Giving gift of college education easier than ever

Instead of getting sucked into Black Friday’s vortex of excessive holiday consumerism, consider giving a gift that will last a lifetime by establishing or making a gift to a young person’s 529 college savings plan account.

If you’re an Indiana resident, the state also will reward you with an extremely generous tax incentive.

The 529 plans help families invest to pay future college costs. Contributions to 529 plans are not deductible on your federal tax return, but your investment grows on a tax-free basis. Distributions are tax-free, as long as they pay for qualified education expenses of the beneficiary, regardless of whether the college is public or private or where it is located.

Both savingforcollege.com and collegesavings.org offer a wealth of free, comprehensive information on 529 plans. You also should consult your tax adviser.

The account owner opens an account and names a beneficiary (the future college student). Funds in the account are used to pay qualified expenses of the beneficiary, but the owner controls when withdrawals are taken and for what purpose. The owner can even reclaim the funds (with tax and penalty) or change the beneficiary.

Every state (except Wyoming) offers a 529 plan, open to residents of any state.

While 529 plans share many characteristics, they differ as to the investment choices offered, fees, performance and state tax benefits.

Information on Indiana’s CollegeChoice 529 Savings Plans is at collegechoiceplan.com. The direct plan is for do-it-yourselfers, while the adviser plan is offered by financial advisers. In 2017, Morningstar awarded both Indiana plans its “Bronze” rating.

Hoosiers can claim a 20-percent income tax credit — up to a maximum of $1,000 per return each year — for contributions made directly to a CollegeChoice account, whether they are the account owner or not. Make a $5,000 contribution received by Dec. 31 and you can take a $1,000 credit on your 2017 Indiana income tax bill. On a net basis, each dollar contributed costs you only 80 cents, representing a risk-free 25 percent return on your investment.

Ugift (ugift529.com) is a free-to-use (to both gift giver and recipient) service that lets account owners suggest family and friends celebrate children’s milestones with the gift of college savings in lieu of traditional gifts. The account owner gets a Ugift code that can be entered by family and friends to contribute online at any time.

Gift of College (giftofcollege.com/) is a gift registry for 529 plans (and student loan accounts). The 529 account owner creates a Gift of College account (free) and links it to the 529 account.

Friends and family can either make direct gifts to the Gift of College account or purchase online or physical gift cards ($25 to $200) for a fee of $3.95 to $5.95. Gift cards also can be purchased at Toys “R” Us and Babies “R” Us. More than 25,000 gift cards have been redeemed in 2017.

The Private College 529 Plan (privatecollege529.com) is owned by nearly 300 member colleges nationwide — 13 in Indiana. It is a prepaid tuition plan (minimum initial contribution $25). Participants purchase tuition certificates at current tuition rates, to be redeemed for education years down the road at any member college.

An important point: The colleges bear the market risk, and you do not have to commit to a particular college until you actually enroll and redeem your certificates.

Mickey Kim is the chief operating officer and chief compliance officer for Columbus-based investment adviser Kirr Marbach & Co. Kim also writes for the Indianapolis Business Journal. He can be reached at 812-376-9444 or mickey@kirrmar.com.

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Julie McClure is assistant managing editor of The Republic. She can be reached at jmcclure@therepublic.com or (812) 379-5631.