College Savings
3:30 am
Mon December 23, 2013

Need a Last-Minute Gift Idea? PA Treasurer McCord Suggests Donating to a 529

While many holiday gift givers will be heading out to the stores Monday and Tuesday for a few last-minute gifts, Pennsylvania Treasurer Rob McCord is offering another solution: give to a loved one’s college fund.

In specific, McCord is suggesting that Pennsylvanians either open, or add to, a PA 529 account. PA 529 accounts are college savings plans that take advantages of tax protections afforded under section 529 of the federal tax code. Contributions can be deducted from your Pennsylvania income tax and the fund grows tax-free as long as it is used for a qualified educational purpose.

McCord notes that accounts can be shifted from one person to another, which most often is the case when one child does not use their entire fund and the credits are handed down to a sibling or cousin.

“I even have friends who talk about sending their two kids through higher education and … they are trying to have enough salted away that they can send themselves on to more higher education for the fun of it in the senior retiree years,” said McCord.

The PA 529 offers an account that invests directly in traditional mutual funds and something called a guaranteed account which links the investment to college tuition increases.  In effect, the deposit is buying college credits at today’s rate for use in the future. The investment is principal protected and has been growing quickly in recent years.  Some fees do apply to the accounts.

The Treasury Department is waiving the usual $50 fee on all accounts set up in December.

“People can open accounts on behalf of anybody they care about … but one thing people forget to do is to say ‘if it is convenient for you fell free to give to little Sally’s or little Johnny’s account.’” McCord said.

McCord says along with knowing that the gift will not break in the first week or have to be returned because it doesn’t fit, it also seems to have an impact on a student’s success in school.

“Children who have a 529 college savings account are seven times more likely to go and complete a four-year degree than kids who do not have a 529 account opened in their name,” said McCord, who believes a deposit in a 529 account sets up a family cultural signal that a degree is expected.