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February 2009 Edition

How the stimulus act affects your college savings
by Joe Hurley, founder, founder Joe Hurley
The $787 billion American Recovery and Reinvestment Act of 2009, signed this week by President Obama, could have an impact on how you build and spend your 529 college savings account. One change made by the Act: the list of eligible 529 expenses is expanded to include purchases of computer technology and equipment, along with Internet access for students and their families. However, this expansion applies only to the years 2009 and 2010; starting again in 2011, computers etc. do not qualify unless required by the educational institution as a condition of enrollment or attendance. See my blog entry dated 2/17/09 for an idea concerning the use of your 529 account in 2009 or 2010 to purchase a computer for your teenager who won't be enrolling in college until after 2010.

For students attending post-secondary school in 2009 and 2010, the Hope Scholarship credit is beefed up under the Act. The new temporary version, called the American Opportunity Tax Credit, is available to more families than was the old Hope credit. It can be used for the third and fourth years of college in addition to the first two years; course materials are included as an eligible expense; and the credit phases out at a higher range ($160-180,000 for joint filers and $80-90,000 for all others). Furthermore, the maximum annual credit amount increases from $1,800 in 2008 to $2,500 for this year and next (100% of the first $2,000 of eligible expenses plus 25% of the next $2,000 of eligible expenses); it can be applied against the alternative minimum tax; and it is up to 40% refundable for students not subject to the kiddie tax.

Families with a choice between the American Opportunity/Hope credit, the Lifetime Learning credit, and the above-the-line tuition deduction will almost always opt for the American Opportunity/Hope credit.

Under the anti-double-dipping rules, families will have less opportunity to take tax-free withdrawals from their 529 plans as compared with the old Hope credit because the new credit will consume more of their qualified expenses ($4,000 versus $2,000). However, they will have greater opportunity to take tax-free withdrawals from their 529 plans as compared with the Lifetime Learning credit, which uses up $10,000 in tuition costs to generate a maximum $2,000 credit.

Finally, the Act provides an incentive for your college freshman to move off campus and purchase a home by November 30, 2009. First-time homebuyers receive a 10% tax credit on the purchase price of the home, up to a maximum $8,000 credit. The tax credit must be repaid if the buyer moves away in less than three years, so beware if your child later wants to transfer schools. Housing costs qualify for tax-free 529 treatment, although the student must be enrolled at least half-time, and the eligible amount for an off-campus student is capped each year to the amount reported by the school in its "cost of attendance" summary

Recent studies by

We spend a lot of time analyzing the differences between competing 529 plans so that you have better information when deciding which plan to use. Here are some of our most popular studies, all recently updated:

Asset Allocations in Age-Based Portfolios
This study shows the variation in asset-allocation modeling among different 529 plans when it comes to constructing their age-based portfolios. You can see why older beneficiaries in some 529 plans have been well-protected in the bear market while others have not been as fortunate.

529 Fee Study
We've compiled the lowest- and highest-cost investment options in every direct-sold 529 savings plan and provide the results in a sorted listing.

529 Plan Performance Rankings
After the end of each quarter we analyze and rank the investment performance of thousands of 529 portfolios to develop our exclusive 1-year, 3-year, and 5-year performance rankings. At publication time for this newsletter, we have not yet posted the 2008 Q4 rankings, but we will soon, so check back.

2009 edition of "The Best Way to Save for College" is on sale

With over 100,000 copies sold, "The Best Way to Save for College: A Complete Guide to 529 Plans" has established itself as the indispensable college-savings reference for investors and professional advisors alike. The 2009 edition is now available through, and the last time we checked Amazon was offering a substantial discount off the $29.95 cover price! Get your copy today.

Find a 529 Pro

With the credit crunch, slowing economy, and unsteady stock market, you may be feeling uneasy about your college planning, not to mention your retirement planning. If you are thinking about hiring a financial professional to help you make college-savings decisions, it's easy to do a zip code search with our Find a 529 Pro Directory. The pros on the Directory target their services to individuals with college-planning needs, and most are retirement savvy as well. To get onto the Directory, they had to pass our college-savings exam. Enter your zip code

Easy 529 comparison.
We've recently made our 529 Plan Comparison Tool even easier. Simply select the plan details you wish to compare, push the submit button, and immediately produce a table comparing all the 529 plans you are interested in. This is one of the most popular tools on 529 Plan Comparison Tool

Subscribe to Our Premium Service
Financial professionals will want the additional features that come with a premium subscription to They include a fee and performance lookup for over 3,000 investment options, our own state tax 529 suitability calculator, pricing details for every share class, an expanded 529 plan comparison tool, and a technical resource library including filled-out examples of tax forms. Only $14.95 per month. Subscribe here!

Until next month,

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2009 The Best Way to Save for College - A Complete Guide to 529 Plans

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