Why a 529 Plan?
Thanks to the availability of information through the internet, and an increase in awareness of college savings opportunities, more families are saving for college than ever before. However, many of those who are saving for higher education are simply not saving in the best way. They are losing money to taxes and other fees. They are saving in traditional saving or investment vehicles and missing the tax and other advantages of saving in a 529 college savings plan.
A 529 plan is one of the best ways to save for college with affordable, flexible, tax-advantaged options designed for all income levels and types of families. It’s never too late or too soon to get started, but it’s important to do your research and understand the importance of saving, use the best resources available, and that you compare all your options. Please check out the specific details of your state by using our handy map to locate your information.
What is a 529 Plan?
Currently offered by all 50 states and the District of Columbia, 529 plans get their name from Section 529 of the Internal Revenue Code, which established federal tax advantages for qualified college savings plans. These plans help you plan and save for qualified higher education expenses at eligible educational institutions.
There are two basic 529 plan options:
- Prepaid tuition programs, which in most cases allow families to prepay for future in–state public college tuition.
- Mandatory expenses and savings programs.
The tax benefits of 529 plans are similar to those for 401K retirement savings, but upon withdrawal earnings are tax free when used for qualified higher education expenses.
The individual who opens the 529 account, not the actual beneficiary, retains full control of their 529 money. Funds in 529 accounts can be rolled over to another state’s plan – and can be withdrawn at any time for any purpose. Withdrawals not made for qualified higher education expenses carry a 10% federal penalty on earnings unless the child receives a full scholarship, becomes disabled, or passes away. Unlike other college savings programs, 529 plans do not have income restrictions. The maximum savings amount is substantial and varies by state.