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College savings plans (529 and Coverdell tax-advantaged plans)

Health Factors: Education
Decision Makers: State Government
Evidence Rating: Insufficient Evidence
Population Reach: 10-19% of WI's population
Impact on Disparities: Likely to increase disparities

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Description

College savings programs allow parents, grandparents, and others to invest dollars tax-free to save for future college expenses. According to the SEC, there are 2 types of “qualified tuition programs” 529 plans, a pre-paid tuition plan, and a college saving plans. All 50 states and DC offer at least one type of plan, and several private colleges and universities sponsor pre-paid tuition plans. These programs allow for prepaying or contributing to an account established to cover the costs of higher education at qualifying institutions (IRS).

Expected Beneficial Outcomes

Increased financial resources available for attending college

Evidence of Effectiveness

These plans can be helpful for setting aside college funds, but financial benefits are greater at higher incomes (Dynarski 2004). To date there is little evidence supporting these programs as a means to encourage or motivate education beyond high school, though they may reduce economic barriers for some potential students.

Implementation

United States

Every state has at least one 529 college savings program, with maximum state tax deductions varying widely.

Wisconsin

Wisconsin state college savings programs were initiated in 1996 and serve over 225,000 future students; up to $3,000 per beneficiary per year can be deducted from WI state taxable income. EdVest and Tomorrow’s Scholar are two such programs operating in Wisconsin.

Implementation Resources

IRS-Coverdell - Internal Revenue Service (IRS). Coverdell education savings accounts. Accessed on February 10, 2016
US SEC-529s - US Securities and Exchange Commission (US SEC). An introduction to 529 plans. Accessed on November 17, 2015

Citations - Evidence

Dynarski 2004* - Dynarski S. Who benefits from the education saving incentives? Income, educational expectations and the value of the 529 and Coverdell. National Tax Journal. 2004;57(2 Part 2):359–83. Accessed on March 1, 2016

Page Last Updated

January 1, 2011

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