Space Coast Credit Union

College Savings
In order to aid families in financing the cost of education, all states now sponsor a college-savings plan. This program falls under Section 529 of the IRS Tax Code. This plan is beneficial in that it provides a vehicle to fund the high cost of education, and may also offer significant tax benefits.

Basically, a family would set up an account, choose their investment mix, and watch their earnings accumulate tax free. Once the child reaches college age, funds can be withdrawn tax free to cover expenses such as tuition, books, supplies, and room and board (subject to 2010 sunset provisions, unless extended by Congress).

One significant benefit of a state-sponsored college savings plan is that it can be used to fund education at any accredited college or university.

You might be asking yourself, what if my child decides not to go to college? If this occurs, there are three options available.

The first option would be to simply maintain the plan. Most people choose this option because eventually the child will decide to head out to college. The second option is to transfer the plan to another family member. Third, you may cash out the plan. Cashing out will more than likely incur an IRS tax penalty. Most states assess a penalty of 10 percent of the earnings on any withdrawal that is used for non-educational purposes. Federal penalties up to 10 percent may also be imposed. Should the recipient of the 529 Plan die or become disabled, no penalties will be incurred.