• Diane L. Young, President

School Bells are Ringing

School bells are ringing around the state and parents are cheering as their youngsters go back to class. This also means that kids are one year closer to potentially going to college. Have you done enough to help save for college? With tuition outpacing inflation, it is important for families to save as early as possible. In fact, it can be a family affair, with grandparents, godparents, aunts and uncles helping too. A popular way to save for college is a 529 plan. In Michigan, we have a few to choose from. One that is done directly with the investment company and one that can be handled with an advisor if you need a little more hand holding through the process. You can put money aside into this plan for anyone, including yourself and it will grow tax deferred and can be taken out without taxes as long as it is used for higher education expenses. If the kid decides not to go to college, you can change the beneficiary to another child or, worse case, take the money back for yourself. You will pay a penalty of 10% on the growth but depending on how long you have had the money invested, the tax deferred nature may outweigh the penalty. One of the reason’s I prefer the 529 plan to other savings structures, is there is a lot of flexibility in the plan. Not only can tuition be taken out as a covered expense, but room and board, books, and even expenses related to overseas programs. The only thing it doesn’t cover is transportation. So if your child is studying in France for a semester, you can use your 529 plan for everything except the airplane and train passes. Currently, $235,000 can be set aside for a Michigan student. The includes ALL money in a 529, so if multiple people are saving for the same child, they should coordinate to ensure they are not putting too much in the plan. In addition, Michigan, has a tax deduction available for its plans. If a couple puts $10,000 away for their children ($5,000 for a single filer), it will go against their Michigan taxable income. This is a very attractive option for families trying to lower their taxes, and can be a great way for Grandparents to minimize their tax burden here in Michigan. There are over 35 states that offer 529 plans so you can pick and choose which one you like best since each is run by a different investment group. However, the tax deduction offered by Michigan is only good on its in-state 529 plan. So Moms and Dads, after you wipe away a tear of sadness (Or joy) as your little one’s board the bus, head over to your computer and start researching your college savings options. You will be sending them off sooner than you think.

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