Posted on November 30, 2005 at 16:53:34:
One of the easiest, and most effective, ways to save for college is in a 529 college saving plan (named for a section of the tax code). Earnings grow tax-deferred and withdrawals are tax-free if used for educational purposes. (This provision expires in 2010, but is expected to be extended.) And in half the states you can write off some of what you save.
Anyone—a parent, grandparent, just about anyone—can open a 529 on behalf of anyone else. There’s no limit on what can go in, though most states limit how much is tax deductible. Generally, $11,000 per donor per recipient per year is free of gift taxes, though it is possible to make five years’ worth of contributions up front tax-free, if you make the election on a gift tax return.
That possibility is what makes the 529 a preferred estate-plan strategy. It enables a couple, say, to move large amounts out of their estate while retaining some control over it.