Janet-A.-Moore_avatar_1432243922

By: Janet Moore, Shareholder, CPA

Janet is the co-manager of the JMF Tax Department, runs the Birmingham office, and serves on the Executive Board. With more than 30 years of experience in public accounting, she assists closely-held businesses and owners with corporate, partnership, and individual income tax planning and reporting, as well as complex issues surrounding mergers and acquisitions, economic and tax incentives, state, local and international taxation, federal and state controversies, and tax planning for successful family owned businesses.

 

As you might expect, we get a lot of questions from clients about saving for their children’s college education.  Here are some of our favorite websites for getting information about saving for college and also about 529 Plans.

The most important thing about saving for college is to get started early and also to use a combination of more than one investment – custodial accounts, Roth IRAs, 529 plans, etc.

529 Plans have to be sponsored by states. There may be some tax advantages to investing in your home state’s 529 plan, but you can invest in any state’s 529 plan and the plan beneficiary can use it for higher education anywhere in the U.S (and some foreign locations).

There are 529 plans that have lower fees than the Alabama Plan but the Alabama plan has been improved. On that third website above you can do a comparison of the Alabama Plan to some other ones – one of the most important attributes to look for is low fees.  Funds with Vanguard investments typically have the lowest fees.  Several states have those funds as an option including Alabama.

Selecting a direct sold 529 plan will reduce fees (which just means you fill out the forms instead of having your broker do it for you).

You can get up to a $500 Alabama income tax deduction (5%) each year for contributing up to $10,000 to the Alabama 529 plan.  Some advisors suggest putting your money in the Alabama plan to get the tax deduction and then move it later to another state plan that you like better.  That may not be worth the trouble.

Please contact your JMF CPA if and when you have any follow up questions.