529 accounts are good and are one of the best ways to save for a child’s education.
When paying for college there are many options.
Uniform Transfers to Minors Accounts;
Prepaid tuition plans; and
529 plans to name a few.
The 529 account seems to have the best features of each option and be one of the better investment vehicles.
The biggest advantage is that earnings and most withdrawals are free of income unless they are not used for tuition, room, board, and other authorized expenses.
Another advantage is that gifts to a 529 account can be made in larger amounts. Typical gifts can only be $12000 per person per year. but with a 529 plan you can make a gift that is 5x as large.
As far as estate taxes are concerned, all amounts contributed are excluded from your estate even though you control the account.
Any Downsides worth noting?
529 accounts don’t let you choose the investments yourself.
If you use funds in the account for non-qualified purposes, a 10% penalty will apply to the portion of the withdrawal which constitutes investment gains.
The tax laws which make 529 accounts so great may expire in 2011
If Congress fails to extend the new tax laws, and other key benefits can always be changed during a future session of Congress.