SACRAMENTO College sav-ings plans such as California's Golden State ScholarShare College Savings Trust (ScholarShare) go from tax-deferred to federally tax-free next year under the new federal tax bill, expected to become law this week.
Currently, federal taxes are deferred on ScholarShare funds until they are withdrawn for college, and then they are taxed at the rate of the beneficiary typically a child or grandchild entering college instead of at the account holder's higher rate. In addition to eliminating federal taxes on withdrawals, the new tax bill's provisions increase the amount of ScholarShare account funds that can go toward room and board expenses.
The federal tax-free status will apply if funds are used for higher education expenses such as tuition, books, and room and board. The State of California will pursue the elimination of state taxes on qualified withdrawals.
Launched by California State Treasurer Philip Angelides in October 1999, ScholarShare has since grown to include nearly 40,000 account holders, with a combined total of more than $168 million in investments. The funds are managed by TIAA-CREF, an 80-year old nonprofit and one of the world's largest private pension fund systems with over $200 billion invested.
"ScholarShare becoming federally tax-free catapults it from a great opportunity to an absolutely outstanding one. A tax-free college savings account will encourage more families to save, and will stretch scarce college dollars much further. This is an important change that will ease the financial burden of college on families, and benefit an entire generation of college-bound children," said California State Treasurer Philip Angelides.
ScholarShare participants can choose from among four investment options. The most popular is an Age-Based Asset Allocation Option, which is heavily weighted toward equities for younger children and moves into bonds and money market instruments as the student nears college age. There is also a Guaranteed Option, a 100% Equity Option comprised of domestic and international stock funds, and a 100% Social Choice Equity Option featuring investments in socially responsible companies. Except for the Guaranteed Option, returns will fluctuate and are not guaranteed.
There is no income limit for ScholarShare account holders, and the funds can be used at eligible colleges, universities and post-secondary institutions throughout the United States, including vocational schools and some international institutions.
For more information, visit the Web site at www.scholarshare.com, or call toll-free 1-877-SAV-4 EDU (1-877-728-4338).