New Baby? Start Saving With a 529 Plan

Susan Bishop

Using 529 Plans:  You have a child! Congratulations! Start saving for their education since it comes sooner than you think.  The “parenting time continuum” is baffling: it feels like your child will never sleep through the night, yet education costs come knocking at your door all too soon!

I have paid for two kids to go to college. My third child is starting the college hunt right now. I am very happy that we contributed to a Section 529 plan in her honor. We didn’t contribute a lot but even our small contribution will help to take the sting out of college costs.

A 529 plan is also known as a Qualified Tuition Program (QTP.) There are two types of 529 plans: prepaid tuition or college savings plans. Contributions are not subject to any AGI limitations (but remember that contributions are not deductible for Federal purposes) and distributions of earnings from QTPs are excluded from income if used for qualified education expenses. Qualified education expenses include college costs and K-12 tuition attendance. You can invest in any state 529 plan and the account beneficiary can be anyone. Starting in 2017, MN will allow either a nonrefundable income tax credit or an income tax subtraction for contributions to any state’s 529 plan.

It’s important to talk to a qualified CPA, to understand the intricacies of the 529 plan rules for the MN Tax Credit and Deduction and the Federal contribution and distribution rules. In addition, I would urge you to meet with a professional before you take any 529 plan distributions. It is important to coordinate 529 distributions with claiming the education credit.

For additional information contact Susan Bishop, CPA at


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