Are you needing to save up for your child’s college education, but you just aren’t sure how? There are some great savings plans out there that can get you on the right track to saving for your child’s future. One of these great plans is called a 529 College Saving Plan. Here are the benefits of a 529 College Savings Plan:
What Is a 529 Savings Plan?
A 529 plan is a tax-advantaged savings plan that was set up to help save for future college costs. 529 plans are sponsored by states, state agencies, or educational institutions. They are authorized by Section 529 of the Internal Revenue Code. These plans are either categorized as prepaid or savings accounts. Each state decides what sort of plan it will offer, if any at all.
Basically, a 529 Savings Plan is a fantastic way to save money for college without having to think too much about it. Money is allocated to the savings plan as often as you’d like and the savings will just continue to grow as it accumulates interest. This is definitely an investment into your child’s future.
What Are the Benefits of a 529 Savings Plan?
Tax Breaks
There are many fantastic benefits of 529 Savings Plans. One of the best benefits are the tax breaks. Contributions in most 529 plans grow tax free, meaning no capital gains taxes are paid. About half of the states offer tax deductions on contributions in their 529 plans.
You are not able to deduct your deposits into the account on your taxes, but none of the growing investment will ever be taxed. In fact, when you use the money to pay for your child’s college tuition, none of it is lost to taxes.
Total Control
You will have total control of your 529 Savings Plan. Because you are the owner of it, this means that your child will not be able to make withdrawals from the account without your permission. You control the account because you are the one that deposited money into it.
Anyone can use one
Anyone, anywhere can use a 529 Savings Plan. Even if you are an adult and want to go back to school, you can open up a savings plan and deposit money into it whenever you want. It’s an easy way to build up money for your education.
Convenient
When you enroll in the plan, you don’t ever have to think about it again until you want to. If you sign up for automatic deposits, an allocated amount of money will be taken out of your checking account each month which is very convenient. You don’t have to ever worry about it.
What is the difference between prepaid plans and savings plans?
529 prepaid plans are contracts that you purchase that locks in today’s tuition rate at public and some private colleges in a certain state. Some restrictions are set when you use funds for out of state colleges..
529 savings plans are made up of mutual funds that grow tax free and can be used for any qualified higher education expenses, such as tuition, room and board, and other college expenses.
What is the minimum and maximum investment?
You can invest as little as $25 to open a 529 plan and invest over $300,000 per individual. You can’t however invest the $300,000 as a lump sum.
If you are needing to save up some money for a college fund, then this may be the right thing for you. The benefits of a 529 Savings Plan might just be what you have been looking for. Don’t wait any longer to start saving for your child’s college, get started today!
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