Back to School

The Baltimore Sun

College savings aren't just for kids. Take Paul Grimm of Columbus, Ohio. He's 41 years old and has been investing in his home state's plan for several years - for himself. Every year or so, the computer consultant takes classes to stay current with his rapidly changing field while building up credits toward a bachelor's degree. Tuition runs as high as $1,500 per class.

The "plan is a perfect way to bank some money ahead of time, let it earn some interest, and then when I do sign up for classes, I can use it to pay for those courses," says Grimm, who has about $9,000 in his account. "I wish I had opened it a lot sooner. It took me a while to realize it was there."

College savings plans are marketed to parents and grandparents as a tax-wise way to save for a youngster's education. And that makes sense. Children usually won't need the money for many years, and the longer the cash is invested in the plan the bigger the benefit. You never pay taxes on the investment gains if the money is used for qualified higher education expenses, and about half the states, including Maryland, give residents a tax deduction on contributions to their home-state plan.

But account owners can name themselves the beneficiary of the plan, too, and the plans have no age limits or time restrictions on when the cash must be used. So grown-ups can use the tax-free distributions for classes to brush up on their skills, train for a new career or pursue that bachelor's degree they never got.

You don't even have to take the classes for credit or be working toward a degree, says Joseph Hurley, founder of, which provides information online about these plans, also called 529 plans.

Still, the number of people opening accounts for themselves is small. In Maryland's plan, for instance, only 2 percent of account owners named themselves as the beneficiary, and some of them are saving for future children.

Some restrictions

There are some restrictions. You must be at least a half-time student in a degree program to use the money for room and board, Hurley says. And classes must be taken at an institution that's eligible to participate in the federal student loan program. So yoga classes at the local health club won't qualify. And, of course, if you use the money for any purpose other than college, you'll owe regular income tax and a 10 percent penalty on the gains.

Paul Hinkle, co-owner of a Laurel homebuilder, says he and his wife both have college savings plans for themselves. "I want to take some college classes really more for fun after I retire and this is a way to invest and pay for that," says the 50-year-old, who studied economics in college years ago.

"If I don't use it myself, one of my kids or grandkids can," he says. Plan rules allow account owners to change beneficiaries.

Susan Clinton of Salisbury has a college savings plan for herself and each of her four children. The 42-year-old physician quit practicing seven years ago to stay at home with her children. Recently widowed, Clinton doesn't plan to return to work until her 1-year-old twins are of school age. She might use her plan money for a refresher course before going back to medicine. Or, she might take business or computer classes if she opens a home-based enterprise.

'I get a tax break'

"It's like a savings account. Whenever I need it, I will have it," she says. "And I get a tax break."

Tim Benz, who works for the Bush administration, will be attending Georgetown University in the fall to pursue a master's degree in public policy. The Odenton resident invested $2,500 in Maryland's plan in December and says he's already financially ahead because of the state income tax deduction. "I ran the numbers on it, and it ended up saving me $120 just in 2006 state taxes," the 28-year-old says. On top of that, his account balance has grown by $208, more than 8 percent in a half-year.

College Money, a college planning consultant in New Jersey, recently has been encouraging grandparents to open plans for themselves and take classes that interest them.

"People are retiring earlier. What are you going to do with your life?" says Ray Loewe, the company's president. And once retirees have had enough of the classroom, they can transfer the balance to accounts for each of their grandchildren, he says. (Though this could trigger gift tax issues, depending on the account value.)

Loewe, who is 65, says he and his wife are going to open accounts for themselves. Loewe studied engineering in college and says he didn't have the chance to study art or music.

"I'm thinking of a 10- or 15-year plan. I intend to take a lot of courses," he says. Loewe adds that he is working with his local community college to develop a course for older students, where tuition includes travel to Costa Rica for a week in January to study the environment.

Sounds exotic, but Loewe says the class will meet the requirements for savings plan money. "This is not a beach trip in disguise," he says. Some experts agree the class seems to comply with the rules.

Could it be that Loewe discovered a loophole where retirees will be taking bocce ball classes in Italy with tax-free dollars? Will colleges try to lure older students with creative courses in resort areas?

"It has to be legitimate courses at a legitimate college," Loewe says.

According to Treasury Department spokesman Andrew DeSouza, the tax code says the money can be used for tuition, fees, books, supplies and equipment required for enrollment and attendance at an eligible institution, but there is no guidance on defining the limits.

That could change if the government suspects people are using the plans in a way not intended by Congress, experts say.

Meanwhile, tread carefully and make sure your classes qualify under savings plan rules. The rules are in IRS Publication 970, available online at

Most states open their plans to outside residents. You can search and compare other state plans online at or

Every state different

Every state is different. Make sure you understand the quirks. Check out plan fees.

"With such a short time frame for capital appreciation, fees ... play a much greater importance," says Andrew Gogerty, a mutual fund analyst at Morningstar Inc. "You don't have the time frame for compounding interest to offset those."

The Maryland plan, managed by T. Rowe Price Associates, lowered its fees last year. That moved Morningstar in its annual survey this year to name Maryland's plan one of the best in the country.

Once you choose a state's plan, you'll still need to decide the right investment option for you.

Many plans give investors the choice of a portfolio of funds tied to when the student is expected to enroll in college. These portfolios hold a bigger stake in stocks when college is far off and gradually move more into bonds as enrollment nears.

Or, you may have the option of a fixed portfolio, such as all stock funds or half stocks and half bonds. You'll want a portfolio heavily weighted with bonds if you'll be tapping the account in the near future. You don't want to risk losing money in stock funds just when you're about to enroll in school.

To suggest a topic, contact Eileen Ambrose at 410-332-6984 or by e-mail at

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad