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The Honolulu Advertiser
Posted on: Thursday, December 28, 2006

AKAMAI MONEY
Local financial planner touts 529 college savings plan

By Greg Wiles
Advertiser Columnist

GOT A QUESTION?

Have a question about money matters? Akamai Money columnist Greg Wiles can try to answer it in The Advertiser. Reach him at gwiles@honoluluadvertiser.com or 525-8088.

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Q. I'm interested in setting up a 529 college savings plan but don't know where to go. Is there a state-sponsored plan in Hawai'i and are contributions tax deductible?

H. Kau, Honolulu

A. Yes, there is a state sponsored 529 plan known as TuitionEdge.

It started in 2002 and is marketed locally by First Hawaiian Bank. You can visit the plan's Web site at www.tuitionedge.com or call 643-4529 to find out more.

Local financial planner Alan Matsuda recommends 529 plans because they have advantages over some other college savings programs. Named for Section 529 of the Internal Revenue Service Code, the plans have grown in popularity in recent years because of the flexibility and tax advantages. Unfortunately contributions aren't tax deductible when it comes to Hawai'i state taxes, though this could change if legislators decide on an exemption. At least 20 other states have a deduction for the plans.

The plans are also attractive because investments grow with taxes being deferred. Money can be withdrawn free from Hawai'i and federal income taxes if the funds are used for higher education expenses.

"It all grows tax-free and when you pull the money out it's all tax-free," said Matsuda.

Other advantages of the plans include:

  • Contributions to the account can be made by family members or friends. The minimum investment is $15 per contribution.

  • Under the federal gift tax law $12,000 per year can be given to another person without this levy kicking in. Under the 529 plan, a special provision allows the investing of five times this amount, providing the contributor doesn't make further gifts in the five coming years. This allows the establishing of a large lump sum that can be invested immediately. After the plan reaches $305,000 no more contributions can be made.

  • Beneficiaries can be changed as long as the new recipient is a member of the same family. "If your child doesn't want to go to college you can name a different beneficiary," Matsuda said.

  • Money can be pulled out of the account if needed by contributors, though there are penalties and taxes that must be paid.

    Ed Char, a First Hawaiian vice president, said 529s have been growing in popularity as college savings vehicles. He said the Hawai'i program, available through any First Hawaiian branch, has the advantage of having people locally who can answer questions about it.

    There are five investment options for people to choose from in setting up the TuitionEdge plan. These include a savings account option sponsored by First Hawaiian Bank and investments overseen by Delaware Investments, a large money manager for institutional investors and individuals.

    Do you have a question about personal finance, taxes or other money matters? Reach Akamai Money columnist Greg Wiles at 525-8088 or gwiles@honoluluadvertiser.com