HUNTSVILLE, Ala. -- The State of Alabama is promoting its college savings plan and says the upcoming holiday and tax seasons make this the perfect time to give.
Alabama State Treasurer Young Boozer was in Huntsville Tuesday touting Alabama’s CollegeCounts 529 savings plan.
The plan basically works like a 401(k) and the money can be withdrawn for approved educational uses.
“It is the best way to save for a child’s or grandchild’s college education, no question about it. Period. End of sentence,” Boozer told WHNT News 19.
Boozer stressed the tax advantages of the savings plan.
“Tremendous tax advantages, if you look at, you open the account, make a contribution, the contributions are tax deductible for state tax purposes up to $5,000 if you’re filing singly, up to $10,000 if you’re filing jointly,” he said. “So money goes into the account on a tax-advantaged basis.
“When you get ready to use it, if use all those monies for qualified education expenses, it’s all tax-free.”
Alabama had problems with its PACT college savings program going back to about 2008. Boozer said that program has been stabilized and has been closed to new enrollments for several years.
He said the CollegeCounts program is different than PACT. He said College Counts is a defined contribution program – like a 401(k), saved money is invested, investors get the returns – not a defined benefit program like PACT – which was like a pension with a promised payoff.
Boozer said Alabama’s college costs rose at a sharp rate beginning more than a decade ago, and at the same time the PACT program investment returns stalled. That increase in costs and reduction in investment income led to problems.
The CollegeCounts program gives investors a number of options, Boozer noted, including flexibility for investors to manage their own portfolios within the plan.
The plan also allows parents, grandparents, friends and relatives, to all participate in paying into the college fund for a would-be student.
The money can also be transferred to another student for college or graduate school, or technical or trade school, he said.
Boozer said parents should begin saving when their children are newly born, but also emphasized it’s not too late to start.
And he said the value of a college education over a high school diploma is clear. Boozer said studies have shown a college degree compared to a high school diploma is worth about $1 million in earning power over a lifetime.