College costs are escalating every year, which can make parents doubt whether they will be able to afford a higher education for their children. Planning is essential, however, if aspirations are to become reality. The DC College Savings Plan is the smart choice for parents, grandparents, aunts or uncles to help a loved one save for college.

There are many options available to finance higher education, but 529 plans have emerged as an excellent choice. A 529 plan is a tax-advantaged investment vehicle in the United States designed to encourage saving for the future higher education expenses of a designated beneficiary, named after section 529 of the Internal Revenue Code.

The District’s 529 plan – the DC College Savings Plan – which was implemented in November 2002, has been among the nation’s fastest growing plans. More than 9,200 participants have entrusted the District with investments of more than $100 million and have withdrawn more than $7 million to help pay for college. The District’s 529 plan was also recently awarded high ratings based on overall usefulness by Savingforcollege.com, a nationally recognized organization that provides college savings information and resources.

The plan is available nationwide, but it offers extra benefits to District taxpayers, including the ability to deduct up to $3,000 (up to $6,000 for married couples filing jointly, if both own accounts) in contributions to an account from the federal adjusted gross income reported on his/her District income tax return each year. Opening a DC College Savings Plan account is easy, and accounts can be started with an initial contribution as low as $25.

Recent changes in tax laws make the DC College Savings Plan even more beneficial:

The provision that allows tax-free withdrawal of funds from 529 accounts for educational expenses, which was set to expire in 2010, was made permanent in August 2006 via the Pension Protection Act of 2006. Withdrawals from 529 plans are tax-free when used for qualified purposes, such as tuition, fees, and room and board.

Changes to the “kiddie tax” law will now allow children 18 and under (and 18- to 24-year-olds who are full-time students) to be taxed at the same rate as their parents for any investment income of more than $1,700 per year. Previously, children over the age of 14 paid no more than a 10 percent tax rate on any investment income in their name. This makes taxable custodial accounts such as UGMAs and UTMAs much less appealing savings options than in the past. And 529 plans are notaffected by “kiddie tax” issues. As long as the money is used for qualified college expenses, withdrawals from 529 plans remain tax-free.

The District also offers additional assistance programs to District residents, such as the DC Tuition Assistance Grant Program (DCTAG) and the DC Leveraging Education Assistance Partnership (DCLEAP). Another program, the DC College Access Program (DC-CAP), is offered only to DC Public School students. For information on DCTAG and DCLEAP, residents should visit www.osse.dc.gov or call 202-727-2824; information about DC-CAP for DCPS students is available at www.dccap.org.

These programs, combined with the DC College Savings Plan, give District residents an outstanding combination of resources to help them maximize their potential and reap the important benefits that a college education offers. Enroll by Dec. 31 to take advantage of the 2007 DC tax benefit.

For more information, visit www.dccollegesavings.com or call 800-987-4859 (800-368-2745 for non-DC residents).

Lasan K. Mack is the DC treasurer and Deputy Chief Financial Officer of the District of Columbia government.

The Government of the District of Columbia does not guarantee investments in the program.  Investment involves risk, including possible loss of principal.

For more information on the DC College Savings Plan, please visit www.dccollegesavings.com , call 800-987-4859 (800-368-2745 for non-District residents) or contact your financial advisor. An investor should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing. The District of Columbia College Savings Trust Program Disclosure Booklet contains this and other information. Read it carefully before you invest or send money. An investor should also consider, before investing, whether the investor's or designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's 529 college savings plan.