Education Planning

Why Utah Has One of the Best 529 College Savings Plan

Last Updated (Tuesday, 07 October 2008 15:27)
Written by Scott Slater

A great way to save for either a child’s or grandchild’s college education is through a states’ 529 plan, and according to the investment research firm, Morningstar, we have one of the best right here in Utah. 

The Utah Educational Savings Plan has one of the lowest management fees of any plan and waves the $25 administration fee for Utah residents. Utah’s plan is so popular 80% of participants are non-residents.

The Utah plan allows contributions to grow both state and federal income tax free if withdrawn for qualified higher education expenses here in Utah or abroad. Another bonus for Utah residents, contributions are state tax deductible up to $1,620 ($3,240 filing jointly) per beneficiary.

Or instead of the deduction you could take a tax credit of $87 ($173 filing jointly). The beneficiary needs to be younger than 19 when the account is opened to take advantage of this perk.  You may also contribute up to $60,000 ($120,000 filing jointly) at one time without triggering gift taxes as long as you prorate that gift over 5 years.

529 plans remain under the donor’s control and can be transferred to another family member if the original recipient decides not to go to college. If the beneficiary dies or ends up being awarded a full scholarship the donor can transfer the funds to another qualified family member or withdraw the funds and just pay taxes on any earnings in the account.

Investment choices available can range from money market funds to mutual funds, but remember they are not guaranteed by any government entity as to their performance.  One last note, you can rollover series EE or series I savings bonds into a 529 plan and avoid paying any interest earned on those bonds. The rollover is considered equivalent to using the proceeds for qualified education expenses.

Scott Slater is an Associate of Brock and Associates, LLC, a financial planning firm that specializes in retirement, estate, and tax planning. Scott has professional knowledge of Utah's 529 College Savings Plans.