When you're living paycheck to paycheck, thinking of all the things you should be saving for can be overwhelming.
There's retirement, of course. Maybe a child's religious mission. And definitely the kids' college education.
Scary.
That's why I like what I'm hearing about 529 college savings plans — especially the one administered here in Utah.
I talked a little about these plans — named after Section 529 of the Internal Revenue Code — last month. To sum up, earnings and qualified withdrawals from a 529 account are exempt from federal income taxes. A saver can start with as little as $25 and may contribute up to $11,000 ($22,000 for married couples) per year, per beneficiary, without triggering gift taxes. Also, grandparents, family friends or others can contribute to the account.
I received several responses to that column, and one in particular drew my attention. Dale C. Hatch, deputy executive director of the Utah Educational Savings Plan, sent me an e-mail asking why I didn't mention Utah's 529 plan.
"The Utah plan is consistently rated as one of the top plans in national publications," Dale wrote.
I had heard that — in fact, national business columnist Andrew Leckey talks about this very topic inside today's Money section — so I decided to take Dale up on his offer of finding out more about the UESP.
The Utah program started in 1996 and grew slowly for a while. Then, in the fourth quarter of 1999, it started offering investment options that include the Vanguard mutual fund family.
"We had just over $1 million in investments when we came out with the Vanguard options," Dale says. "Now we're over $500 million in investments."
He says the program includes about 39,000 accounts, and more than 75 percent of those are from out-of-staters.
"We do not advertise outside the state of Utah, but we allow participants from across the country," Dale says.
When national attention was directed at Utah's plan in a 2000 Kiplinger's Personal Finance magazine article, folks from other states noticed.
"We wish we had more Utahns, and we need to get the word out," he says. "But for economies of scale, it's good to have those from outside the state. They get all the benefits, other than they don't get the state tax deduction."
Ah, the benefits. Here's where we get into the nuts and bolts of why Utah's is consistently rated as a top 529 plan. Dale says it offers nine investment options to handle people of different risk tolerances. Also, it has the lowest fees in the nation on any account above $10,000, he says, and doesn't have any up-front enrollment fees.
"Our intent is to encourage people to save for the college costs of their kids and grandkids, so our philosophy is to provide a very high-quality product at the lowest possible cost," Dale says.
And as a bonus, he says, the UESP has extra tax benefits for Utahns.
"Utah residents can deduct up to $2,870 per beneficiary per year on a joint (state tax) return, and the earnings on the accounts grow tax-free both federal and state as long as the funds are used for qualified educational costs," Dale says.
Those costs include tuition, fees, room, board, books and supplies at any accredited college or university.
The federal tax benefit is scheduled to expire in 2010, but Dale thinks the popularity of 529 plans will force politicians to make the exemption permanent.
So if you're thinking of contributing to a college fund as a Christmas gift for a child, grandchild, niece or friend this year, you may want to take a look at the UESP. For more information, you can call toll-free to 1-800-418-2551 or visit the program's Web site at www.uesp.org.
E-mail: gkratz@desnews.com