In This Issue...
- Donating a 529 account to charity
- Conference registration is open
- New on our web site
- Press watch

Don't try this at home …
by Joe Hurley, founder, Savingforcollege.com

That is, don't try it without first securing the blessing of a tax professional.

The idea goes like this: If you (or your client) decide that the money in your 529 account will not be needed to pay for college, "donate" that account to a college or other charitable organization to be used as a scholarship fund for other deserving individuals. If all goes well, you avoid the tax and penalty associated with taking a non-qualified distribution; you receive a charitable deduction on your income tax return; and your money is put to good use helping others.

Here's an example:

Grandpa and Grandma Smith put $120,000 into a 529 plan for grandson Johnny. By the time Johnny is ready for college, the account has grown to $250,000. But just as Grandpa and Grandma Smith begin planning their withdrawals for Johnny's college expenses, Dad and Mom inform them that their 529 money is not needed for Johnny. They've got the cost covered with their own 529 accounts (perhaps with a little help from the "other" grandparents).

Of course, Grandpa and Grandma Smith are disappointed. They have no other college-bound beneficiaries in the family, and they don't want to take the money for themselves as a non-qualified distribution, especially when they would have to pay income tax and 10-percent penalty on the $130,000 in earnings.

Being charitable souls, Grandpa and Grandma Smith approach their favorite college or vocational school and offer to transfer ownership of their 529 account (program permitting) to the institution, provided the school maintains the account as a scholarship source for underprivileged children. The school is happy to do so, and goes even further by initiating a campaign to solicit additional contributions to its 529 scholarship fund. The Smiths claim the $120,000 basis in the account as a charitable deduction on their income tax return. (The IRS would presumably limit the deduction to the basis, and not allow a fair market value deduction, due to the ordinary income potential in the account.)

I'm hoping that I'll receive some comments, either positive or negative, about this idea from tax or legal experts who are readers of this newsletter. Perhaps we'll end up requesting a ruling from the IRS. Unlike the temporary ability to contribute directly from your IRA to a charitable organization, I do not think the transfer of a 529 account requires special provisions be added to the tax law. Feel free to send me your thoughts at jhurley@savingforcollege.com.

If you are as intrigued with the potential of scholarship 529 accounts as we are—and you work as a 529 sponsor, manager, distributor, broker, planner, or state official—you should plan to attend Savingforcollege.com's Annual 529 Conference and Boot Camp to be held at the Mandalay Resort in Las Vegas from September 24th-26th. We pride ourselves on coming up with fresh ideas, interesting topics, and outstanding presenters. Save up to $250 with early-bird registration.!

Official Tax Sources - Hearing on Education Tax Incentives - House Ways and Means, Subcommittee on Select Revenue Measures. Hearing date May 1, 2008. Includes links to prepared testimony of witnesses.

Federal (see all)

New law eases student-loan pressures

State and program (see all state and program )

Missouri
Missouri to extend tax break to non-Missouri 529s

Oklahoma
SEED Study in Oklahoma funds 529 accounts for newborns

Press Watch

The following articles provide coverage of specific 529 plans:

"Senate OKs college fund tax break" - Associated Press 05/08/08
Missouri residents can now benefit from a tax break on 529 contributions made to plans outside of their home state.

"State OKs web tool for college accounts" - by Tracie Dungan, Arkansas Democrat Gazette 05/08/08
Arkansas parents can solicit gifts for their children's 529 college savings plans through a new online tool.

"Treasurer: Deposit stimulus checks in college fund" - by CBS2Chicago.com 05/07/08
Illinois Treasurer encourages residents to deposit their stimulus checks directly into the state's Bright Start College Savings program.

"Alabama legislature approves tax break for college savings" - Associated Press 05/02/08
A new bill provides a state income tax deduction of up to $5,000 per year for contributions to either of Alabama's two college savings plans.

"New CFO of Virginia College Savings Plan" - DailyPress.com DailyPress.com 05/02/08
Gary Ometer, a Richmond CPA, former bank senior vice president and municipal debt expert, has been named the CRO at the Virginia College Savings Plan.

"Comptroller appoints new director to oversee college savings programs" - Austin Business Journal 05/01/08
The former policy director at the Office of the Fire Fighters' Pension Commissioner will manage Texas' 529 college savings plans.

The following articles provide general advice on college savings and 529 plans:

"Preparing for baby's college bills with a 529 fund" - by Jake Sherlock, The Missourian 05/09/08
First-time parents save for college with a 529 plan.

"High income limits tax strategies" - by Karin Price Mueller, The Star-Ledger 05/08/08
A combined income of $400,000 virtually eliminates all alternative tax strategies.

"You can't go wrong with a 529 plan - so long as you avoid high fees" - by Chris Farrell, Minneapolis Star-Tribune 05/03/08
Minnesota's 529 plan is recommended for having lower fees than other plans.

"New study from Savingforcollege.com targets stimulus rebate" - PRNewswire 04/29/08
Savingforcollege.com has released a new study demonstrating that by investing the stimulus rebate in the "age-based" option of a 529 plan, a family of three can outpace tuition inflation and more easily afford college.