Saving for a child’s education has become even easier using the Michigan Education Savings Program (MESP). MESP is authorized under Section 529 of the Internal Revenue Service Code to be a state sponsored education savings program.

There are multiple benefits of an MESP account. Contributions to an MESP account are deductible on your Michigan Income Tax Return to a maximum of $5,000 for individual filers and $10,000 for joint filers. The account grows tax free from both federal and state income tax.

When the beneficiary reaches college age, funds in an account can be used for "qualified education expenses," including tuition, matriculation fees, books, room and board, and necessary equipment. Necessary equipment can include a computer and related accessories if the educational institution mandates that students have a computer. Room and board includes students who live at home while they attend college, and can be reimbursed at the prevailing rate of room and board that is charged by the college or university.

All withdrawals for qualified educational expenses are free from federal income taxation. The only requirement is that the student attend a college that is qualified for federal education assistance. This includes virtually all two and four year institutions, both public and private, many overseas educational institutions, and most trade and vocational schools.

If the beneficiary does not elect to attend college, the owner of the account can select an alternate beneficiary who must be a family member of the original beneficiary. While typically this would be a sibling, the definition of a family member includes mother and father and first cousins. Thus, a grandparent establishing an account for a grandchild could redirect the account to another grandchild. Parents who set up the account for a child could actually use the funds for themselves should they elect to return to college.

The MESP account is offered through the Michigan Department of Treasury. Investments are made through TIAA-CREF, one of the largest pension administrators in the country. Funds can be invested in a variety of different investment portfolios, which include a guaranty option, thereby providing a guaranteed rate of return, and stock and bond options for longer term savings plans.

More information is also available online at www.misaves.com.

This summary is intended as a source of general information.  If you have questions or desire additional information, please contact Ryan M. Wilson at (517) 377-0897 or rwilson@fraserlawfirm.com.