Would you like some extra help with saving for your child’s college education?
It’s a pretty safe bet that the cost of sending a child to a Georgia college or university will continue to rise dramatically. Parents will need all the help they can get with financing the costs of college when little Mary or Johnny enrolls. There is a program in Georgia that will add a bit of a “kicker” to your savings. It’s called the Path2College 529 Plan. All other states have similar plans.
Section 529 in Internal Revenue Service Code defines certain qualified tuition programs available under federal law. Created in 1996 by Congress, and later modified, these plans provide a college savings vehicle that has federal income tax advantages. And, the State of Georgia has made its plan even more attractive by offering state income tax advantages.
Think of a 529 plan as something like a Roth IRA for college. Earnings accrued on investments within the plan are not taxed and subsequent withdrawals are not taxed as long as they are applied toward qualified college expenses. However, you cannot take a deduction for deposits you make to the plan. On the other hand, the State of Georgia does allow you to deduct up to $2,000 per year per beneficiary from income reported on your Georgia income tax return for deposits made into the Path2College 529 Plan.
Georgia’s plan is administered by TIAA-CREF Tuition Financing, Inc. Several investment options are offered that allow you to choose your preferred risk-reward strategy. For the risk-averse saver, very conservative options are available but they have low return opportunity. When your child is young, you might consider selecting an option that includes at least some equities in order to obtain a potentially better return. Some of the options automatically become more conservative as the child approaches college age.
A couple of points worth noting are:
- Your child does not have to attend a college in Georgia.
- You don’t have to use Georgia’s Path2College 529 Plan as your 529 vehicle. You can invest in plans offered by some other states if you wish. For example, the plan offered by Utah has received high marks. (If you choose another state’s plan, you lose your Georgia tax deduction.)
Like any investment vehicle, there are a number of factors to be included. You’ll need to do your research to make sure you understand all the rules, the advantages and the disadvantages. Here are some reference sites to help you along:
- Georgia Path2College 529 Plan
- IRS.gov 529 Plan Questions and Answers
- College Savings Plan Network (good site to compare state plans – compare fees charged)
- CBS MoneyWatch “10 Cheapest and Most Expensive 529 Plans”
- Think twice before putting cash for college in your child’s name