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How to start a college savings account using Utah's 529 program

By Russ Lindberg

For the Deseret News

Published: Monday, April 2 2012 5:13 a.m. MDT

The Utah 529 college savings plan is well known as being one of the best, noted as only one of six top-rated plans by Morningstar.

www.uesp.org

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If you have children, grandchildren, nieces, nephews or others who will be attending college and you or they are going to be paying money to do so, then you may want to take a look at the Utah Educational Savings Plan.

I am not a financial adviser by any qualification; rather, I am a father who has been there (is there) and done it (doing it), and I want to share what I've learned. Be sure to look at the actual program materials for legal terms, stipulations, etc. If you have questions, visit their website or ask your financial adviser.

About the 529 savings plan

The UESP is a 529 plan, which is an education savings program operated by a state or educational institution designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Code, which created these types of savings plans in 1996.

The Utah 529 plan is well-known as being one of the best, noted as only one of six top-rated plans by Morningstar, which says "the plan’s ‘Top’ rating reflects the straightforward, low‐cost investment options and strong management.” Morningstar also praises UESP’s rock‐bottom fees. “Most of its options have a total fee of less than 0.26 percent, cheaper than nearly all other plans.”

How to start saving with UESP

Saving for college has never been easier. Using UESP’s intuitive, comprehensive website, set up an account for each child, grandchild, etc., and then fund the account. (For a full list of qualified relatives, visit the plan's website.) Funding occurs with one-time deposits, or you can set up ongoing, automatic deposits from your checking account.

It can be difficult to save for anything, much less college, but by setting up an automatic draft from your bank, the college savings will grow surprisingly quickly over time. Think about it: You set up a bi-monthly deposit of $25 into your newborn’s college account. By the time that child is 18 and off to college, this account would have more than $10,000 just in gross deposits — all from relatively small automatic withdrawals from your checking account. The actual amount will be larger, as you choose to invest the money into one of 12 investment options ranging from static and conservative to more aggressive plans that change as your child approaches college years (generally by moving from stocks to bonds and cash). These investment options are one of the reasons the Utah plan is so highly regarded: There are lots of choices and extremely low costs. Assuming a reasonable rate of return over those 18 years (say 7 percent), this account would have more than $20,000 at the start of college — plus, all qualified withdrawals are done tax free.

Tax advantages of a 529 plan

Finally, there are significant tax advantages the UESP for Utah residents. Each taxpayer who contributes (married couples count for two) receives a 5 percent tax credit on their Utah state taxes for annual contributions up to $1,780 per beneficiary. This means that married couples can deduct 5 percent of up to $3,580 for each child or grandchild. If you are saving for college, this is free money.

Long-term and short-term uses

It bears mentioning that this type of program isn’t just for the long-term. There are no stipulations for how long the money has to be in the account in order to get the tax credit. Theoretically, you could deposit your child’s tuition in the account and then just a few days later request a check from UESP to pay for tuition, and get the 5 percent tax break at the end of the year. That’s like having a 5 percent off coupon for all your college expenses.

Russ and Steve are the "Guys That Know." We're that friend who knows almost everything. Visit us at www.guysthatknow.com.

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