Tax-free Withdrawals Are Available With Section 529 Savings Plans

Tax-free withdrawals from section 529 savings plans are permanent thanks to the Pension Protection Act of 2006. Now, parents must decide which to choose from the nearly 85 section 529 savings plans nationwide. Each state offers at least one savings plan program. West Virginia offers five.

Regardless of which plan you ultimately choose, each one has the same federal tax benefits. Earnings from the section 529 savings plans are income tax free. Qualified higher education expense withdrawals are also tax free. However, you cannot claim federal tax deductions on the contribution amounts.

Thirty-two states and the District of Columbia offer deductions on state income taxes for a portion of contributions made to section 529 savings plans. Kansas, Maine and Pennsylvania allow deductions for out-of-state plans.

Section 529 Savings Plans offered by state

State plans differ and the structure and investment options are determined by the state. State tax advantages and other benefits can be significant savings for investors who contribute to section 529 savings plans in their state of residence. Section 529 savings plans with reasonable allowable expenses and offer solid investments are considered the best choices. The following is a list of some of those plans and the state in which they are offered.

Arkansas has the GIFT College Investing Plan, managed by Upromise and Vanguard. Connecticut has the Connecticut Higher Education Trust (CHET), which is managed by TIAA-CREF. Kansas' Learning Quest 529 Education Savings Program is managed by American Century. Louisiana's START Saving Program is managed by the Louisiana State Treasurer. Maryland has the College Savings Plans of Maryland - College Investment Plan. This section 529 savings plan is managed by T. Rowe Price.

Nebraska has the College Savings Plan of Nebraska which is managed by Union Bank and Trust Company. Missouri's MOST - Missouri's 529 College Savings Plan is managed by Upromise Investments. New York's 529 College Savings Program - Direct Plan is also managed by Upromise Investments and Vanguard.

Mississippi's Affordable College Savings (MACS) Program is managed by TIAA-CREFF. Pennsylvania's 529 Direct Investment Plan is managed by Upromise Investments and Vanguard. Maine has two NextGen Investing Plans, one is a Client Direct Series, and the other is a Client Select Series. Both are managed by Merrill Lynch.

There are five states which offer section 529 savings plans that are beneficial to both in-state and out-of-state residents.

California has the ScholarSHARE College Savings Plan, managed by Fidelity Investments. Iowa's plan is called College Savings Iowa and is managed by Upromise Investments and Vanguard. The Michigan Education Savings Program is managed by TIAA-CREF. Finally, Nevada has The Vanguard 529 Savings Plan, also managed by Upromise Investments and Vanguard.

Consult a financial planner to determine which investment vehicle works best for you and your family's needs, whether you choose an in-state or out-of-state plan.