ScholarShare Allows Tax-Deferred College Savings.

• Author: LEVY, JOHN
• Position: Golden State ScholarShare Plan - Brief Article

The cost of college is escalating faster than most costs in our society. As a result, funding education has become one of the primary objectives of most financial planning. Even if you are not a financial planner, you might end up advising clients on the tax advantages of tax-deferred savings. Although the California ScholarShare program can meet both of these traditional objectives--often better than other alternatives--most CPAs have never heard of it.

With AB530, the California Legislature created the Golden State ScholarShare Plan, and effective Oct. 4, 1999, the plan is available to California residents.

NO CONTRIBUTION LIMITS

The Golden State ScholarShare Plan permits full funding of projected college needs on a federal and California tax-deferred basis, with no income or annual contribution limitations. For the working stiff, this allows contributions of as little as $15 per month on payroll withholding. For your wealthier clients, practical limitations are based on the beneficiary's age and projected school costs, but total contributions exceed over $150,000 and can be funded in a single year (although estate planning would probably limit the single year contributions to $50,000 per contributor). If the funds are used for the beneficiary's higher education costs, which can include domestic schools' overseas studies, not only are the earnings tax deferred, but they will be taxed at the beneficiary's tax rate when used.

Unlike other transfers to underage, potential spendthrifts, this one does not belong to the beneficiary unless used for school. When your 18-year-old is looking at his college fund, and trying to decide which would be a better investment -- Cal Tech or a new Corvette -- and you suddenly realize it is legally his choice, the retention of ownership of the ScholarShare program has a lot of appeal.

FUNDS SCHOOLS NATIONWIDE

The maximum amount for any beneficiary is based on the most expensive California school and is calculated on five years of education including anticipated earnings, but the funds can be used at any school nationwide participating in Federal Title IV programs. This includes almost all regular colleges, universities and vocational schools. The funds can be used for tuition, fees, books, supplies, equipment, room and board. The beneficiary does not have to be a family member, and can even be the contributor (you can do this for yourself). Unused funds can be transferred to another member of the...