Already 4 percent are saving through qualified state tuition plans. One of the striking findings of the study revealed that even though a high number of parents are actually saving, most are not saving enough or on a regular basis. First of all, passbook plans do not keep pace with inflation, and the parent is taxed annually on earnings at his or her income rate. Second, because the funds are very accessible, the temptation is always there to spend the account for other family expenses.
Mutual funds can provide a great return but the risk is greater as well.
The survey revealed that 80 percent of parents say that it is difficult to save for their children's education. The qualified state tuition programs are a relatively young market, it has been11 years since the first qualified state tuition plan was established. Each state plan is designed to meet the needs of its residents, however, certain benefits span all state plans. In both types of programs, federal taxes on state sponsored plans are deferred until the child actually begins college and then the funds are taxed at the child's lower income level rather than the parents' potentially higher rate. Nearly all states exempt the plans from state taxes as well.