A 529 Savings Plan for College

A 529 Savings Plan For College

Take advantage of your state’s 529 plan to save for higher education

The price of an education continues to increase and there’s no clear sign that this trend is slowing. Planning to help your kids or other loved ones through higher education? If then answer is yes, then you want to start savings now – and section 529 can offer the vehicle you need to save.

“In general, 529 plans are college savings and investment accounts sponsored by state governments,” explains Ann Carrns of the New York Times. “Money deposited in the accounts grows tax free, as long as the funds are used for educational purposes when withdrawn. You don’t have to be a resident of a particular state to use its plan, although some states offer additional tax benefits to in-state plan participants.”

Think of it as the 401k for education. You’re saving for higher education versus retirement.

You put after-tax dollars into an identified 529 plan where they grow tax free, and then can be withdrawn tax free to pay for tuition, books, room and board and other expenses necessary for successfully completing college.

The details of 529 plans offered in each state can vary significantly so be sure you have a clear understanding of the rules that apply in your state.

A growing number of states also offer “pre-paid tuition” plans under the umbrella of IRS Section 529. These plans can be of tremendous benefit if you think your plan’s beneficiary will be attending a school in the state in which you currently reside.

“Prepaid tuition plans are college savings plans that are guaranteed to increase in value at the same rate as college tuition,” writes Mark Kantrowitz on FinAid.org. “For example, if a family purchases shares worth half a year’s tuition at a state college, these shares will always be worth half a year’s tuition — even 10 years later, when tuition rates may have doubled.”

With a pre-paid tuition plan, you’re essentially paying now for tuition later rather than saving in a tax-free account for future withdrawals. Some of the benefits of these plans are lost if the beneficiary attends an out-of-state school, but they can still be an important and secure way to save for college.

If you’re ready to start saving for someone’s college expenses, find out which program(s) your state offers and what you need to do to enroll. Check out this link for more general information on 529 savings plan.

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