College savings update.

• Author: Phelan, Sarah

Readers have raised several inquiries concerning the column, "College Savings Vehicles," TTA, January 2001, p. 53. The authors address the readers' concerns in question-and-answer form, but the answers do not take into account the recently enacted Economic Growth and Tax Reconciliation Act of 2001. A follow-up article addressing any applicable tax law changes and tax planning strategies will be published in a subsequent issue of The TaxAdviser.

Question: The initial beneficiary of a College Savings Plan (CSP) can be any individual (regardless of familial relations). However, if a contributor decides to change the beneficiary, he can do so by selecting another member of the original beneficiary's family. What is the specific meaning of the term "beneficiary's family" and where is this defined?

Answer: As stated previously, a CSP can be transferred to anyone who qualifies as a member of the designated beneficiary's family. Sec. 529(e)(2) defines the term "member of the family," with respect to any designated beneficial, as:

* A son or daughter, or a descendant of either;

* A stepson or stepdaughter;

* A brother, sister, stepbrother or stepsister;

* The father or mother, or an ancestor of either;

* A stepfather or stepmother;

* A son or daughter of a brother or sister;

* A brother or sister of the father or mother;

* A son-, daughter-, father-, mother-, brother- or sister-in-law; or

* The spouse of the designated beneficiary or the spouse of any of the above individuals.

For purposes of determining who is a member of the family, a legally adopted child is treated as a child of such individual by blood. Also, the terms "brother" and "sister" include a brother or sister by the half blood (Prop. Kegs. Sec. 1.529-1(c)).

Question: It was stated that funds from CSPs can be withdrawn penalty-free to pay for higher education expenses. Does "higher educational expenses" include more than just tuition, such as student supplies?

Answer: Qualified higher education expenses are generally defined as tuition, fees, books, supplies and equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution (Sec. 529(e)(3)). Room and board will also qualify for a student enrolled at least half-time and enrolled or accepted for enrollment in a degree, certificate or other program that leads to a recognized educational credential awarded by an eligible educational institution. Required expenses are school-specific...