From the September 2015 issue

What You Should Know About College Savings Plans

When is the best time to open a college savings plan? The earlier, the better if you want to maximize your savings and completely – or mostly ¬– cover your child’s college costs. But the truth is that it’s really never too late to start. Even contributing for a couple of years can help afford your child his or her educational dream.

But before you start, you’re bound to have questions. Here we tackle some of the most common ones:

I’ve heard of 529 college savings plans. What is that? A 529 savings plan is a state-sponsored college savings plan, and “529” simply refers to the Internal Revenue Service code. 529 plans vary in how they may be used. You may have heard of Michigan Education Trust (MET) and Michigan Education Saving Plan (MESP), which are both Michigan-sponsored 529 plans. Michigan also has a third 529 plan called the MI 529 Advisor Plan. In order to open an MI 529 Advisor plan, however, you’ll need the help of a broker or financial advisor.

What is the difference between MET and MESP? Both MET and MESP are state-sponsored college savings plans, but they work a little differently.

MET is a prepaid tuition plan that locks in tuition at Michigan colleges at today’s costs. This year, the average tuition hike at Michigan colleges was 2.78%. Many years, it’s been even higher. When you factor those increases year after year, you can see the savings in locking in today’s tuition.

MESP is like a Roth IRA, in that you make after-tax contributions that are invested in mutual funds and other financial vehicles and earn interest over time. The investment growth is tax free as long as it’s spent on qualified higher education costs.

MI 529 Advisor is also an option, though families will need to go through a broker or financial advisor to set one up, notes Robin Lott, executive director of MET. You can use these savings on any qualified higher education expenses. To learn more about MI 529 Advisor, visit MI529Advisor.com.

What happens if I sign up for MET, but my child ends up attending an out-of-state college? “Students can go anywhere in the nation,” explains Lott. However, since the money you invest in MET is tied to credit hours for in-state public universities and colleges, Michigan public colleges  will be your best value. If your child attends an out-of-state college or a Michigan private college, you simply get a refund of your investment. Families will have to pay the difference in tuition at their child’s out-of-state college.

Is there a minimum or maximum contribution for a 529 plan? In regards to MET, your minimum contribution can be as low as $14 a month, if you’re buying a community college contract for a newborn to 3-year-old child for community college, Lott notes. There are three types of contracts and many payment plans available depending on the current age and grade of your child and benefits you’re seeking.

With MESP, “Your minimum contribution is $25 and you can contribute as often or as infrequently as you like,” says Jennifer Howey, senior marketing manager for MESP. “The commitment is whatever you can work into your budget.”

That could mean contributing once a year, once a week or only for holidays.

Or, if you set up payroll deductions, it’s a $15 minimum per pay period.

How do college savings plans compare to other savings options? See for yourself! Visit MISaves.com/compare and use the interactive tool to see how an MESP account and 529s stacks up when compared to education savings bonds, custodial accounts and more.

Take note: There are advantages to saving with both MESP and MET. “Saving in both MET and MESP provides an opportunity to qualify for two state tax deductions as well as diversify your college savings portfolio to help save for the total cost of higher education,” Lott explains.

Have more questions? Learn about how an MET and MESP college savings account can work for your family at SETwithMET.com and MISaves.com/faq.

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