MICHIGAN

Michigan Education Savings Program

Type: Savings

Phone: 877-861-6377

State tax deduction for residents: Deduction for contributions up to $5,000 per year ($10,000 for married couples filing jointly)

Open to nonresidents: Yes

Refund provisions: Penalty of 10% of withdrawal (contribution and earnings)

Minimum/maximum contributions: $25 / $235,000

Other: Matching grants up to $200 for Michigan residents with children ages 6 or younger and household income of $80,000 or less

This TIAA-CREF plan is a great choice for residents, who can deduct contributions of up to $5,000 per year ($10,000 for married couples filing jointly). A small grant is also available for beneficiaries under age 7 in households earning $80,000 or less.

However, there are few investment options in this plan and the performance has been just average. The age-based portfolio is conservative, starting at 80% stocks but scaling quickly back to 60% by the time the beneficiary is 3 years old. But that posture has earned the plan above-average returns over the past one and three years. Aggressive investors can put some or all of their money in the all-stock portfolio. There's also an interest-bearing option with a minimum guarantee of 3%.

Expenses are very low, at 0.65% per year.

Michigan Education Trust

Type: Prepaid (contract)

Phone: 800-638-4543

State tax deduction for residents: Contributions are fully deductible

Open to nonresidents: No

Refund provisions: No refunds until beneficiary is age 18, then refunds paid in four annual installments, equal to tuition at lowest-cost Michigan college, less a $100 fee

Minimum/maximum contributions: $1,756 for a one-year community college contract / $29,840 for a four-year full-benefits contract

Enrollment period: January through August

Other: Must be used at one of 82 participating institutions.

The restrictive policies in Michigan's prepaid plan are incentives to keep you on the college savings wagon and to entice your child to attend college in state. But if your plans don't pan out, you lose.

The prepaid contract pays out the highest return if your child attends a public or private college in Michigan. It pays out less if:

• Your child attends college out of state
• You don't need the contract because your child earns a scholarship
• You've purchased a "full benefits" contract and your child attends a community college.

You get an even lower payout (equal to tuition and fees at the lowest-cost college in the state, less the $100 fee) if your savings are not used for college at all. Refunds come in four annual installments.

Michigan allows you to deduct your entire contribution to the plan from state taxes. But it does not back its plan with a full-faith-and-credit guarantee. Plus, there's a $25 to $85 fee based on when you submit your contract.

State College Savings Plans