MESP Deadline Is Approaching

    LANSING — Area residents debating on whether to set aside money for their children’s or grandchildren’s education have until Aug. 31 to deposit money for this year in the Michigan Education Saving Program (MESP).

    So far, about 67,000 such accounts have been established in the two-year life of the MESP. 

    That Aug. 31 deadline applies strictly to the tax-favored MESP, but doesn’t apply to UGMA (Uniform Gift to Minors) or education IRA accounts which some people also use to set aside money for their children’s future. 

    People who contemplate using the MESP are warned, however, that it is not permissible to realize a tax savings by contributing both to an education IRA for a child and an MESP account.

    Under IRS rules, a person may contribute to one or the other, but not both.

    If that seems awkward, however, people who want to help youngsters finance college training may find the MESP a more flexible vehicle. For one thing, a youngster can have several MESP accounts to which different relatives can contribute, but the child can have no more than one education IRA.

    Another appealing feature about the MESP is that the donor maintains control over the funds, whereas a UGMA fund becomes the child’s property when he or she turns 21.

    Moneymagazine has named the MESP one of the best state-operated college savings programs in the country.                     

    The Money magazine report analyzed 38 state-operated 529 savings plans, named for the section of the U.S. tax code that governs the programs. 

    The report compared, among other things, the tax incentives and matching funds offered families in each program, fees and taxes charged for each account, the management companies overseeing the programs, and the maximum and minimum contribution allowances. 

    Money indicated its four other favorite plans were those in Iowa, Missouri, New York and Utah.          

    The MESP allows parents, grandparents, relatives or friends to contribute as little as $25 to create an account to save for a child’s higher education, or $15 through payroll deduction.

    The Michigan plan gives three investment options, and the accounts are managed by TIAA-CREF.

    Earnings grow free of state taxes as long as the eventual student uses the funds to finance a qualified higher education program. For federal purposes, the accounts grow with taxes to the student deferred until the student withdraws the money.

    This is in contrast to the education IRA, which grows tax-free to the student. The downside to the IRA is that the contribution limit is $500 a year. 

    MESP account owners can receive an annual state income tax deduction of up to $5,000, or $10,000 for joint filers.           

    The MESP also has a state match of one dollar for every three dollars contributed by a first-time account owner, up to a maximum state contribution of $200, with a family income eligibility ceiling of $80,000 and a beneficiary age limit of six.

    Citizens who can’t make large lump sum deposits in an MESP can fund it via a payroll deduction program.          

    Additional information about setting up an MESP account is available on the Web or by calling toll-free (877) 861-MESP. 

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