NEW YORK (AP) -- You could easily describe Joseph F. Hurley as passionate about Section 529 college savings plans. He has invested in programs in 20 different states for his two children, Megan, 14, and Christopher, 10.
Hurley, a certified public accountant from Pittsford, N.Y., admits that most of the accounts were opened to help research his book, ''The Best Way to Save for College -- A Complete Guide to Section 529 Plans,'' and his Web site, www.savingforcollege.com, a guide to these sometimes complex state-sponsored savings programs.
''The average family needs only one or two'' of the savings plans, Hurley readily admits. ''But I definitely feel comfortable committing my funds to all these programs. And all families interested in saving for their children should, too.''
Section 529 plans -- named for a section of the Internal Revenue Service tax code -- have been around for more than a dozen years. But they moved to front and center as a favored college savings regimen after the Taxpayer Relief Act of 1997 broadened the range of schools they can be applied to and the kinds of expenses that can be paid, including room and board. The 1997 act also cleared the way for $10,000 gift contributions that have become popular with grandparents.
There are a great variety of 529 programs, some with catchy names: EdVest in Wisconsin, New York's College Savings Program, the Texas Tomorrow Fund, California's Golden State ScholarShare Account and College Illinois!
They come in two basic varieties, prepaid tuition plans and savings plans, and 44 states offer one or both, Hurley said. He estimates assets at about $8 billion and adds, ''we believe that will grow at a pretty good clip.''
Under prepaid tuition plans, parents essentially lock in today's tuition rates. The money they contribute, whether a lump sum or monthly installments, is invested by the state with the goal that it will grow to cover future tuition at the state's eligible colleges and universities.
Savings plans are more flexible, allowing parents to save money in special accounts that generally offer a variety of mutual fund options through big investment houses such as Fidelity or TIAA-CREF.
Both grow tax-deferred, and distributions are taxable at the receiving child's income tax rate, which is generally much lower than his or her parents. Unlike other college savings programs, the account remains in the name of -- and control of -- the parent until funds are withdrawn for school.
''The thing that's most confusing to the public is the belief that they have to invest in their own state's 529 plan,'' said Mark Schlafly, vice president of managed products at A.G. Edwards & Sons Inc. of St. Louis. ''In reality, you can purchase any state's 529 plan.''
A.G. Edwards distributes the plans developed by Ohio, Rhode Island and Wyoming, but advisers in its branches nationwide can deal with other plans, too.
''Families need to check if there's anything specific to their home state's plan that might give them an extra benefit,'' he said. In Missouri and some other states, for example, you can claim your contributions as a deduction on state taxes. ''But even if there's a benefit, a family may want to go elsewhere because there are better investment options.''
Mike Saliba, director of 529 savings programs for Mercury Funds, a division of Merrill Lynch in New York, sees the 529 programs as ''great savings tools'' that can be launched with deposits of as little as $50.
''The message for parents -- and grandparents -- is that this should be part of their overall financial plan if they have children, much like the 401(k) or IRA should be for personal retirement,'' Saliba said.
Mercury Funds manages the GIFT Plan in Arkansas and the College Achievement Plan in Wyoming. Under those plans, an aggressive investor can choose to put 100 percent of his money in equity funds, while a conservative might select 100 percent bond funds.
''But the choice of a lot of families is what we call an age-tailored portfolio, which is a diversified mix of mutual funds,'' Saliba said. ''It's heavier toward equities when the child is young, but gets more conservative as the child gets closer to starting college.''
Rhode Island's CollegeBoundFund, administered by Alliance Capital in New York, offers one of the highest investment limits in the country at $246,000 and a variety of aged-based as well as equity and bond funds.
''We're seeing increasing interest in contributions by grandparents, who can give $10,000 a year tax free to their grandchildren,'' said Thomas McConnell, vice president for 529 programs at Alliance Capital. Tax law also allows contributions of up to $50,000 to be amortized, for tax purposes, over five years.
Further details on the 529 programs can be found at www.collegesavings.org, run by the National Association of State Treasurers in Lexington, Ky.
End adv for use anytime
Peninsula Clarion ©2015. All Rights Reserved.