If you have kids, saving up for their college will help streamline your family’s finances in future. You do not want yourself or your child to be bundled with unnecessary debt, which could take years to get over. Parents who have looked into their options have probably encountered the college savings account, which is also commonly called the 529.
What is a 529 plan?
His type of college savings plan will offer financial aid and tax benefits, although it may also be used to save up for k-12 tuition. Some 529 plans will offer an investment option as well, which may be a great way to knock down a lot of your children’s future college costs. 529 plans may also be state operated, but there is a privately controlled 529 plan operated by a number of colleges and universities.
Generally, 529 plans will fall into two categories, either for college savings or prepaid tuition. Prepaid tuition plans offer payment for part or all of your college tuition costs at an in-state college, although the benefits may also be converted for private and out-of-state colleges. The second option, a college savings plans, works like a Roth IRA. Here, you invest your tax-deducted contribution on a mutual trading fund or similar option and grow the value of your 529 plan similar to an investment portfolio.
Can you use your plan for a college of your choice?
You are allowed to invest in any state’s 529 plan, with almost each state having at least one in place. Plans will differ by feature and benefit, so it is important to research an ideal option to help meet your needs. Researching and comparing the different options will help you identify the right plan, which should not offer any compatibility issues when covering costs. 529 plans are acceptable at any of over 6,000 qualified colleges around the country. You can be a North Carolina resident, invest in a California 529 plan and send your child to college in Chicago without a problem. The 529 plan even works for up to 400 international institutions!
Should you go for a 529 plan?
Is a college savings plan right for your needs? Unlike a Roth IRA, it offer little restrictions on savings Regardless of the age or income limits, you can set up this type of savings account. Here are a few benefits of a 529 plan that should ply into your decision making.
- Contributing to a 529 plan will get you a tax deduction in many states
- The range of schools that qualify for coverage Is impressive. Trade, graduate, undergraduate and technical schools all count.
- You can access any state’s 529 plan for increased value to you
- You can hold multiple 529 plans for increased tax benefit
- You can pick your own investments when setting up your plan
- Other people can make contributions under your name
- Your account will not expire in the event of your passing
- You will only need to pay taxes on withdrawals if your child receives a full scholarship.
- Front-loaded contributions, which are generously high, will earn you tax gifts.
Michael started with a master’s degree in finance before he went into technology and coding. He is now a freelance journalist and video producer living in Berlin, Germany. When he doesn’t write, he will travel many countries.