529 Plans

A growing number are investing in 529 College Savings Plans, tax-deferred investment plans operated by various states and designed to help families save for future college costs.

529 College Savings Plans (named for the section of the Internal Revenue Code that authorized the plans) allow you to contribute to an investment account set up specifically to pay your beneficiary's qualified higher education expenses, such as tuition, fees, books, supplies and room and board. Mutual funds are the most commonly used investment vehicles in these plans. Each plan typically offers an array of more than one investment option (stocks, bonds, etc.).

There are good reasons why many people are choosing to invest in 529 College Savings Plans. With the plans' tax advantages and flexibility, they appeal to families with a wide range of circumstances, needs and goals.

The features of 529 College Savings Plans vary among the states and institutions operating them. Below are some of the many benefits of saving for college using 529 College Savings Plans.

• The earnings on your investments grow tax-deferred.
  
  
• Withdrawals, or distributions, for qualified educational expenses are free of federal income tax for state-sponsored programs and are tax-free for college savings plans of eligible higher education institutions.
  
  
• Some states allow you to deduct the full or a partial amount of your contribution from your state income taxes if you participate in a plan operated by your home state.
  
  
• When your dependent children begin to use their 529 College Savings Plan for college expenses, you may be able to claim the new Hope tax credit on your federal tax return. In 2006 you can claim up to $2,000 each year for the first two years of college. You can claim up to $1,000 in Lifelong Learning credits in later years.
  
  You can only claim Hope credits for tuition and related expenses (not room and board). The household income requirements for claiming the Hope credit are $43,000 to $53,000 for individuals and $87,000 to $107,000 for couples filing jointly.
  
  
• Contributions may be eligible for a gift tax exclusion and excluded from your taxable estate. Individuals may contribute up to a maximum of $60,000 per year for each beneficiary — or $120,000 from married couples — without incurring federal gift taxes. However, you may not make further gifts to that beneficiary for the next five years.
  
  

General Benefits and Features

• Control
  Unlike a UGMA account where the beneficiary has access to the funds at age of majority (18 or 21), a 529 College Savings Plan allows the donor to stay in control of the account. In most cases, the named beneficiary has no rights to the funds.
• High maximum contribution limits
  Most states with 529 College Savings Plans have maximum contribution limits of more than $200,000.
• Flexibility
  
  • A wide range of family members are eligible beneficiaries. You may change the beneficiary of the account at any time.
  • Direct transfers from one 529 College Savings Plan to another 529 plan are allowed for the same beneficiary. You may make one rollover per 12-month period or when you change beneficiaries.
  • Your withdrawals can be used for qualified expenses at any U.S. accredited institution of higher learning nationwide.
  • You may withdraw funds at any time for non-higher education expenses. However, federal and state income tax on the earnings, plus a 10 percent penalty, will apply.
• Investment choice
  Most plans offer a variety of investment options, typically stocks, bonds and money market mutual funds.
• Professional management
  Plan assets are professionally managed either by the state treasurer's office or by a third-party investment company hired as the manager.

Who should set up a 529 College Savings Plan?

Any parent, grandparent or other benefactor who would rather invest for a child's college education expenses now instead of borrowing to pay those expenses later when the child enters college. Be aware, however, that any investment in a 529 College Savings Plan may impact a student's eligibility for needs-based financial aid.

Participation in a 529 College Savings Plan (529 Plan) does not guarantee that contributions and investment return on contributions, if any, will be adequate to cover future tuition and other higher education expenses or that a beneficiary will be admitted to or permitted to continue to attend an institution of higher education. Contributors to the program assume all investment risk, including potential loss of principal and liability for penalties such as those levied for non-educational withdrawals. Depending upon the laws of the customer's home state, favorable state tax treatment for investing in a 529 Plan may be limited to investments made in a 529 Plan offered by the customer's home state. Assets in a 529 Plan can potentially reduce the beneficiary's ability to qualify for some forms of college financial aid. Customers should consult their tax advisor about any state tax consequences of the investment.

Depending upon the laws of the home state of the customer or designated beneficiary, favorable state tax treatment or other benefits offered by such home state for investing in 529 college savings plans may be available only if the customer invests in the home state's 529 college savings plan; any state-based benefit offered with respect to a particular 529 college savings plan should be one of many appropriately weighted factors to be considered in making an investment decision; and the customer should consult with his or her financial, tax or other adviser to learn more about how state-based benefits (including any limitations) would apply to the customer's specific circumstances and also may wish to contact his or her home state or any other 529 college savings plan to learn more about the features, benefits and limitations of that state's 529 college savings plan.

Consider the place of various education planning vehicles in the context of the overall financial plan with the appropriate professional(s).

For more complete information, including a description of fees, expenses and risks, see the offering statement or program description

Lincoln Investment Planning, Inc. Can Help

Your best investment for college savings may be the expert advice you receive from your Lincoln Investment financial representative. Your Lincoln Investment financial representative can help you evaluate different plans, and the investment options within those plans, to help ensure that you are making the right selections for your situation and goals.

As with any college savings plan, however, the sooner you start, the sooner your investment may grow. Education has always been a big part of Lincoln Investment's business, and our goal is to help you plan wisely for your student's future.