529 College Savings Plans – Winter 2007

Hello from Sycamore,

Using 529’s and the Indiana Plan for College Expenses

Two important changes were made in 2006 that affect section 529 college savings plans and their use by Indiana residents . First the Federal government extended the tax free status of earnings withdrawn when used to pay secondary education expenses. Second, the state of Indiana offers a tax credit to taxpayers funding college expenses through it’s “CollegeChoice” 529 plan. This credit is available to taxpayers starting in 2007. We now believe that everyone saving for college expenses should take a serious look at 529’s and in particular the “CollegeChoice” plan offered by Indiana.

Let’s take look at some of the basics of 529 plans:

  1. Contributions to the account are made with “after tax” dollars where the earnings grow tax deferred. When these earnings are withdrawn to pay for qualified* college expenses, they are tax free. Expenses that are paid by scholarships, Pell grants, Veterans’ educational assistance or other similar programs cannot be used.
  2. Anyone over the age of 18 can start a 529.
  3. Anyone of any age can be named as beneficiary of the account. The beneficiary can be changed as long as the new beneficiary is a member of the original beneficiary’s family. The definition of “family” goes out as far as first cousin.
  4. Almost any accredited secondary school qualifies.
  5. You can transfer assets from one 529 to another, and transfer assets from Education/Coverdale IRA’s into a 529. No tax is paid during this transfer.
  6. If the earnings are not used for qualified college expenses,they will be taxed as ordinary income and are subject to a 10% tax penalty when withdrawn from the account.
  7. Any individual taxpayer can contribute as much as $60,000 in any one year for each beneficiary without triggering gift tax consequences, provided they do not make additional gifts to that same beneficiary within a five year period. This essentially allows you to make five years of gifts “up front”. This may be helpful with your estate planning.
  8. The owner of the account maintains control over the account and has the option to change the beneficiary. This control does not negatively affect the estate planning or gifting.

Now for a quick look at Indiana’s “CollegeChoice” plan:

  1. Each individual filing a single return, or married couple filing a joint return, will receive a 20% credit on their Indiana income taxes on the first $5,000 contributed to the plan each year. This equals a tax savings of $1,000. To claim this credit, simply claim it on your Indiana state tax return. Of course, keep proof of your contributions.
  2. While the department of revenue does not define how long money has to remain invested to receive the credit, Senate bill 500 stipulates that the account remain open for at least 12 months. This requires maintaining a minimum account balance of $500 or having some activity such as a deposit or withdrawal during the proceeding calender year. Additionally, if withdrawals from the account are used for something other than qualified expenses, the account owner may be required to repay part or all of the credit previously received.
  3. Accounts can be started with as little as $50. Minimum additional contributions to an account can be as low as $25.for each portfolio. Maximum contributions per beneficiary are$298,770. You must maintain a $500 minimum balance per account or make a purchase or liquidation within the previous calender year to keep the account open.
  4. Fees: $10 per year for Indiana residents. This fee will be waived if the account balance exceeds $25,000 or if the owner has established periodic contributions.
  5. You will be limited to the investment options available within the plan. We have reviewed these investment options and feel they are adequate.
  6. You can invest directly into the program without paying any sales fees. If you elect to do this, you will be limited to the “Age-Based” investment option. To make other investment choices, you must use a broker.

All in all, we think that Indiana’s “CollegeChoice” plan is an excellent way to save for college expenses and recommend that you consider using this plan.

This overview has focused on what we feel are some of the more important aspects of 529’s and Indiana’s CollegeChoice plan, if you would like more information on Indiana’s CollegeChoice 529 go to www.collegechoiceplan.com, give us a call or set an appointment to stop by and see how this plan may benefit you. How much will you need to save? E-mail or call in your particular situation and we will send you an estimate. Kokomo 765-455-1554 Anderson 765-643-9333.

More information about 529’s can be found at http://www.irs.gov/publications/p970/ch08.html

Thanks for your business and trust,

Sycamore Financial Group


Past performance does not assure future results. Investors cannot invest directly in the stock market indexes such as the S&P 500. Invest return and principal value of an investment will fluctuate. Investor value, when sold, may be worth more or less than their original cost. The material in this presentation is for illustrative purposes and does not reflect any particular investment.