529 Plan and College Savings

Question: Investing in Child’s education?

I would like to invest in my child’s education. Would it be smarter to invest in a 529 Plan or savings bonds? Is there a significant difference between the two? Are there other options out there that I should look into before making a decision? I got info in regards to a 529 Plan, but does anyone know how it specifically works in Michigan and if there are tax benefits by keeping it in Michigan vs. going through another state?

Answer: I think it would be good to diversify. Invest in some Education Savings Bonds and have either of the following as the main investment:

1. Coverdell Education Savings Account (ESA) – a trust or custodial account created or organized in the United States only for the purpose of paying the qualified education expenses of the designated beneficiary of the account. This benefit applies not only to higher education expenses, but also to elementary and secondary education expenses. What is the tax benefit of the Coverdell ESA? Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed.

2. 529 Plan a.k.a Qualified Tuition Program (QTP) – What is the tax benefit of a QTP? No tax is due on a distribution from a QTP unless the amount distributed is greater than the beneficiary’s adjusted qualified education expenses. Even if a QTP is used to finance a student’s education, the student or the student’s parents still may be eligible to claim either the Hope credit or the lifetime learning credit on their Federal income tax return.

Indiana State Treasurer Richard Mourdock

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