Winter 2008 Volume 5, Number 1

Ease the Costs of College--Missouri College Savings Plan

Sandra McKinnon, M.S.
Financial Education Specialist
University of Missouri Extension
636-583-5141
mckinnons@missouri.edu
 

A four-year undergraduate degree could cost almost $220,000 at a public university by 2022, according to T. Rowe Price, an investment management firm. That is a daunting amount.

As a relative caregiver, you may have considered helping children with college expenses. One of the most common college savings options is a 529 plan. 529 plans are a tax-advantaged investment vehicle that can be used by a designated beneficiary at nearly every U.S. college or graduate school.

In Missouri, the 529 plan is called MOST (Missouri Saving for Tuition). Any U.S. citizen can open one or more accounts for any future student with just $25. Enrollment is free though there may be a fee to manage the account. Once the account is opened, anyone can contribute to it. The account can be used to pay for tuition, mandatory books, fees, certain room and board expenses and supplies at any eligible postsecondary school in the U.S. and abroad.

Tax advantages
The MOST plan features significant benefits for Missouri taxpayers -

• State income tax deduction of up to $8,000 per year ($16,000 if married filing jointly) for the owner of the account.

• Contributions can grow free from federal and Missouri income tax until withdrawn.

• The earnings are tax-free when used to pay for qualified higher education expenses. If the funds are withdrawn and used for anything other than these expenses, then taxes and penalties may apply.

Control of the account
Relative caregivers may worry about the account if they are no longer a child’s guardian or
custodian. However, the owner remains in control of the account no matter where the child resides.

There is also no need to worry about others accessing the money in the 529 account. Only the
account owner can withdraw the funds.

If a beneficiary doesn’t go to college, the account owner can change the beneficiary or defer withdrawals if the beneficiary attends college later.

Possible affects on eligibility
If a relative caregiver is on Medicaid, they should proceed with caution before starting a 529 plan. The effect of an account on eligibility for Medicaid and other state and federal benefits is uncertain. It is possible that an account will be viewed as a “countable resource” in determining an individual’s financial eligibility for Medicaid. Withdrawals from an account
during certain periods also may have the effect of delaying the disbursement of Medicaid payments.

The account does not affect a student’s eligibility for merit-based financial aid; however, it may affect the student’s eligibility to receive need-based financial aid.

For more information about the MOST plan, visit http://Missouri collegesavings.com  or
call toll-free 800-868-3585.

For more information about financial aid, including calculators to project college costs and how much to save, visit www.finaid.org.

One last word of financial advice – a caregiver should take care of their own financial planning first and not sacrifice their retirement for a child’s college education. There are no scholarships to subsidize retirement.