Retirement & Financial Planning Report

Most states now offer tax-sheltered college savings plans, under Section 529 of the Internal Revenue Code. Money that’s invested can grow, tax-deferred. When the money is used for higher education expenses, the income is taxed to the low-bracket student. Formerly, such plans guaranteed growth of principal to match increases in college tuition costs. New plans, which are becoming the norm, are actually managed investment funds. The new plans lack guarantees but there is the potential for returns higher than the rate of tuition growth (which has slowed in the past decade). That is, if the money is invested and earns 10% or 20% per year, that’s how your college fund will grow.