Section 529 Plans
Section 529 plans are named after the tax code that governs them. Almost all 50 states offer the plans, and rules vary by state. In many cases, you don't have to be a state resident to take advantage of them; in fact, you can invest in multiple 529 plans in multiple states, if desired. There are two types of 529 plans.

College Savings Plans
Generally, college savings plans offer tax-deferred earnings¹; since 2002, distributions from qualified state tuition plans are excludable from gross income if used to pay for qualified higher education expenses (some states offer tax exemptions and deductions, so check around). Depending on the state, maximum contribution amounts range from a low of $100,000 to over $250,000. The account owner keeps control of the assets; for gift tax purposes, he or she can contribute up to $11,000 per year without any gift tax consequences. Under a special gift tax rule, he or she can make a single contribution of up to $55,000 ($110,000 jointly) and treat the contribution as if it was made over a five year period. You give up the right to manage the money, though; a portfolio manager invests in 8-10 funds. Returns are not guaranteed and are subject to market risk. Other unusual 529 plan details include: You can name yourself the account owner and beneficiary in planning for your own educational expenses. (You can also withdraw funds for non-educational expenses, but the earnings are subject to income tax, and a 10% tax penalty applies.) You can also rename beneficiaries. Also, some states let the account owner be a friend as well as a relative. Some states offer tax deductions to residents who contribute to their 529 plans. Keep in mind that there are fees and expenses associated with 529 plans that you should take into account before choosing a 529 plan.

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This material is being provided for informational purposes only. Neither New York Life nor its agents provide legal, tax or accounting advice. Please contact your own advisors for legal, tax and accounting advice.

¹The tax bill exempting earnings on qualified withdrawals from federal income tax expires on 12/31/2010, requiring the government to take some further action to secure these provisions prior to this date in order for them to remain in effect following 12/31/2010. State tax treatment varies.

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