State offers tax break for college savings

Associated Press

The state government is starting a program for families to save for college and get a tax break while doing so.

Earnings from the new savings program, Tuition-EDGE, will be exempt from federal and state income taxes when used for college expenses, said Gov. Ben Cayetano, who launched the program yesterday.

"Higher education is one of the best ways for our children to improve themselves, but our residents need help to afford the rising costs," Cayetano said.

It gives parents and grandparents, regardless of their income level, "a good option to invest for the cost of higher education for their children, grandchildren or other relatives," he said.

Hawai'i's "529 plan," named after Section 529 of the Internal Revenue Code, will be managed by Delaware Investments, which has a contract with First Hawaiian Bank to offer the accounts through its investment program.

Participants will select from three investment options or use a conservative savings account option.

The program doesn't guarantee any specific earnings. Withdrawals for purposes other than college-related expenses face a 10 percent penalty, but an account begun for one child can be used to cover another family member's college expenses without any penalty.

Hawai'i is one of the last states to create a 529 college savings plan, which helped prevent mistakes made in other state programs, according to one advocate, state Rep. Mark Takai, D-34th (Waimalu, Newtown, Pearl City).