use the accounts themselves, the plans can be rolled over into new accounts that give them a head start on college savings for their own children.
The current minimum for opening an account is $250 for South Dakota residents, with subsequent contribution amounts as small as $50. The upper limit is $325,000 on the total balance per account, which isn’t likely to be a problem for the average donor.
To find out more about South Dakota’s 529 plan, talk to a financial advisor, check out the website at collegeaccess529.com, or call toll-free at 866-529-7462.