529 College Savings Plans

by Lucy Schrader

 

If you are looking to save for your child’s college, a 529 plan can be a place to invest.  Following is some general information about the 529 plans and information about the Missouri MOST 529 plan and their matching grant program (if you qualify and get approved, your contributions can be matched dollar-for-dollar, up to $500 per year for a lifetime maximum of $2,500).

 

Many 529 plans offer easy ways to enroll and low minimums to contribute.  For example, in one plan you can open an account with $25, and you can make future contributions with a minimum of $25.  Grandparents, relatives and friends can make contributions to the 529 plan, too (which can make great birthday or holiday presents).

http://www.savingforcollege.com/intro_to_529s/what-is-a-529-plan.php

 

Saving for College and Missouri MOST give the following information:

529 plan history

A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future higher education costs at eligible 2- to 4-year colleges, postgraduate programs, or secondary trade and vocational schools.

Funds from a 529 plan cover qualified education expenses such as tuition and books, plus certain room and board fees. It is named after Section 529 of the Internal Revenue Code.

State plans can be used for out-of-state colleges

529 Plans can be used to meet costs of qualified colleges nationwide. In most plans, your choice of school is not affected by the state your 529 savings plan is from. You can be a CA resident, invest in a VT plan and send your student to college in NC. Check to see if your institution is eligible under 529 rules.

Which states offer 529 plans?

Every state now has at least one 529 plan available. It's up to each state to decide whether it will offer a 529 plan (possibly more than one) and what it will look like, meaning 529 plans can differ from state to state. You should research the features and benefits of your plan before you invest, research state 529 plans and even compare between plans.

Tax Benefits

As long as the plan satisfies a few basic requirements, the federal tax law provides special tax benefits to you, the plan participant. See the top 7 benefits of 529 plans. Some states (but not all) offer tax incentives to investors as well. Research your state's tax treatment.

 

For the Missouri MOST 529 plan, you can get federal and state tax savings.  Earnings are exempt from federal and Missouri state income tax when used to pay for qualified higher-education expenses.** (Withdrawals may also be free of state income tax for residents of other states.) Missouri taxpayers can deduct up to $8,000 in contributions ($16,000 if married, filing jointly) in computing Missouri adjusted gross income each year.***

 

** Earnings on nonqualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements.

 

*** Contributions to the plan in a tax year are deductible from Missouri state income tax up to certain limits, but may be subject to recapture in subsequent years if you make a nonqualified withdrawal.

 

Missouri MOST 529 plan and their Matching Grant Program

The Missouri MOST 529 plan currently offers a matching grant program (https://missourimost.s.upromise.com/content/planbene_grants.html).  If you qualify and are approved, your contributions will be matched up to $500 per year (for a lifetime maximum of $2,500).  You must reapply each year.

How do I qualify?

• Applicant must be a parent or legal guardian of the beneficiary.
• Both you and the beneficiary must be Missouri residents.
• You must be the account owner of a MOST 529 Plan account.
• The beneficiary must be 13 or younger (when you are first approved for the matching grant).
• Your household Missouri adjusted gross income must be $74,999 or less (see chart below).

How does the program work?
If you qualify and are approved for the program, contributions to your MOST 529 Plan account will be matched dollar-for-dollar, up to $500 per year. There is a lifetime maximum of $2,500, and account owners are required to reapply for the program each year.

Details of the match are shown in the following table:

Household Missouri Adjusted Gross Income	Match Rate	Maximum Match per Year	Lifetime Maximum Matching Grant
0 to $74,999	$1 for each $1 contributed	$500	$2,500

How can I apply?

• Read the Matching Grant Program Instructions.
• Download and complete a MOST Matching Grant Program Application.
• Mail your application and required materials (to the address listed on the application) between March 1 and June 30.
• You'll be notified by August 31 if your application is accepted.
• If approved, matching funds will be applied in January based on the previous year's contributions.

 

As you save for college, small amounts add up over the years and make a difference!

 

For more information

Missouri MOST 529 plan

https://missourimost.s.upromise.com/content/home.html

 

Saving for College

http://www.savingforcollege.com/intro_to_529s/what-is-a-529-plan.php

 

Lucy Schrader
HES Associate State Specialist and
Building Strong Families Program Coordinator
University of Missouri Extension
162 Stanley Hall
Columbia, MO  65211
573-882-4071
SchraderL@missouri.edu

 

The most important investment...

We spend a lot of time writing and talking about financial issues.  Investments, insurance, budgeting, credit, taxes all are important.   None, however, are as important as the investments we make in ourselves, our human capital, which allows us to earn money and reach toward the American Dream.

 

I recently read the article “Education and Synthetic Work-Life Earnings Estimates” published by the U.S Department of Commerce in September of 2011.  (The full article may be accessed here.)  It examines the earnings of workers, whether full-time and full-year or part-time and part-year, to see what characteristics make a difference in earnings ability.  To me, the most interesting table was Table 4, where a regression analysis allows us to see the “independent” effects of workers’ characteristics on their earnings.  The broad characteristics that were controlled are education, gender, race/ethnicity, age, citizenship, language and region of the country in which they reside. While not earth shattering news, it may just help one young person in our readership make a better choice in the future, if we summarize the findings.

 

First, there are regional variations in earnings, as the cost of living varies across our country.  While controlling for the other factors, workers in the Pacific and New England regions, on average, earn greater incomes.  Earnings increase with the age of the worker and reach a peak in the age category of 45-49 years old.  This familiar hill shaped age/earnings profile results from workers’ experience adding to their productivity when they are younger, only to be overcome by depreciation and obsolescence as they pass middle age and move toward retirement.  (For me, a soon to be 60 year old, this was hard to write.)

 

Unfortunately, civil rights questions remain in our labor market.  While holding educational level, age, citizenship, language and region constant, we continue to find males, on average making over $1,000 more each month, than their female counterparts.   Additionally, all non-white races make less than their comparable white neighbors.  Clearly, more work needs to be done to assure that our 21^st Century labor market provides equal opportunity to all.  To make a difference in labor market discrimination, those who can need to act to reduce discrimination across society.

 

As expected, greater levels of education enhance earnings.  Compared to a high-school graduate with the same characteristics on all other factors, those with higher levels of education earn more, with a professional degree having an average advantage of $63,643 per year.  Not surprisingly, those without a high school degree, earn over $4,000 less than those with a high-school degree.  A bachelor’s degree adds slightly less than $2,000 per month to the income of a household, when contrasted to an otherwise similar high school graduate. It cannot be said loud enough, or often enough, that the greatest equalizer in our country is education and, thankfully, it is something that is under the control of the one who seeks the education.

 

It is of interest to note a couple of other results.  One is quite intuitive, while the second quizzical in nature.  The greater the ability to speak English is found to increase average annual earnings or, rather, the inability to speak English lowers annual earnings.  This is quite intuitive, as communication is a key to working relationships and the dominant language in the United States continues to be English.  Not as intuitive is the result which indicates that those workers who are not citizens earn significantly less income (about $200 less per month) than do native-born citizens.  Surprisingly, at least to me, was the result that native-born Americans earn, on average, $100 less per month than a United States citizen who has become a naturalized citizen since arriving in our country.  Admittedly, this is not a huge amount of money but it does cause one to reflect on our new citizens.  They work hard in support of their freedom to seek financial success.  Their efforts need to be remembered by many of us, as a way to reinforce our continuing engagement with our country’s economy.