Your Grandchildren’s Education

Story by David Erickson for Montana 55

If you’re thinking about putting money away to pay for college for your children or grandkids, there’s a better option than just letting it sit in a savings account.

A 529 college savings plan is a program that offers tax advantages for those who want to put money away to allow someone to use money for college tuition and expenses like room and board, books, equipment and fees.

Achieve Montana is a specific program administered by the Montana Board of Regents of Higher Education. It allows tax-deferred growth and withdrawal, substantial contribution limits, investment options and professional investment management.

Contributions are exempt from state and federal income tax, and as long as the person you name to the account uses it for authorized purposes, withdrawals are tax free. Contributions to Achieve Montana accounts may be eligible as a yearly deduction to adjusted gross income of a total of up to $3,000 per taxpayer or $6,000 for married couples filing jointly on Montana state income tax forms.

That means you can contribute $14,000 for each beneficiary every year without incurring a federal gift tax. For those concerned about estate planning, you can reduce your personal taxable estate through an accelerated gifting process with a 529. Essentially, you contribute five years’ worth, up to $70,000 or $140,000 for a couple, in one lump sum. Then, the beneficiary can use the money at any eligible
institution around the country, including vocational and technical schools and two and four-year universities.

“They are an excellent mechanism to save for college,” said Kent McGowan, the director of financial aid at the University of Montana. “It’s basically tax-deferred saving. It’s a great advantage for students, and it encourages people to think forward rather than just waiting and hoping for financial aid to help them out when the time comes for college.”

McGowan said that Achieve Montana is an “absolutely legitimate” program, although he believes not enough people take advantage of it.

“I would suspect that the people that do it are wealthier folks,” he said. “There are middle or low-income people that are forward-thinking that scrimp and save, but those are the frugal people. Outside of that small population, I bet it is wealthier individuals that use it. It’s a great idea and it’s a great mechanism for saving.”

Legislation recently was passed making certain equipment an eligible expense for tax-free withdrawals, such as computers, printers, scanners, education-related software and the cost of internet access. Anyone who is a U.S. citizen or a legal resident alien with a Social Security number or a Tax Identification number can be a beneficiary.

The tax advantages can be fairly sizable. According to a state website dedicated to promoting the plan, a $2,500 initial investment with subsequent monthly investments of $100 for 18 years would grow into $36,689 assuming an annual rate of return on investment of 4 percent. If that money were to be simply invested and taxed, it would be worth $32,180. Of course, with the risks of investing could come greater rewards, but someone wishing to play it safe with a college savings nest egg might consider a 529 plan a
good choice.

When you enroll in Achieve Montana, you choose to invest in at least one of three different investment approaches, based on your preferences and risk tolerance. You can change your investment options up to two times per year.

The Achieve Montana account does not have to be used at a college in Montana. Also, the beneficiary does not have to attend college immediately after high school.

For more information visit achievemontana.com. David Erickson is the business reporter for the Missoulian. He can be reached at david.erickson@missoulian.com.

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