Saving for your child’s higher education is one of the most important investments you can make in their future. To make saving for college easier, the Qualified Tuition Program or 529 plan was established. The 529 plan is a federal tax-free savings plan to be used exclusively for qualified educational expenses.
Research shows that a college education can lead to higher earnings and better job prospects. Unfortunately, the rising cost of tuition has become a budget issue for many families. Tuition prices have risen so high that if you want your child to graduate from college debt-free (or close to it), you’d better start saving now.
The benefits of subsidizing college with a 529 account are varied. Here are some reasons worth considering:
College is expensive. The sooner you start saving, the more time you have to put your savings to work for you. Even saving small amounts will eventually reap bigger dividends in the future.
It covers more than tuition. A 529 account can be used to pay for all costs associated with higher education, including textbooks, computers, and other necessary supplies.
Use towards technical education. In addition to tuition at public or private universities, 529 savings can be used for trade schools. These types of educational institutions are becoming very popular mainly due to the rising costs of traditional universities.
Fiscal benefits. The state of California offers tax-advantaged growth, as well as a way to potentially reduce your taxable wealth. Although contributions to the California plan are not deductible at the state or federal level, all investment growth is free of state and federal taxes, and the earnings portion of withdrawals for qualified educational expenses is tax-free. rent. In addition, California 529 plans allow individuals to contribute up to $15,000 per year per account without triggering any federal gift tax or using any lifetime gift tax exclusion amounts. IRS Publication 970, “Education Tax Benefits,” explains how to figure the taxable portion of distributions. (Consult your tax advisor about possible tax benefits).
Lower student debt. A 529 savings account can help ease the burden of student loans and reduce the amount borrowed.
flexibility. There are two different types of 529 savings accounts. A 529 plan allows you to move money to different accounts within the plan. Keep in mind that each plan has its own set of rules, so do your research before making changes that could adversely affect your investment.
• Prepaid Tuition Plans: These plans allow tuition to be purchased in advance with money that will be disbursed when the student enters college. These prepaid tuition plans are usually administered by state organizations or by the colleges and universities themselves. Most of the time, funds from these types of plans cannot be used for room and board.
• Savings plans: Most of these plans invest in mutual funds, certificates of deposit and depend on the investment performance of these assets.
With many financial institutions, you can open a 529 savings account online in less than 5 minutes. To find out what each state offers and compare and contrast plans, visit http://www.collegesavings.org or http://www.savingforcollege.com.
There are numerous advantages to investing in a 529 plan for your child’s further education. But, as with all savings plans, it’s best to start early, when your student is a young child, to get the most bang for your buck.
