Next to a mortgage, a child's future college education is probably the most expensive item facing a family. Tuition for higher education continues to rise at an alarming rate, often several times the rate of inflation.
So we're glad to see that last week Gov. Tony Knowles signed legislation - passed earlier unanimously by the Senate and House - allowing state residents to take advantage of federal tax breaks to save for college.
Alaskans can now set up an account with a state program to set aside the money. It's all due to changes in the 1996 federal tax laws, but residents couldn't use it without the state program.
The new program will offer people a lot of benefits. They can select specific beneficiaries - a child, grandchild or even themselves - and they can put in money whenever they want. Family members can even put in as much as $50,000 in one year into the education savings plan without it being subject to federal gift taxes.
The money is protected from creditors in the event of a bankruptcy. Another key point is that when used, the money is taxed at the rate owed by the student, which could be much lower than would be owed by the parent. Furthermore, taxes don't have to be paid on the money, which would be earning interest during that time, until is used to pay for school.
There are some restrictions. The money can only be used for education and there is a penalty if it's withdrawn for another purpose. Fortunately, funds will be able to be transferred to another family member if needed.
Education is vital to the future of this country, but its costs continue to rise. This legislation, originally introduced by Sen. Tim Kelly, R-Anchorage, and Rep. Lisa Murkowski, R-Anchorage, helps families plan for this vital investment.
We encourage parents to consider this program, and to talk with financial advisors about this and other savings opportunities for your children. It's the most important investment you will ever make.
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