529 plans are tax-deferred investment accounts that parents and grandparents can use to invest money for a child’s higher education. Each state has its own rules about the amount a donor can put away, and Georgia and South Dakota don’t offer these plans. But nothing stops you from investing in the 529 plans of other states to take advantage of their benefits.

In New York, for example, the maximum you can invest is $100,000 per child, while in Massachusetts and Rhode Island, the maximum contributions are $171,125 and $246,023. So, says Neil Baim, vice president of investments for Janney Montgomery Scott, “A New York State resident can invest in a plan that is based in Rhode Island or Massachusetts.”

Because it can only be used for higher education, the cash can’t be accessed by the child. So, there’s no fear that Junior will buy a Porsche instead of going to Harvard.

And when the money is withdrawn, it is taxed at the child’s rate, not yours. Be-cause your kids likely earn little to no income, their tax rates will be lower. And if the money goes unused, “you can literally roll it into another account for a different child,” says Baim.
Contact the Treasury Department in your state or visit www.savingforcollege.com for more information.