If you are saving for college, consider a Section 529 plan. Although contributions are not deductible for federal purposes, plan assets can grow tax-deferred. (Some states do offer tax incentives for contributing.)

Distributions used to pay qualified expenses (such as tuition, mandatory fees, books, equipment, supplies and, generally, room, and board) are income-tax-free for federal purposes and typically for state purposes as well, thus making the tax deferral a permanent savings.

529 plans offer other benefits as well:

• They usually offer high contribution limits, & there are no income limits for contributing
• There is generally no beneficiary age limit for contributions or distributions
• You can control the account, even after the child is of legal age
• You can make tax-free rollovers to another qualifying family member

Finally, 529 plans provide estate planning benefits: A special break for 529 plans allows you to front-load five years’ worth of annual gift tax exclusions and make up to a $70,000 contribution (or $140,000 if you split the gift with your spouse).

The biggest downside may be that your investment options — and when you can change them — are limited. Please contact us for more information on 529 plans and other tax-smart strategies for funding education expenses.