When Congress first blessed state prepaid tuition programs and state college savings plans with tax breaks, they were pretty good deals. The tax bill on earnings over the years was deferred until the money was spent for college bills and, at that time, the earnings were taxed in the student's presumably lower tax bracket rather than the parents higher bracket. Now, however, the plans are even better: the earnings are completely tax-free as long as the prepaid tuition plan or college savings plan is actually used to pay qualifying college bills, including room and board.
Most states now have college savings plans and most are open to residents of any state — and the money can be used to pay costs at any college. For a review of the plans available to you, visit the College Savings Plans Network's website at www.collegesavings.org to see how you can take advantage of this great tax break for saving for college.
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