Tax Credit Adopted for Vermont Higher Education Investment Plan

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Tax Credit Adopted for Vermont Higher Education Investment Plan

Tue, 06/24/2003 - 8:00pm -- tim

Vermont parents, grandparents and others have another
incentive to join, or continue contributing to, the Vermont Higher
Education Investment Plan (VHEIP), the state's "529 plan." Starting with
the 2004 tax year, VHEIP participants will be able to receive an income
tax credit of 5 percent of the first $2,000 contributed to an account, or
up to $100 per year per beneficiary. The provision was approved by the
2003 Legislature and signed into law by Gov. James Douglas on June 16.
Vermont joins 24 other states and the District of Columbia in enacting an
up-front incentive -- many states use a tax deduction -- for taxpayers
enrolled in the state's "529 plan," as the programs are known under the
Internal Revenue Code. Unlike a tax deduction, which reduces your taxable
income, a tax credit reduces the amount you owe in taxes. A deduction
generally favors taxpayers who can afford sizable contributions to an
account and who itemize on their tax returns. A credit is available to
everyone, including those who do not itemize, and does not favor large
contributors. The credit is nonrefundable, meaning it is only available to
those with a tax liability. Under provisions in state and federal law,
funds invested in 529 plans already grow income tax-free. Withdrawals are
also income tax-free, as long as the money is used to pay qualified higher
education expenses.* Taxes and penalties are imposed for nonqualified
withdrawals.
VHEIP is sponsored by the Vermont Student Assistance Corp. (VSAC), with
TIAA-CREF Tuition Financing, Inc., serving as the plan manager. Since the
plan's inception in late 1999, more than 2,700 VHEIP accounts have been
established primarily by or for Vermonters. The value of funds invested
was $20.7 million as of June 13. VSAC President Don Vickers said he has
been pleased by response to the plan, because it means Vermonters
understand the importance of saving for college. Given the experiences of
other states, he expects the new incentive to encourage even greater
participation. "Most families today rely on education loans to cover a
good portion of their college expenses, and in some households, education
debt levels have become quite burdensome," said Vickers. "The more
families are able to put aside for college, the more they will be able to
offset their need for loans and have money available for other pressing
needs." VHEIP offers a flexible, easy way for participants to invest.
Three investment options are offered. Participants can contribute as
little as $25 at a time or $15 per pay period by payroll deduction. There
are no income restrictions on participation and no annual contribution
limits, just a high lifetime maximum on contributions and earnings.
Proceeds from a VHEIP account can be used to attend most colleges in the
U.S. and some abroad.
For more information, or to enroll, call
1-800-637-5860 weekdays from 8 a.m. to 8 p.m. or visit www.vsac.org. *The
laws allowing for income tax-free qualified withdrawals are set to expire
on Dec. 31, 2010. The plan does not currently offer a tax credit. The tax
credit will be available as of Jan. 1, 2004, and a full description of the
tax credit will then be included in the plan disclosure booklets. Read the
disclosure booklets before opening an account. Principal and investment
returns are not guaranteed or insured and will fluctuate. Teachers
Personal Investors Services, Inc., distributor.