529 College Savings Plan

What you should know about 529 college-savings plans


If you've looked into saving money for your child's or grandchild's education, you've faced a bewildering array of options. The 529 college savings program is the newest, hottest option for college wealth-building, but many members are confused about the 529 program and what this program allows.


The "529 College Savings Plan" is the result of a 1996 revision to the IRS tax code. This tax code, section 529, allows states to set up a college-savings alternative to prepaid tuition programs. In Missouri, the 529 College Savings Plan is better known as "MOST" (Missouri Saving for Tuition). MOST was developed under the guidance of Governor Bob Holden while he was the Missouri State Treasurer.


Almost every state in the nation has developed a college savings plan, and large financial companies are cutting deals with individual states to run their plans and market them nationwide. You can participate in any state's college savings plan.


Be sure to consult a trusted financial or tax advisor before selecting a plan. Fees vary widely among state plans, charges aren't disclosed in a standard form, and some states have layered their own restrictions on top of the strict federal rules governing these plans.


Some rules on contributions

  • Anyone may contribute to the account, regardless of his or her income or state residency.

  • Maximum contributions to an account vary from state to state, but typically they exceed $125,000.

  • Contributions may total $10,000 per year per beneficiary ($20,000 for couples filing jointly) without triggering federal gift taxes, or you can make a $50,000 contribution ($100,000 for couples filing jointly) in a single year and pro-rate it over a five-year period without triggering gift taxes if no other gifts are made to that beneficiary.

  • A person making a contribution to a 529 college savings plan cannot make a contribution to an Education IRA in the same year.
  • In Missouri, contributions up to $16,000 per couple filing jointly or $8,000 per person are exempt annually from state taxes.

Key Features

  • Proceeds may be used at any accredited post-secondary school in the United States.

  • Contributions are invested in professionally managed portfolios.

  • Earnings accumulate tax deferred for federal tax purposes until withdrawn.*

  • Earnings are free from state income taxes for Missouri residents participating in MOST.

  • Money withdrawn from the account to pay for qualified education expenses is federally taxed at the beneficiary's tax rate (usually 15 percent).

  • Beneficiaries receiving 529 income remain eligible for the HOPE scholarship and Lifetime Learning Credit in the same year.

*Earnings in the account representing capital gains will be taxed as ordinary income when withdrawn. Taxes due may be higher than if the assets were held outside the account.



  • Earnings withdrawn for non-qualified expenses are generally taxed at the owner's tax rate and are subject to an additional 10 percent penalty.

  • If the beneficiary wins a scholarship, the owner will be refunded the scholarship amount without penalty.

  • There are still questions about whether the assets in these accounts will be considered scholarship funds, thereby affecting a beneficiary's financial aid.

  • Only the account owner can make withdrawals. Therefore, the owner can use it for the intended child or can transfer it at will to another family member, or withdraw it for his or her own use (tax and penalty will apply).

To learn more about 529 college savings plans or to enroll in the Missouri Saving for Tuition (MOST) 529 program, contact Reliant Financial Services, MNEA's endorsed member-benefit provider, at (800) 471-7717.

3 Investment Strategies to Build Your College Fund

Add This
Decrease Text Size
Printer Friendly Version
Read to Achieve Contest 

If your school is within the KCTV5 viewing area (greater Kansas City), teachers at your school are eligible for a chance to win $1,000. The Read to Achieve contest is co-sponsored by Missouri NEA and Kansas NEA.

Contest Entry >>