College Savings Plans, typically referred to as “529 Plans”, are state-sponsored investment programs designed to help families save for future college costs. These plans are permitted by section 529 of the Internal Revenue Code and require state sponsorship for participants to be eligible for federal income tax incentives. All states are free to design their own plans but are subject to certain federal requirements. Several federal laws have been enacted which have shaped today’s 529 Plans:

• Small Business Job Protection Act of 1996
• Taxpayer Relief Act of 1997
• Economic Growth and Tax Relief Reconciliation Act of 2001
• Pension Protection Act of 2006

Ongoing efforts are underway by the U.S. Treasury and the College Savings industry to formulate and refine federal taxation rules.

Advantages of College Savings Plans

College Savings Plans have several advantages over other savings plans focused on the cost of college. The most significant of these advantages are the deferral of federal income taxes on the earnings of 529 Plan investments and the tax-free withdrawal of funds for “qualified” postsecondary education costs. Other significant advantages include:

• Participants, who own and control the 529 Plan account, can be almost anyone (parents, grandparents, relatives, non-family members).
• No income limitations on participants or anyone else contributing to a 529 Plan.
• Minimal impact on financial aid. Plan assets belong to the participant rather than the student.
• Prefunding of up to 5 years of “gifts” exempt from gift taxes of $65,000 ($13,000 per person per gift annually in 2009)
• Residents of any state can participant in any other state’s plan.
• Assets can be reassigned to other beneficiaries who are family members.

"Qualified" college costs include tuition, fees, books, board and room, supplies and equipment (e.g. a computer) necessary for attendance at colleges, community colleges, trade schools and graduate schools which are eligible for federal student aid programs, and even at some accredited international schools. Such costs are subject to certain IRS Regulations.

The State of New Hampshire offers two 529 College Savings Plans which are managed, under contract, by Fidelity Investments. For additional information go to New Hampshire College Savings Plan or to Fidelity Investments.