A Look at Mississippi’s 529 College Plan

What is a 529 plan, and how can it help bring your children closer to their educational goals? As a college savings vehicle, state managed 529 college plans are a relatively new option, and many parent have not yet taken advantage of what they can do for their children.

Here is some information on what you need to know about a 529 college savings plan, including what the state of Mississippi can offer your family in the way of 529 college savings plans.

What Are 529 College Savings Plans, Anyway?

The development of 529 college savings plans are relatively new, although most states now have some kind of 529 plan in place. A 529 college savings plan is essentially a special state managed college savings incentive program. The 529 plans were put in place to help parents save money for their college education. There are many things to take into consideration before you begin to invest in your state’s 529 college savings program.

When You Choose a 529 College Savings Plan . . .

Most importantly perhaps, you should keep in consideration the amount of time that your money will be invested in the 529 college savings plan. Other important factors to consider includes you family’s income tax bracket, the fees and charges that are loaded into the plan, the type of fees that are involved, the amount that you will be investing, and they types of income tax deductions that may be available to you if you open a 529 savings plan. Be on the look-out for fees. Even a small difference in fees can make a substantial difference.

Other Important Considerations

When you have decided that a 529 state savings plan is right for your family, you will find that there are still other considerations to be made. One of the most prominent features you will want to focus on is the state tax benefits that may accompany the 529 plan you are considering. Ask about the kind of special tax benefits that will be offered to you as a result of investing in a specific 529 plan. Will your state allow deductions of all or part of your earned interest?

The Mississippi 529 Plans – The MACS Option

The state of Mississippi offers two options that allow you to save for college. Families can choose to invest in either of these section 529 plans, or both of the plans if they so wish. Both of these plans were designed to help families save and plan for their children’s higher education opportunities and expenses. The first plan is known as the Mississippi Affordable College Savings Program, also known as MACS.

The MACS program lets families save for all qualified expenses. Under this section 529 savings plan, qualified expenses refer to tuition rates, fees, room and board expenses, and books. While you don’t have to be a resident of Mississippi to take advantage of the MACS program, Mississippi taxpayers can receive up to $10,000 in state tax deductions.

Your Second Option – The Mississippi Prepaid Affordable College Tuition Program (MPACT)

The MPACT program is described as a prepaid college tuition program. It allows families to pay full tuition along with mandatory fees at any public institution of higher learning in the state of Mississippi without having to worry about the rising costs of education.

In effect, parents can pay the current cost of tuition so that it will be paid off while their students reach college age. However, the MPACT program only covers tuition rates. It does not cover the expenses associated with room and board, books, transportation, or other college related costs.

The Pros and Cons of the Coverdell ESA for College

As you’re setting up investment plans for your child’s college, it’s smart to be aware of the pros and cons of the Coverdell ESA for College. This educational savings account is a very attractive savings plan for many people. Let’s take a look at some of the negatives and positives of this program and so you can see if it’s a fit for you.

Pro- The Coverdell Education Savings Account can be self-directed with a wider array of investment products available than a 529 plan. The account can be placed in almost any sort of investment. Typically, stocks, bonds, bank CDs, mutual funds and unit investment trusts. No part of trust assets may be invested in life insurance contracts.

Pro- The Coverdell funds are available to finance elementary and secondary school, not just college. This includes items such as tuition, fees, tutoring, books, supplies, room and board, uniforms, transportation and computers.

Pro- Earnings accumulate tax-free. Qualified distributions are exempt from federal income tax. Please note that contributions are not deductible on federal or state income tax.

Pro- Corporations may contribute. This even includes tax-exempt organizations. Regardless of income level, corporations may contribute to an individuals Coverdell account.

Pro- People can contribute to both a Coverdell account and a section 529 plan in the same year. Note that there may a gift tax implication if you give more that $12,000 per beneficiary.

Con- Contributions to the Coverdell ESA are limited to $2000 per beneficiary per year. Here’s an example, you have a son and a daughter that you want to contribute $3500 into Coverdell accounts for. You deposit $2000 to your son’s account and $1500 into your daughter’s.

Their grandmother wishes to add another $1000 but she is only allowed to put $500 into your daughters account as the $2000 limit has been reached. At $2000 a year, it would be tough to have this be your entire college savings plan.

Con- Contributions can only be made until the beneficiary reaches age 18. This may be a non-issue with some families but a 529 plan would allow you greater flexibility. There are no age restrictions for special needs beneficiaries.

Con- The money must be used by the time the child reaches the age of 30. If the funds are not used, the earnings will be taxed as ordinary income plus a 10% penalty.

Con- There is less flexibility in changing beneficiaries in a Coverdell ESA. Coverdell plans are considered permanent gifts. You cannot open up an account for your child and take back the money for your own use. Typically, the parents are responsible for the account until the child reaches 18. Then, the beneficiary usually takes control of the account. There is some ability to change beneficiaries.

Con- The Coverdell ESA is not eligible for the state tax deductions available for some 529 plans. The available 529 state tax deductions vary from state to state. Of course, a tax deduction is not the only reason to select an investment.

Con- The contribution limit is phased out for contributors with an adjusted gross income between $95,000 and $110,000 for single people and between $190,000 and $220, 000 for joint filers. A clever way around this con if you’re in this income bracket is to give the money to your child and let her open a Coverdell for herself.

After looking at the pros and cons of the Coverdell education savings fund, you can see if this is a wise investment for your child. The items that have been identified as cons are non-issues for many people. Coverdell is a good investment overall for most families. Talk with your tax profession and see if it’s right for you.

Important Steps to Take when Saving for College

It’s time to look at some important steps to take when saving for college. The time to save is right now. It’s never too late to state a plan. Consider these tips for education savings.

Step 1. Start early. The sooner you start saving, the less you’ll need to save each year to reach your goal. The day your child arrives is not too soon to begin saving! You can take advantage of investments that promise greater returns. You can take advantage of volatile investments that are too risky for short-term college savings.

Step 2. Set up a budget. You should make a savings goal. Look at the Internet for a college cost calculator to get a rough idea of what you need to save. Then figure out how much you can put away each month to reach this goal.

Step 3. Save regularly. Get into the habit of investing a set amount of money monthly. This will set the habit of education future planning. Not a good saver? Have an automatic payroll deduction made or an automatic deposit withdrawn. This way the money is out of your checking account before you can use it.

Step 4. Use professional assistance. That’s what they’re there for. Unless you are a financial wizard yourself, talk with an experienced accountant, financial advisor or lawyer. Ask what they are doing for their children. It helps to know that your advisor can personally relate to your college savings strategy.

Step 5. Think about a 529 plan. Even if you haven’t started saving as early as you had planned a 529 plan or even a Coverdell ESA are still useful. The 529 plans offer many tax advantages. Your money will actually grow in a tax-deferred style and if your withdrawals are qualified, they will be exempt from federal income tax. Many states even give tax deductions from state income tax. Check with your state’s 529 provider for more details.

Step 6. Save in the parent or guardian’s name, not the child’s. This minimizes the impact of the fund on need-based financial aid. Also, this will prevent an irresponsible child from using their education savings fund or 529 for non-qualified purchases.

Step 7. Diversify your investments. For example it is better to invest in mutual funds than just stocks. Mutual funds spread out the risk over many stocks, which can prevent the drop in value of one stock from ruining the value of your whole portfolio. Or invest in both stocks and bonds. A good plan would be to have a mix of high and low risk investments.

An age-based 529 savings plan is a simple way to balance your portfolio. Younger children have a higher percentage of high-risk investments than older children. As children are just a few years from college, an age-based 529 plan would have almost all funds invested in low risk investments.

Step 8. Be flexible. A great new college program may be available just a few short years from now. Tax laws will change and your income circumstances may change, too. Review the steps you’re taking from time to time and be willing to make adjustments.

If you find that the assumptions behind your investment plan are not correct or your tolerance for risk has changed, you may need to change your investments. Don’t sell an investment just because the market is low; sell because of how the investment is predicted to do in the future.

There are so many important steps to take when saving for college. Any money you are able to tuck away today makes the road to college that much smoother for your child.

States that Come Close to the 5-Cap Rating with 529 Plans

As your looking at plans, it’s a good idea to know about the states that come close to 5-cap rating with 529 plans. Let’s face it, the smartest thing you can do is pick the very best plans for your money. Ratings are assigned to each states program ranging from 1-cap (not very attractive) to 5-caps.

The cap system is based upon opinion and is not a formula. Different people might weigh these items differently. Case in point, some plans have different age requirements that affect their ratings. If your child meets these age requirements, this would be a non-issue.

The cap rating system prefers 529 plans that are flexible. You want a plan that easy rolls over to other state plans with no penalties and gives you freedom to change beneficiaries. It’s best to be able to have high maximums and low minimums with wide eligibility for owners and beneficiaries.

When it comes to liquidity and availability, you want to be able to use the account immediately for college expenses. It needs to be easy to deposit and withdraw from the account. Also, the ability to take out monies for items other than education without the account being closed is important.

To score high caps, the owner should be in control of the account. This means their ownership rights include being able to transfer ownership at any time and be able to name a new beneficiary in case of death.

The states that score the most caps back up their programs with additional state level benefits. In these states, there are things like state tax deductions for contributions and exemption for college used earnings. You may find exclusion of 529 accounts when you are applying for state financial aid. And of course, some states offer some great extra perks like loan programs and matching grants.

Another important scoring point is the state’s approach to investments and safety. The name of the game is lots of choices. It’s great to find well-designed investment plans and high rated portfolios. Low fees and expenses as well as age-based discounts on pre-paid tuition are key. The 5-cap states guarantee of pre-paid tuition contracts and downside investment protection.

Program resources need to have thorough and complete program materials including web site access. Having a call center is not enough; you need people there that are excited and knowledgeable about 529 plans. Finally, the cap ratings prefer successful efforts to gain favor from the IRS regarding status as a 529 plan.

The 5-cap rating is not based solely on historical returns. It does not predict the risk levels or predict future investment performance or how solvent the program funds are. This is just a measure of how useful the state’s 529 plan is based on the discussed factors.

The 5-cap programs offer great flexibility, attractive investments and benefits such as state tax breaks. These factors can add volume to your savings. In the 5-cap program, you will find very few weaknesses. Even a program rated 3-cap offers some very good benefits but may have some concerns that you need to research.

Now that you are refreshed on the positive aspects of the 5-cap rating, which states come close? The eight having plans for residents that are rated 5-cap are Alaska, Maryland, Michigan, Ohio, Rhode Island, South Carolina, Utah and Virginia.

Honorable mention should go to the 4-½ cap states of Colorado, Connecticut, District of Columbia, Georgia, Illinois, Indiana, Iowa, Louisiana, Minnesota, Mississippi, Missouri, Nebraska, New Mexico, New York, Oklahoma, Oregon, South Dakota, Vermont West Virginia and Wisconsin. Now that you know which states come close to the 5-cap rating with 529 plans, perhaps you can invest with just a bit more wisdom.

Best States in Which to Fund your 529 Plan

What is a 529 plan, and how can it help your child achieve the best educational opportunities? Here is the skinny on what you need to know about a 529 college savings plan, including the best states in which to fund your 529 college savings plans.

What is a 529 College Savings Plan?

A 529 college savings plan is a special state-based college savings incentives program that helps you save money for your child’s college education. Not all states have a 529 college savings program that off the same kinds of benefits. Here are some things you should consider when you are choosing a 529 college savings plan.

Things to Consider When Choosing a 529 College Savings Plan

There are many important factors to consider when you are choosing a 529 college savings plan. First, you should consider the amount of time that your money will be invested.

You should consider your family’s tax bracket, how many (if any) fees and sale charges are associated with the plan, what kind of fees are involved, how much you will be investing, and what kind of state income tax deductions are allowed when you contribute. Pay close attention especially to fees. Even the slightest difference in percentage points will eventually add up.

Consider the State Tax Benefits

When choosing your 529 college savings plan, take into consideration your own state tax benefits. What kind of special tax benefits, if any, does your states 529 plan offer you? Does your state let you deduct all or part of your contribution on your state income tax form? This is something to consider.

What Kind of Costs are Associated with the Plan?

There are some plans that come loaded with high fees that will inevitably begin to eat into your returns. However, there are other plans with lower costs. Some analysts point to the plans managed by Vanguard and TIAA-CREF as those that have lower fees and costs.

Make sure you know exactly how much you will be paying in fees, including administrative costs, fund loads, management fees, and sales’ charges, both front-end and back-end. Ask for a list of all possible costs associated with the plan.

Consider the Different Investment Options

What kind of investment options are you looking for? Most state 529 plans offer different types of investment options. Decide what kind of investment style and performance you are comfortable with before you invest.

Who Has the Best 529 College Savings Plan?

Most analysts agree that it is a good idea to compare closely your own state’s 529 plans with the plans of at least two other states. Here are some things you should definitely consider when you are comparing different 529 college savings plans. First, consider what kind of state tax incentives will be available to you.

Does one state’s 529 plan offer tax-free withdrawals or special deductions? Is the plan generally affordable for you? What kind of investment performance has the plan shown in the past? Is the plan flexible enough for your needs? Does the plan offer low costs? These are all things to consider when you are finding the 529 state college savings plans that work best for your family.

Ranking the Best 529 College Savings Plans

Many analysts have ranked the best 529 college savings plans. In general, most analysts agree that the following states have some of the most desirable feature: Pennsylvania, Texas, South Dakota, Iowa, Virginia, Arkansas, Maryland, New Jersey, Nebraska, Florida, Utah, Hawaii, Illinois, and Louisiana.

Most analysts agree that most TIAA-CREF plans offer all-around desirable features. States with TIAA-CREF managed plans include New York, Idaho, Kentucky, Tennessee, California, Vermont, Georgia, Michigan, Connecticut, and Michigan.

Keeping Track of your 529 College Plan Contributions

There are several reasons that it’s important to keep track of your 529 college plan contributions. When investing in a pre-paid 529 college plan account overpayment means money that parents won’t be able to withdraw or to use if the student doesn’t need it or ends up not going to college.

When investing in a non pre-paid 529 college savings account it’s important to keep track of your investment contributions because that money may be subject to an income tax deduction in the state you live in.

This is important for any family member who is contributing to the child’s 529 college savings fund, and anyone in the family can contribute money to the college savings fund although the contribution may not be tax deductible in all states.

Keeping track of your contributions to a child’s 529 college savings account is also important so that you can keep track of how much money has been invested, if the investment is growing fast enough and what the rate of growth is. After all, that account is very important to the family because the child’s future education depends on it.

The money that parents or other family members contribute to a 529 college savings account is considered to be a gift and as a gift that money qualifies in the tax code as part of the annual $11,000 gift tax exclusion. So, any family member can contribute up to $11,000 annually without any taxes being applied to that money.

According to the current Federal gift tax law, parents and family members can give up to five years' worth of financial gifts, so a total of $55,000, in one year with no tax penalties, however that person would not be able to contribute any money to the account for four years following that year.

Making a large contribution makes a lot of sense whenever a parent or family member can afford it because the interest on such a large payment would accrue faster and in greater amounts than interest on smaller payments, even if there were lots of smaller payments made during the year.

If you have a personal banker or investment professional who takes care of the household’s investments make sure that the investment professional gives you a detailed accounting of all the contributions made to the non pre-paid 529 college savings account every quarter or every month and keeps you advised of important matters pertaining to the account.

The best way to make sure the investment is doing well is to monitor it yourself, but many people find investing confusing and prefer to leave their investments to be managed by a professional.

When tax time comes around, be sure to document all your contributions to the child’s 529 college savings program if your state allows tax deductions on that money to make sure that those deductions are applied to your taxes.

Keeping track of your 529 college plan contributions also means staying on top of the latest developments in the laws regarding 529 college savings plans. Make sure to stay on top of any changes in the laws regarding 529 college plans to make sure that you don’t end up losing money.

While a non pre-paid 529 college savings plan has a relatively moderate risk level, there is still some risk and it’s best to monitor the contributions and management of the 529 college savings plan closely to make sure that the investment is still performing well and growing under the asset company’s management.

Be sure to address any questions about the contributions to or the performance of the 529 college savings account to the asset management company chosen by the state to administer the account rather than to the state itself because the state is not involved in the direct management of the 529 college savings fund.

Learning about State Tax Deductions with 529 Plans

When planning ahead and investing in a college savings plan to make sure that money is available for a child’s college education it’s important to learn everything possible about the many different types of college savings plans and the different rules regarding taxation of those savings plans.

For parents, this information can be confusing but it’s very important to make sure that the investment is set up correctly and the best type of investment is chosen to make sure that the money the parents have to invest makes as much money as possible for the child’s education

Most parents end up investing in 529 college savings plans but the laws surrounding 529 college savings plans are complicated and can be different in each state since the 529 college savings programs are state run.

Learning about the state tax deductions allowed for 529 college savings plans is very important. The laws regarding taxes, tax deductions, and 529 college savings plan are different in every state, so parents should look for information regarding taxes and 529 college savings plans in the state where they live before investing.

Parents who invest in a 529 college savings plan that is not a pre-paid college savings plan are not eligible for a Federal tax deduction on the amount of that investment however investing in a 529 college savings plan does have some benefits because money invested in a 529 college savings plan is tax free, and deductions made from the 529 college savings account that are applied to educational costs are also tax free.

Some states offer parents a state income tax deduction on money that it is contributed to a 529 college savings account. Each state is different, but it’s easy to find information about 529 college savings plans and tax laws that are listed by state so that residents of each state can find out what the laws are where they live and what tax deductions, if any, they are entitled to when opening a non pre-paid 529 college savings account for their child.

In terms of taxes, the thing to watch out for when investing in a 529 college savings plan that is not a pre-paid 529 college savings plan is the penalties and tax fees for early withdrawal of that the investment money.

If parents withdraw the money from a non pre-paid 529 college savings plan account for any reason other than applying that money to specified higher education expenses there is a significant early withdrawal fee and tax penalty.

When the investment is withdrawn early and not used for educational purposes, the amount of money that withdrawn from the earnings portion of the 529 college savings account will become subject to state income tax plus an additional 10% tax on that portion of the investment.

There are a lot of rules and complicated issues when it comes to non pre-paid 529 college savings accounts and parents should make sure that they understand all the rules and the tax laws regarding 529 college savings accounts before they invest in a 529 college savings account to make sure that in the future they are not left in a situation where they didn’t put away enough money for their child’s education or end up paying heavy tax penalties and fees and end up without enough money to pay for their child’s education because they didn’t understand the tax laws regarding 529 college savings accounts when they first opened the account.

It’s more important than ever these days to put aside some money for a child’s education because college costs are skyrocketing every year. Be sure to invest wisely to make sure that the investment provides enough money for the child’s future college education.

Why Consider Out of State 529 Plans?

Why go out of state to shop for a 529 plan? Should you be considering other options? Let’s face it, not all state 529 plans are created equally. It is recommended that investors look at their home-state plans as a first option.

Some states have great incentives such as state tax deductions on contributions and matching grants. A poor 529 plan may wipe out the benefits such as deductions and grants. Look for a state tax deduction calculator on-line to determine the value of the benefits.

Make sure you find the plan with the lowest fees. Take a look at the Utah Educational Savings Plan Trust. With this plan you will find nine tried and true index and international offerings from Vanguard with a charge of only 0.38% per year for it’s most expensive option. You can compare this to Nebraska’s AIM College Savings Plan that has a heavier price of 1.35% to 1.61% with traditionally weaker funds.

Conservative investors should be aware of how much their state plans put into the stock market. The Michigan Education Savings Program is a good choice for the cautious investor. The plan even has a savings option, with no annual fee, that guarantees a minimum yearly interest rate and principal based on a Treasury note index. This plan also has portfolios of TIAA-CREF mutual funds that are more like bond funds than other 529 plans.

Look and see if your state 529 plan has the best portfolios of underlying funds. Compare it to plans like the Maryland College Investment Plan. They use a great blend of funds from T. Rowe Price. And the plan’s most expensive option costs just 0.98% annually.

Some people prefer to build their own portfolios. Look for a state that has a good mix of investment choices. For example, the College Savings Plan of Nebraska offers a selection of 20 funds including Vanguard, American Century and Fidelity funds.

In 2006, Kansas, Maine, and Pennsylvania all passed “tax parity” laws. This means that tax deductions are extended on contributions to residents who have invested in 529 plans from other states. This is unlike the other states that only extend state tax breaks to those who selected in-state plans. This tax parity law allows more flexibility to investors to select investments more suited to their wants and needs.

Look for a 5 Cap 529 program. States are rated on a scale of one to five. A 5 Cap program meets high standards in program flexibility, liquidity and availability of assets, strong ownership rights, state benefits, investment approach and safety, and program resources.

Three plans that have 5 Cap ratings and have been rated among the best 529 plans are the Maryland College Investment Plan, the Utah Educational Savings Plan and the Virginia College America Plan. Check them out to see how they compare to the plan in your home state.

All savings and prepaid plans are transferable to out-of state and private institutions. There will be no penalty if you have an out of state 529 plan if your child attends a local college. Your child will still be eligible for in-state tuition in the home state. They will still pay the lower tuition for Iowa students if you use the Nebraska plan.

It’s not advisable to flutter among 529 plans from state to state. Do your research or talk with a financial advisor. Pick the plan that makes the most sense for your family. Your state may very well have the plan that works best so why consider out of state 529 plans? Because it’s your money and you need to make sure it’s working hard for you!