Kevin McCormally: I’m Kevin McCormally of Kiplinger’s and I’m here with Jane Clark an
Associate Editor of Kiplinger’s Personal Finance Magazine to talk about
saving for college. Jane every parent knows the college costs are change
and we always hearing about new in different ways to save for college.
We hear about 529 plans and prepaid tuition plans. Are those the same
thing?
Jane Clark: No, actually 529 plans are states sponsored investment accounts and
which you can accumulate savings and avoid paying taxes on the earnings
as long as you use the withdrawals for a educational expenses such as
college tuition.
Kevin McCormally: Okay and the prepaid tuition plan?
Jane Clark: Prepaid tuition plans let you buy tomorrow tuition at today’s prices at
participating institutions and most of them are state institution.
Kevin McCormally: Okay so what happens if your child doesn’t go over that college down the
road that you paid the tuition for.
Jane Clark: You can transfer the money to other institution out of state schools or a
private institution although you may have to pay a penalty.
Kevin McCormally: It sounds like the 529 is more flexible approach to college savings?
Jane Clark: Right because you don’t have to have your kid go to specific participating
institution you can use that money for any college or university.
Kevin McCormally: What if the child doesn’t go to school at all? Can you get the money back?
Jane Clark: Yes, you can actually transfer the money to another beneficiary, says
another kid in your family but if nobody is going to use the money then
you can withdraw it and pay a 10% penalty and income tax on the earning.
Kevin McCormally: So is that applied to both prepaid tuition plan and the 529?
Jane Clark: Yes, correct.
Kevin McCormally: Okay Jane thank you very much.
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