The Best Way to Save for College: A Complete Guide to 529 Plans

By Joseph F. Hurley, CPA

Published by BonaCom Publications (800) 400-9113; also available from www.savingforcollege.com.

331 pp., including appendices; $26.95; ISBN 0-9670322-5-3

Reviewed by William Bregman, CFP, CPA/PFS

Parents often say that saving for their children’s college education is one of their major goals. Few actually save enough, however, and most parents underestimate the ultimate future cost of four years of college. Fortunately, this book is exactly what its title states: a comprehensive and clearly written guide to saving for college.

The current edition anticipates most of the changes in the 2001 Tax Act. The author, whom this reviewer knows personally, says that a revised edition may be out as early as fall 2001.

The book begins by reviewing the early prepaid tuition programs and moves forward to the creation of the first IRC section 529 qualified state tuition program (QSTP) in 1997. Approximately $10 billion is currently invested in QSTPs nationwide and more than 20 states allow nonresidents to participate in their programs.

Education IRAs, qualified U.S. savings bonds, Uniform Gift to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) gifts, and parents’ stock or mutual funds are discussed as alternative college funding investments. The ability to save a sufficient amount in time for college and the impact on financial aid eligibility are also considered.

The author goes through the federal and, to a lesser extent, the state income tax consequences of QSTPs, and the book also discusses the requirements for an eligible beneficiary, treatment of withdrawals, requirements for qualified education expenses, penalties for nonqualified withdrawals, rollovers to other plans, and changes in beneficiaries.

Gift and estate tax issues receive full attention. The author notes an interesting election that allows an individual to contribute $50,000 in the first year and have that gift count for gift tax purposes as having been made ratably over five years. This technique avoids gift taxes without using the unified credit.

Section Two of the book gives a general description of each state’s section 529 plan and includes contact information, such as telephone numbers and Internet addresses.

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