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 Money Matters :  Paying for College

College Savings Plans... Page 3

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- If your beneficiary has not decided about college, you can leave the money in the account to grow tax-deferred. Generally, there are no age restrictions for the beneficiary, and he or she could decide to enroll at a later date.

- You can change the beneficiary to another member of the same family. A wide range of people related to the beneficiary qualify.

- You can make a non-qualified withdrawal from the account at any time and owe regular income taxes and a penalty on the earnings portion only (usually 10 percent). Penalty-free withdrawals are allowed if your beneficiary receives a scholarship, or in the event of death or disability.

More Flexibility than UGMAs

State-sponsored college saving programs can also provide attractive estate planning advantages. When you open a college savings account for a beneficiary, the contributions are considered completed gifts, which means they aren't counted in your estate for taxation purposes. You can contribute up to $50,000 per beneficiary in a single year ($100,000 for a married couple), as long as you do not make any further gifts to those beneficiaries over the next five years.

Even after you have contributed to an account, you retain control of the assets and can change beneficiaries or even take back the money if you choose, with usually 10 to 15 percent penalty on earnings. This is a significant advantage over UGMA/UTMA custodial accounts - the contributions you make to custodial accounts are irrevocable and the child controls the assets at your state's age of majority (usually 18 or 21).

Start Planning Today

If higher education may be in the future for your children or loved ones, talk with your financial consultant about participating in a state-sponsored college savings plan today. A college savings program that offers this level of tax benefits and investment flexibility is well worth studying.

Allen N. Jones is Senior Vice President and Director of the Merrill Lynch Private Client Marketing Group.


Courtesy of Article Resource Association


College Planning Calculators:
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  What will it take to save for a college education?
  How much will it cost to raise a child?

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