Section 529 Summary

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Memorandum To: Bobby Barker CC: Dr. Linwood Kearney From: Manuel Marroquin Date: [ 9/15/2011 ] Re: Section 529 Qualified Tuition Programs Introduction Section 529 Qualified tuition programs are college savings plans designed to encourage investors/donors to save for future college costs, while providing many tax advantages. Section 529 plans are legally known as “qualified tuition plans.” These plans are sponsored by the states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code. Qualified tuition programs, as authorized by Section 529 of the Internal Revenue Code, permits the states, state agencies, and eligible educational institutions to establish and maintain programs, allowing an investor/donor, to contribute monies into an account for paying a student’s future qualified education expenses at a postsecondary institution. Section 529 Plans There are two types of 529 plans: Pre-paid tuition plans and College savings plans. First, if you choose to invest in a prepaid tuition savings plan, you the investor/donor “may purchase tuition credits or certificates on behalf of a designated beneficiary,” at today’s rates to be used in the future. Pre-paid tuition plans are sponsored by eligible educational institutions. The beneficiary is entitled to use the prepaid tuition credits for qualified higher education expenses. Second, you also have the option of investing your money in a state sponsored college savings plan. State sponsored college savings plans allow you to, “make contributions to an account which is established for the purpose of meeting the qualified higher education expenses of the designated beneficiary of the account.” College savings plans differ from pre-paid tuition plans in that the growth of the contributions is based on market performance of the primary investments, which

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