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Tax-Free Tuition
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Missouri
Saving for Tuition program provides real incentives for parents
saving for college.
By William Poe
If you’re not saving for your child’s college education, the State
of Missouri has given you one fewer excuse. The Missouri Saving
for Tuition program, known as MO$T, offers significant tax breaks
for those saving for a child’s higher education.
Better yet, the MO$T program carries very few restrictions on
participation requirements. For example, anyone—a parent, grandparent,
relative or friend—can open and contribute to a MO$T account for
a beneficiary and receive the tax advantages of the program. The
account owner, in turn, can designate anyone as a beneficiary.
There are no prohibitions based on age, relationship to the account
owner or state residency of either the account owner or the beneficiary.
“Regular contributions to a MO$T account is the best way families
can ensure that money will be there to pay the costs for advanced
education,” says Missouri State Treasurer Bob Holden, whose office
developed MO$T.
A MO$T account can be started with as little as $25, and contributions
can be made through a number of mechanisms including periodic
individual payments, payroll deductions and electronic funds transfers.
Eight months after the Missouri program was launched, MO$T had
attracted more than 6,200 accounts with total value of more than
$19 million, according to Vernice Givens Monroe, director of communications
for Holden.
MasterCard International, Inc. of St. Louis was the first major
private-sector employer in Missouri to offer the MO$T program
to its employees through payroll deduction.
“MasterCard believes that education is very important for the
future, especially for our staff and their families,” says Jerry
McElhatton, president. “Adding MO$T as an option in the MasterCard
benefits program provides staff with flexibility, accessibility
and tax benefits while saving for higher education for themselves,
family or friends.”
Employees at SSM Health Care have been slow to jump on the MO$T
bandwagon. “Personally, I think it’s a nice program, but we’ve
not had a lot of interest in it,” says Terri LaBriola, SSM’s regional
vice president for human resources. “We don’t seem to have much
participation.”
Ditto for Brown Shoe Company, Inc. where Lora Wilson, Brown’s
director of human resources, reports that just 10 employees had
authorized payroll deductions in the first program month.
“I think it’s a good program,” Wilson says, “but there is probably
a need to build greater awareness of it.”
“Agreed,” acknowledges Mary Lehnan, a tuition financing consultant
with TIAA-CREF Tuition Financing, Inc., which manages the Missouri
program. “We’re very satisfied with how things have been going
in the state. It’s just a matter of getting the word out there,”
Lehnan says. “Parents and teachers need to know about it. Financial
counselors and CPAs need to know about it. Estate planners need
to know about it.”
Money saved through MO$T can be used to pay for qualified educational
expenses — tuition, on-campus room and board, books and supplies
— at any eligible post-secondary educational institution anywhere
in the country, according to MO$T literature. Acceptable institutions
include two- and four-year private and public colleges and universities
and vocational, technical, professional and proprietary schools
and theological seminaries.
Although each MO$T account may have only one account owner and
one beneficiary, multiple MO$T accounts may be funded up to a
lifetime maximum of $100,000 for each beneficiary. There is no
annual contribution limit.
Under federal law, earnings from funds placed in so-called Section
529 tuition savings accounts such as MO$T grow tax-deferred until
they are withdrawn to pay for qualified higher education expenses.
The earnings then are taxed at the student beneficiary’s rate,
which is generally lower than that of the account owner.
At the state level, earnings in MO$T accounts grow tax-free with
no tax due on withdrawals for eligible expenses. Missouri also
offers a state tax deduction of up to $8,000 per individual for
contributions to MO$T accounts.
Any accumulations withdrawn and not used for eligible education
expenses are subject to federal and state taxes at the account
owner’s rate as well as a 10 percent penalty. Funds not used by
an account beneficiary can be transferred without tax or penalty
to another family member to pay his or her post-secondary education
expenses. Accumulations also can be withdrawn without penalty
in the event of a beneficiary’s death, disability or receipt of
a scholarship.
If contributions are made to an Education IRA and the MO$T program
in the same year and for the same beneficiary, the amount contributed
to the Education IRA is subject to a federal excise tax.
Missouri is one of 42 states currently offering or soon launching
college savings plans under 1996 federal enabling legislation.
Unlike the original pre-paid state college plans designed to protect
against inflation, today’s savings plans generally are not restricted
to state residents, although residents often receive special advantages.
Generally, once account owners have put money into a plan, they
have no control over how funds are invested. Missouri’s plan is
managed by TIAA-CREF, a wholly owned subsidiary of Teachers Insurance
and Annuity Association. CREF stands for College Retirement Equities
Fund. TIAA-CREF is a leading, non-profit provider of financial
services and is the largest pension system for people employed
in education in the U.S.
The Internet is a good place to compare plans. The College Savings
Plan Network at <> provides links to state
plan sites. Joseph F. Hurley, author of “The Best Way to Save
for College” rates state plans and investment returns at<www.collegesavings.org>.
Information on MO$T, including applications and a full disclosure
document, can be obtained by calling toll-free 1-888-414-6678
or by visiting the MO$T web site at <www.missourimost.org>.
William V. Poe is principal of Poe Communications, a St. Louis
advertising and marketing communications firm.
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