State makes tax-free college savings accounts available

Accounts can be used to pay postsecondary education costs anywhere in the nation

LANSING (AP) - Michigan residents can set up tax-free higher education savings accounts beginning this week, state officials announced yesterday.

"With the Michigan Education Savings Program, we're saying to families across the state, 'Let the learning and savings begin,'" Lt. Gov. Dick Posthumus said, speaking in the library of Elmwood Elementary School in Lansing. About 40 fourth-graders and many of their parents looked on.

The accounts can be used to pay expenses at any college, technical school or graduate school in the nation.

The minimum contribution to set up an account is $25, or $15 through a payroll deduction plan.

An individual can contribute up to $5,000 annually, while a couple can contribute up to $10,000 per year per account. The maximum balance allowed in an account is $125,000. People may open accounts for several different beneficiaries.

The state will charge no income taxes on the accounts. Federal taxes will be deferred until the money is withdrawn, at which point taxes will be assessed at the student's income tax rate.

Those who set up an account by Dec. 31 can immediately take advantage of the tax break.

The state also will match contributions from families that make less than $80,000. If a beneficiary is age 6 or younger, the state will give $1 for every $3 contributed, up to $200.

The program was the brainchild of state Sen. Mike Rogers, a Brighton Republican who just won election to Congress from the 8th district.

"We want to tell your parents that this Christmas they can give you a very special gift," he told the schoolchildren in Lansing.

Rogers, who has two young children, said he plans to sign up for the program by Friday.

He also is sponsoring federal legislation that would duplicate Michigan's program nationally.

Right now, about 24 states have state-sponsored college savings programs.

The state chose TIAA-CREF Tuition Financing Inc., a New York-based firm that manages 11 other college savings programs. The company will offer three investment options, based partly on the age of the beneficiary.

Lansing firefighter Michael Roman listened to the presentation and said he will definitely consider the program for his four children, who are all under 9 years old.

"I like the idea of the tax savings," said Roman, who said he is still paying off his own college loans from Michigan State University and Lansing Community College.