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The San Jose Mercury News had a similar article (either this week or last week). I think that they made the point that withdrawals from the plan counted as income for the recipient, not for the contributors. Which if I read that right would seem to make this a very good deal for people in higher tax brackets.

Very true! And paying tax at the kid's rate can save big dollars. Here are some other benefits of 529 plans that you should know about:
1) Your state may offer you a tax deduction, tax exemption of earnings, scholarships, creditor protection, exclusions from the financial aid formula, and other goodies if you get into their program.
2) You stay in control of the account, even though it leaves your taxable estate (grandparents love this). Much better control than a UTMA or irrevocable education trust. You can revoke it whenever you want at a small earnings penalty.
3) Congress wants to make the earnings totally tax exempt. Two years in a row a bill has passed Congress and then been vetoed by Pres. Clinton. It's gonna happen sometime and your built-up earnings will get the benefit.
4)Most of these plans are cheap and easy and you can shop the various state plans for the one (or many) that fit your needs the best.
5)529 plans are compatible with the HOPE and Lifetime Learning credit and many other benefits that other programs (like the education IRA) are not compatible with.

One other thing to be aware of. Your favorite broker may not be too excited about talking to you about 529 plans because precious few investment companies have a "529 product". Most of them are waking up to 529 but there are only so many slots to go around.

If you have kids or grandkids, and you paid tax last year on interest, dividends, or cap gains distributions then you need to look into 529 plans. It is a truly remarkable thing that Congress and the states are giving us.


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