As college costs continue to soar almost twice as fast as inflation, parents are turning to 529 college savings plans that offer tax-advantaged savings to fund future college and graduate school expenses. John Mason, an investment representative with Edward Jones, said these plans are generally sponsored by a state and offer professionally managed investment options. He said distributions can be taken out without federal income tax or penalty to pay for tuition, fees, books, supplies, room and board and other school-related expenses at accredited two- and four-year colleges and universities. Contributions to the plans can be made by anyone and no income limitations apply. Mason, who said the plans are popular with parents and other family members who want to see their children, grandchildren, nieces and nephews go to college, spoke with the Business Record about 529 college savings plans.

Q: What is the greatest benefit to opening a 529 account?

A: It’s an excellent way to invest with tax-free savings. It also gives investors a lot of flexibility.

Q: When is the best time to open a 529 account?

A: When the child is born. It gets people in a systematic method of saving for college. Too many people wait until the child is in high school and they don’t benefit as much as if they would have if they started earlier.

Q: How much do you have to contribute to open a plan?

A: For most, it’s a minimum contribution of $250.

Q: How much can you contribute?

A: As much as the plan allows. But for all plans, an individual can contribute up to $55,000 for their child for a total of $110,000 per couple during a five-year period. In the sixth year, you can contribute the same amount all over again.

Q: Who controls the money in the account?

A: The account owner, not the child.

Q: What happens if you don’t use all of the money?

A: There are two options. First, under most state plans, the money can be left in the child’s account for many years, allowing the money to grow tax-free. Second, the money that isn’t used for college can be withdrawn from the account, similar to a 401(k) plan, where you will pay a 10 percent penalty only on the earnings and growth of the investment.

Q: Is this the safest way to invest for college?

A: It’s an effective way to keep up with inflation and the rising costs of college.

Q: How easy is it to open an account?

A: You simply fill out an application, cut a check for your opening contribution and determine the appropriate investments and it’s done.