The 529 College Savings Plan

Richard A. Feigenbaum and David J. Morton. The 529 College Savings Plan. (Sphinx Publishing, Napierville, Ill., 2002).



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Some have called the Section 529 College Savings Plan the most important financial vehicle since the 401(k) plan. This new type of account, named for Section 529 of the Internal Revenue Code, enables you to reduce your taxable estate while earmarking funds for the higher education of a child, grandchild, or anyone else. Moreover, earnings from the accounts are tax-free.

This highly useful book offers a step-by-step guide to this important new government benefit. The authors weigh the pros and cons of 529 plans, compare them to other savings alternatives like the Coverdell, and clearly explain such often-overlooked issues as tax consequences, how to change beneficiaries, and the impact on financial aid.

Each state operates its own 529 plan or plans, meaning that plan requirements vary somewhat from state to state. For this reason, nearly half the volume consists of a handy state-by-state summary of plans and plan managers.

One area the book does not address is the effect of 529 accounts on Medicaid eligibility. Although the grandchild (or someone else) may be the account's beneficiary, the account money is considered an asset of the account holder for Medicaid purposes. If the account holder requires nursing home care, the money may have to be withdrawn to pay for care, with penalties and taxes due on the withdrawn funds.

The authors are both financial experts. Richard Feigenbaum, an attorney, is the founder of College Savings Consultants, Inc., a consulting firm that assists corporations seeking to offer Section 529 Plans as a benefit to employees. David Morton is a managing director of Wachovia Securities in Boston, Massachusetts.

For more on Section 529 plans, click here.