Inside Georgia's College Savings Plan

Georgia, like most states, has a 529 plan for saving money for college expenses. Colleges in Georgia and around the nation are increasing in cost faster then the rate of inflation or the increase in GDP.

Most parents are in shock when they learn the high cost of college for the first time. So, consequentially, they are thrilled to learn of the Georgia College Savings Plan. But there are some things to think about when purchasing a 529 plan for educational expenses.

Advantages of a 529 Plan

Anyone who is a U.S. citizen and over the age of 18 can contribute to a 529-college savings plan for any beneficiary. Although state residency is not required it might be wise to purchase a plan in the state in which you have a permanent residence.

The funds can be used at any eligible higher education institution in the U.S. or abroad and can be used for tuition, books, mandatory fees, supplies, equipment, room & board, and certain expenses for students with special needs.

Georgians can contribute $2,000 per year tax free on behalf of any beneficiary. They have seven investment options from which to choose. With a low minimum contribution that all can afford they are quite enticing.

There is also the ability to transfer to another beneficiary, which is a great benefit should the original beneficiary decide not to attend an eligible institution of higher learning.

Disadvantages of a 529 Plan

You need to be sure your beneficiary is going to attend an institution of higher education that is eligible for receiving these funds. Otherwise you will be penalized for ineligible expenses.

The investments are not insured or guaranteed and are at risk for losses. If you don't understand mutual fund risk you should refrain from investing.

In order to receive the maximum tax benefits you must reside in the state in which the plans are sold. See your tax advisor before purchasing a 529 plan.

There are numerous fees and expenses which are greater then 8% over a ten-year period. Beware that fees and expenses can be increased at any time.

The plan manager can be replaced by the plan's board and your investment options can change which can cause confusion and ultimately losses in the plan.

Also something to beware of, contributions to a 529-plan can adversely affects the beneficiary's eligibility for financial aid.

College expenses can increase substantially from year to year. Investment returns may not keep up with these increases.

Request for distributions don't always happen quickly. So plan accordingly.

College savings plans are great but they must be thought out well before investing. It is prudent to discuss these plans with an investment expert or your tax advisor. They aren't for everyone so proceed widely with both eyes open.