While the youth of many families and friends are heading off to college, we think about the high cost of education. The government provides programs to help with college expenses, but preschool is the time to start preparing.

Section 529 of the federal income tax code provides for education savings plans. A 529 education saving program offers tax advantages on the gains from funds withdrawn from such an account.

These funds can be used for education through graduate school. Gains are not taxed if the funds are used for specific education costs as defined in the Internal Revenue Code.

Education costs include tuition, necessary materials such as textbooks and computer services, necessary living expenses and special needs services necessary for attending college. Expenses are subject to limitations. Clothing and transportation including vehicles do not count in this program.

For the tax advantage, the beneficiary must be enrolled in a qualifying educational institution that participates in federal student financial aid programs. Among the limitations, a student must be enrolled at least half time in a qualifying institution for room and board to qualify as a college expense.

Recent changes to 529 plan features make this means of saving for college even more appealing. Secure Act 2.0 allows investors the opportunity to change the purpose of the savings funds if college plans change.

With the new rules, there are options for unused funds. Maybe a student earns a great scholarship so does not need all the savings. On the other hand, maybe a youth drops out before the funds are used.

The new rule offers greater protection from loss. Under the rule, up to $35,000 in a 15-year-old unused educational account may be moved to a ROTH IRA.

The beneficiary may take advantage of the savings and growth in retirement. The account must be longstanding to avoid it being used as a quick loophole.

A 529 education investment plan might be a great way to save for college. Such plans, though, come with some risk. As with all investments, there is a chance of loss.

While 529 education investment plans are established by the federal code, they are governed by state laws. The benefits vary by state.

In California the investment program is limited and only applicable for higher education. In some states withdrawals can begin in kindergarten, so it is more than a college saving program for those residents.

Also in California, there is not a tax deduction regarding funds when they are put into the program. The tax saving only applies to gains on investment at the time of withdrawal.

One advantage of a 529 college plan is that the investor has total control. It is not the type of program in which the student gets the funds and can freely spend.

Another advantage is that there are no income limitations. Even high earners can use the plan, and it has a high maximum.

Be aware that the tax benefit comes from not having to pay income taxes on the gains. These gains take time to accumulate. The advantage comes in starting when the beneficiary is young. Grandparents and great grandparents might help.

Derek Elrod CPF®, a former student of mine, inspired me to inform folks about this important topic. Derek, a Dos Palos High School graduate who serves the Westside, is a partner with Bridgewealth Advisory Group, LLC.

Derek is a regular guest on the Fox 26 News program, Dollars and Sense. On the program, Derek answers questions about pertinent financial topics of general interest.

This column is for general information only. Please consult a local tax adviser regarding personal situations. (Janet Miller is a freelance writer specializing in family faith. She offers Family Prayers and Activities: Weekly Guides on compact disc for families to explore the Bible together.

Janet Miller

Janet Miller is a freelance writer specializing in family faith. She offers Family Prayers and Activities: Weekly Guides on compact disc for families to explore the Bible together. Email jmiller@dospalos.org.