Kevin McCormally: I am Kevin McCormally of Kiplingers. I am here with Jane Clarke, an Associate Editor of Kiplinger's Personal Finance magazine to talk about saving for college. Jane seems like the hottest thing these days is State sponsored 529 plan, what the beckon are they?
Jane Clarke: First of all they get their name from the section of the tax code that provides these tax brake.
Kevin McCormally:What tax brakes?
Jane Clarke: Well, first of all if you--once your money is in the account it can grow Tax Deferred and if you use the withdrawals for qualified education expenses, it's tax free.
Kevin McCormally: Any other Tax brakes?
Jane Clarke: Yes actually many of the states also offer a state tax reduction on contributions .
Kevin McCormally: Okay, any other advantages to 529 plan?
Jane Clarke: Yes they are actually very flexible, you can put in virtually as much as you want. The states have a very high ceiling on the contribution.
Kevin McCormally: That's different in some other college saving plans.
Jane Clarke: Right the covered all account for instance has a fairly low ceiling, so you are limited in how much you can accrue over time.
Kevin McCormally: And there are some advantages over Custodial accounts too, right.
Jane Clarke: Yes because with Custodial accounts, you really giving that money to your kid. The kid then becomes the owner and if he or she decides at age 18 or 21 that they want a bail of college that's there prerogative they can use that money for whatever they want.
Kevin McCormally: And how's 529 plan work there?
Jane Clarke: 529 plan if your kid doesn't go to college, if you don't use it for educational expense for that kid you can either switch it to a another beneficiary or you can keep the money for yourself and pay Income Tax and a 10% penalty on the withdrawals.
Kevin McCormally: Okay, thank you Jane.
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