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529 Plans: A Great Way To Save For College In Michigan

(DETROIT) In 1996, the Internal Revenue Service created the 529 Plan, an education savings plan that lets families in all income brackets sock away cash for future college expenses.

A new way of paying for college was born.

529 plans work two ways: They're either prepaid or savings plans. Savings Plans let you invest contributions in mutual funds or similar investments, while prepaid plans let you pay in advance for the total cost of an in-state public college education in today's dollars.

A USA Today report says, "Every dollar can count if your child goes to a private school or state college. About 17% of families used 529 plans to pay for college in 2014-15 school year, up from 15% the year before, according to the newly released '2015 How America Pays for College' published by Sallie Mae and Ipsos."

In a 2012 study, comparatively, only 11 percent of families used 529 plans to pay for college.

Grandparents can contribute to a plan owned by the parents. And the earlier you start investing in your child's future education costs, the better.

And all plans are not identical, so do your research. Here's a great online resource that compares the effectiveness of each plan available in the state.

Avoid plans with maintenance fees or figure out how to get those fees waived, USA Today wrote.

"In Michigan, for example, contributions to the Michigan Education Savings Program offer a valuable tax break on the Michigan state return for Michigan residents," said Joseph Hurley, who founded SavingforCollege.com, in the report.

Also, Michigan taxpayers may be eligible for state income tax deduction on contributions to the MESP of up to $10,000 for married couples filing jointly. The limit is $5,000 for individuals filing single.

If you're in the market, know the Michigan Education Savings Program ranks among the top of the list with a "silver" rating, in the USA Today report. It only takes $25 to open the MESP. But the minimum contributions can be as low as $15 if you set up a regular payroll deduction plan from paychecks.

 

 

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