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Maximum Contributions for College Savings Plans Jump Sharply
Daily Policy Digest

Education Issues / Financing Higher Education

Tuesday, January 22, 2002
Sponsors of college 529 savings plans have sharply increased the amount that can be saved in the plans. The plans, which take their name from Section 529 of the Internal Revenue Service code, are investment portfolios typically administered by a mutual fund company. Earnings are deferred until they're withdrawn, at which point they are taxed based on the tax bracket of the beneficiary -- typically a college-bound student -- not the contributor.

  • In the past year, most 529 plans have jacked up the limit of contributions from $160,000 or less to an average of $217,729.
  • The limits vary considerably from state to state -- with Rhode Island allowing parents to contribute up to $262,620, while Utah limits contributions to $101,650 for in-state schools or $176,000 for an out-of-state college.
  • But college savings analysts expect the differences to narrow as plan sponsors compete for contributions -- particularly from families who want to send their children to Ivy League schools.
  • Experts project that the four-year cost of a private-school education in 18 years will exceed $200,000.
Many 529 plan administrators initially based their limits on the cost of four years' education at the most expensive college in their state. Now the higher limits reflect the costs of attending the most expensive schools in the U.S. -- and many states now factor in the cost of graduate school.

Source: Sandra Block, "College 529 Plans Raise Contribution Limits," USA Today, January 21, 2002.

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