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HARVARD, YALE, OR YOUR LOCAL COMMUNITY COLLEGE

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their interest on a regular basis. Savings bonds and zero-coupon bonds are popular choices because they don’t have any interest to distribute before the bonds mature. Another advantage to the savings bonds is the fact that they are specifically designed to be used for education. There- fore, any gain that would normally be taxed in another investment is tax-exempt as long as the money is used for education purposes. Your child could use this money for books, or you could use it to pay tuition costs. As long as the money is used for a credible school cost, then the interest earned on the bond won’t be taxed. It’s important to note that there are some limitations to the interest being tax-exempt. If you plan on using a savings bond for education costs and are worried that you will be taxed on the interest, consult with your CPA, as they will be able to help you based upon your individual situation.

SECTION 529 PLANS

Qualified tuition programs, or Section 529 plans, have been in exis- tence in many states and in various forms since 1986. The programs were named after Section 529 of the Internal Revenue Code, which was enacted in 1996. Essentially, these are programs that are oper- ated at the state level and gave the participant a number of benefits that include tax-deferred earnings. In this way, they were akin to a traditional IRA or a 401(k) retirement plan.

The accounts are opened by one person for the benefit of another (i.e., a mother can open one for her son). The custodian doesn’t have to be related to the beneficiary (the person who will be attending col- lege) of the account. The beneficiary can be changed at any time. For instance, you open a 529 plan for your daughter, who decides not to go to college. You can change the beneficiary on the account to another family member of the original beneficiary. The new tax law permitted the term family member to include any first cousins, which is a change from the old tax law that prohibited first cousins as a part of the definition. Or, if your child dies, the beneficiary can be changed. Changes in beneficiary are done without any penalty.

As with education IRAs, or investing under the donor’s name, the custodian of the 529 account retains complete control of the money until the time it is distributed. This gives the custodian greater peace

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