January 17, 2002

North Dakota’s 529 College Savings Plan

The cost of a college education is one of the most daunting financial burdens many parents face. Recent federal legislation has created several tax-favored incentives that will help lighten that burden. One particular program is known as the Section 529 Savings Plan or Qualified Tuition Program.

Section 529 Savings Plans are state sponsored mutual funds that are governed by section 529 of the Internal Revenue Service code. "Many financial planners think 529 savings plans for college could be as popular as the 401(k) is for retirement savings plan," says Debra Pankow, NDSU Extension Service family economics specialist. "All section 529 money used for higher education will grow tax deferred, and be exempt from federal income tax and, in many cases, state taxes when withdrawn."

North Dakota, along with other states, has adopted it’s own 529 savings plan, with the goal of assisting parents and students who are thinking of attending a higher education institution. "The State of North Dakota and the Industrial Commission in particular did an excellent job of sending out letters in September informing all citizens about the college savings plan.", says Pankow. " There are a lot of baby boomers who were raised in an environment where parents helped their children go to college. Their children are now approaching college age and the savings rate for Americans is at an all-time low. Today’s parents may not be able to afford lump-sum tuition payments at the same time they are faced with planning for their own retirement, so they are looking at alternatives such as the savings plan.

There are some guidelines. In North Dakota’s college savings plan, you may contribute as little as $25 a month, but to remain in the plan you must have contributed $300 the first year of your plan. For a maximum, an individual could set aside up to $10,000 per year, and up to $20,000 for a married couple in a college savings plan.

"It is important that everyone understands that the window of opportunity is a ten year beginning in January 2002 to set aside money, and the beauty of the 529 savings plan is that you can use it for books, tuition, fees, and room and board.", Pankow says. "If you set aside money for a child and he/she doesn’t go to college you can choose another beneficiary. The money is intended for higher education but there is a unique level of flexibility as to who can use the money, when they can use it and which educational institution they attend."

With planning and careful consideration, a Section 529 Savings Plan may be the answer you have been looking for, Pankow says. Parents, grandparents and other relatives of pre-school and school aged children should consider the tax favored benefits offered by such plans.

I you are interested in the 529 College Savings Plan, contact your local extension agent or contact Debra Pankow, North Dakota State University Extension family economics specialist, at (701) 231-8593 for more details.

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Source: Debra Pankow, (701) 231-8593, dpankow@ndsuext.nodak.edu
Editor: Richard Mattern, (701) 231-6136, Richard.Mattern@ndsuext.nodak.edu
Writer: JJ Camarillo, (701) 231-8371, Camarillo45@Hotmail.com

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