529 College Savings Plan
by Cara Scatizzi
With tuition costs rising every year, saving for college is a top priority for most families with children. A 529 savings plan, also called a qualified tuition program, allows you to build up savings to pay for qualified higher education at eligible institutions using tax-free dollars. 529 plans were named after a section of the tax code and are offered through states.
In this article
- How It Works
- Types
- How to Purchase
- Investor Suitability
- Tax Consequences
- The Pros
- The Cons
- Additional Information
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How It Works
The 529 savings plans let parents save for qualified college costs free of federal and sometimes state taxes. Qualified costs include room and board, tuition and books. Prepayment may be in the form of a contribution to an account established specifically for paying higher educational expenses.
There is no income restriction for individuals who want to contribute to a 529 plan. Some states do have a maximum total dollar amount that can be contributed over the lifetime. Be aware that any contributions made that exceed any qualified costs will be taxed as ordinary income upon withdrawal and are subject to a penalty. In this case, over saving may hurt in the form of taxes and penalties.
All 50 states offer at least one type of 529 savings plan. State plans are typically managed by mutual fund companies. You aren’t limited to your home state’s plan, although you might give up state level tax breaks if you choose an out-of-state plan.
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Discussion
Most 529 plans can be used for anyone in same immediate family as long as it is educational improvement. Even though a grandchild's name is noted as beneficiary it can be changed easily for another grandchild in same family or can be used by either of parents too.
posted 2 months ago by John Callahan from California
