- The Washington Times - Friday, July 7, 2006

Virginia is trying to increase the number of residents saving for college by offering them many of the benefits of a bank, plus a tax deduction.

The Virginia College Savings Plan is branching out from being only a repository of college savings to offering certificates of deposit and interest-bearing savings accounts that allow customers to withdraw money at participating banks.

Its customers would be able to get the same tax deduction on interest bearing accounts that they get from saving money for college under the state’s Section 529 plan, which refers to a section of the federal tax code.

“It’s just more flexibility and more alternatives for those who are saving for education,” said Bruce Whitehurst, executive vice president of the Virginia Bankers Association, a trade group for the state’s banks.

The Virginia Bankers Association is helping to arrange for banks to offer the expanded services to 529 plan customers, beginning later this year or early next year.

Conditions of the services would vary between the dozens of banks that have expressed an interest.

“It’s going to be up to each bank to figure out what works best for them and their customers,” Mr. Whitehurst said.

All of the services would allow customers to deposit money that earns interest or dividends free of any federal taxes as long as the earnings are used to pay college expenses. In addition, Virginia allows up to a $2,000 deduction per year from state taxes.

The Ohio Tuition Trust Authority offers similar investment options, but limits the choice of its customers to one regional bank. Virginia would let its customers choose between many banks.

Ohio officials say the certificates of deposit and interest-bearing savings accounts they started offering in September have attracted 3,000 new customers and $16 million in deposits.

“When you combine that with the state and federal tax benefits that are available in 529 plans, it makes it a pretty good deal,” said Jackie Williams, Ohio Tuition Trust Authority executive director.

Maine and Hawaii also offer bank accounts through their college plans.

Maryland and the District offer 529 plans, but do not offer certificates of deposit or interest-bearing savings accounts.

Virginia administers the nation’s largest college savings plan with more than $17 billion in assets from about 2 million households.

Its customers hold accounts that average $9,000 each.

Tuition at Virginia’s state colleges runs about $8,000 a year.

One of the program’s most popular services is its pre-paid college plan, which allows customers to make monthly deposits for children as they progress through school toward college.

“I did the plans while they were still in middle school,” said Amy Nisenson, a Richmond bank community affairs manager, referring to her two teenage children. One is a college sophomore and the other is a 16-year-old high school junior.

“It was a good message for them that they needed to do well in school so they could go to college,” she said.

She invested in the pre-paid plan to pay their college tuition and the Virginia Education Savings Trust Program investment fund to pay for their books and room and board.

“It would be a little bit less that I would have to borrow,” Mrs. Nisenson said.

Unfortunately, not all families can afford to make significant monthly payments, said Diana Cantor, executive director of the Virginia College Savings Plan, which was organized by the state of Virginia 10 years ago.

Certificates of deposit and interest-bearing savings accounts would appeal to households that can save only small amounts of money toward college.

“Our target is to get at every Virginia family that only has $5 a month to put away,” Mrs. Cantor said. “We want families to know that if you put a little bit away, it can add up for you.”

Unlike the pre-paid college plan or the savings plan’s two investment funds, the value of the deposits would not fluctuate with the stock market. Customers would earn guaranteed rates of interest.

“Some may not have the investment risk tolerance that many other families would have,” Mrs. Cantor said.

The difference between the two investment funds is that one is offered through the Virginia College Savings Plan and the other is offered through investment advisers.


• Tax advantages. Earnings can grow tax-free. Withdrawals for qualified higher education expenses are free from federal tax. Tuition, room and board, and required books and supplies qualify as higher education expenses.

• Can be used for any accredited college, not just schools in the state that sponsors a 529 plan. Includes undergraduate, graduate, postgraduate and technical training.

• Up to $12,000 a year in contributions allowed ($24,000 for married couples) without gift-tax consequences. Under a special election, up to $60,000 ($120,000 for married couples) in contributions can be made at one time by accelerating five years’ worth of investments.

• No income limits. Contributions can be made regardless of how much money the contributor earns.

• ]Ability to save for anyone. Beneficiaries can include children, grandchildren, nieces, nephews, friends or the contributor. The beneficiaries can be changed within the same family at any time.

• Control of assets. A contributor can decide when to make withdrawals. The account assets can be moved once a year or when beneficiaries are changed.

Source: American Funds

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