NEW YORK (CNN/Money) -
How do I know whether my state, Arizona, sponsors a 529 college savings plan? Is there a web site that lists the states that participate?
-- Damian, Phoenix, Arizona
All 50 states, plus Washington, DC, now offer 529 college savings plans, which isn't surprising considering that, along with saving for retirement, accumulating a stash to pay for their kids' college expenses is one of the most pressing financial concerns facing many families today.
In fact, a large number of states offer more than one 529 plan, so residents of many states, are able to pick and choose from among the 529 plans offered by different financial organizations (although each of the plans must abide by some basic rules the state sets).
Arizona, for example, has six different 529 programs. And if you don't like any of those, you can get the same tax advantages your in-state plan offers by enrolling in one of the many out-of-state programs that accept non-residents.
Go to the experts
I know this not because I'm an idiot savant when it comes to 529 plans, but because I went to the site that is basically the godhead for information on college savings plans, the aptly named Savingforcollege.com Web site.
By going to this site you can get a good overview of how 529 plans work in general. Basically, you contribute money to an account for a beneficiary -- a child, grandchild, whatever -- and as long as the money remains within the account it grows tax free. If you withdraw the money to pay for qualified higher education costs, the distribution escapes taxes from the feds.
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Beyond that general introduction, however, you can also get the details about your state's plan. For example, some states also offer additional tax benefits such as a deduction for your original contributions (not the case in Arizona) and/or a tax exemption on qualified distributions (which Arizona does provide). There's also a link to each state's plan.
The other neat thing about this site is its 529 Evaluator, which allows you to compare any two plans, stacking up two in-state plans against each other or, for that matter, comparing one of your state's plans to that of another state. You can also pick specific criteria for comparing the plans. So, for example, you can compare the fees of one program vs. another or the investment options.
Look at other options, too
Keep in mind, however, that even with their various tax advantages, 529 plans may not be the best way for you to do your college savings. If you're certain you'll need financial aid for Johnny or Sue when college enrollment time rolls around, you're probably better off foregoing a 529 and investing in your own name in tax-efficient investments, such as tax-managed mutual funds.
That's because the money you save in a 529 can count heavily against you under college financial aid formulas. On the other hand, if you've got so much moolah that your chances of receiving financial aid are slim, then 529s offer an excellent way for you to leverage your college savings. For more on strategies for college savings, click here.
One way or another, though, most of us have got to do engage in some sort of savings program if we want to see our endearing little rugrats enter the halls of academe. So check out the options and get started now.
Walter Updegrave is a senior editor at MONEY Magazine and is the author of "Investing for the Financially Challenged." He also answers viewers' questions on CNNfn's Money & Markets at 4:40 PM on Monday afternoons.
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