MESP officials applaud new federal rules allowing for computer purchases with 529 plan college savings

LANSING – The Michigan Education Savings Program (MESP) today praised a “common-sense measure” approved by Congress that will allow families to save tax-free for a computer used for college.

Previously, computer and related technological purchases counted as eligible 529 plan expenses only if explicitly required by the college a student attended. Now, a computer qualifies whether a college requires students to have one or not.

“Computers are virtually indispensible to today’s students, and this common-sense measure will help ensure 529 plans such as MESP remain as affordable, effective and versatile as possible to help families achieve their higher education goals,” said Robin Lott, MESP administrator for the Michigan Department of Treasury.

The new rule stipulates that the student – not the family – must be the primary user of the computer. It also allows withdrawals from 529 plans to go toward peripheral equipment, computer software and Internet access.

The change was part of a broader measure that also enhanced 529 plans by allowing students to redeposit funds back into a plan within 60 days without penalty if they withdraw from a class.

The enhancements were included in H.R. 529, which passed the House in February, and S. 335, which the Senate approved late last week.

Lott said the improvements will further help put a college degree within reach for more students.

“Parents are becoming increasingly committed to saving for college, and these changes further improve 529 college savings plans, which have proved to be a successful way for families to manage higher education costs,” she said.

The plans – which are named after the section of the Internal Revenue Code that created them in 1995 – allow families to set aside funds for future college costs. They are usually savings plans, such as MESP, that offer several investment options, or prepaid tuition plans, such as the Michigan Education Trust, that allow for the purchase of prepaid tuition at today’s rates.

MESP offers Michigan taxpayers a state income tax deduction on contributions and potential tax-free growth on earnings if account proceeds are used to pay for qualified higher education expenses. Contributions are not taxed when they are taken out to pay for eligible expenses.

MESP, which is managed by TIAA-CREF Tuition Financing Inc. on behalf of the Michigan Department of Treasury, can be used at any eligible college, university or trade school in the nation and some abroad for a variety of qualified higher education expenses.

More information about MESP is available at MIsaves.com or 877-861-6377.