College Savings Plan

A College Savings Plan is a method of accumulating funds over a period of time to pay the educational costs of college for one or more individuals. The savings plan program can be designed in a number of different ways. It can be as simple as a savings account that the account holder deposits funds into over a period of time or it can be a special tax advantaged account which has authorization from the United States Internal Revenue Service. Pursuant to Section 529 of the U.S. Internal Revenue Code, an individual seeking to save for future college costs is permitted to create a “college savings account” for a designated beneficiary. That beneficiary must use the proceeds to pay for the costs of college tuition and the associated room, board and other expenses such as class fees, books and computer equipment. The attractive feature of this account is that the deposited funds are permitted to be invested in stocks, bonds, mutual funds or other investment vehicles. The proceeds from these investments are not subject to a federal tax levy and in most instances, state tax levies, if the proceeds are actually spent on the college expenses as authorized by the Internal Revenue Service. Both children and adults are qualified to participate in the the Section 529 program. Most states have their own version of the Section 529 College Savings Plan. The residency requirements for each State’s plan may vary.