Learning about a 529 Savings Plan

12
March

If you have kids or grand kids who you are responsible for, you might want to find out more about the 529 savings plan. Education is a vital aspect in any child’s life, and this savings plan will ensure you provide it adequately. A 529 savings plan is similar to a fund that is set aside for higher-education costs. Also known as a qualified tuition plan, the 529 savings plan was instituted in 1996. It gets its name from the Internal Revenue Code, Section 529. It is subsidized by educational institutions and States, and its main purpose is to assist families put money away for college education. This money is usually tax free from Federal tax. Additionally, other taxes on 529 savings can be paid at a future date.

A 529 savings plan is created for accredited educational institutions. These can be universities, colleges and community colleges, vocational schools and certified post-secondary educational facilities. A 529 plan is usually taken for someone in particular. This is known as the beneficiary. However, should he or she choose not to use the savings, another qualified beneficiary can be appointed. Similarly, an organization that is not liable to pay taxes can obtain a 529 plan for a scholarship program. The person who gets the scholarship is the beneficiary of the 529 plan in such a case.

There are two kinds of 529 savings plans. These include;

- College savings plans – These can be set up whenever the benefactor deems it appropriate. Money is deposited into a set account for the beneficiary. College savings plans are only issued in forty nine states and Washington D.C. The savings remain in the deposit account until the beneficiary is ready to go to college. During this period while the funds are accumulating, it increases due to gain in interest.
- Prepaid tuition plans – This refers to savings made based on the current education rates but will be paid out in the future, when the beneficiary goes to college. These are offered by either accredited educational institutions or the State.

A 529 savings plan provides a number of benefits one of the major ones being tax exemption. Not only do you get the money free of Federal tax; your State might also offer a tax-advantage. For instance, they may opt to reduce State income tax on the savings or exempt the taxes completely. Other benefits entail;

- There is no financial strain on a family because monthly contributions are minimal. They can be as little as $15. However, for those who want to make bigger contributions, they can be an excess of $300,000.
- The 529 savings can be utilized for any college requirements and not only tuition.
- The funds remain under the account owner in spite of how old a beneficiary is.
- Should the beneficiary decide he does not need the funds, they can be allocated to another person within the family.
- 529 savings are safe and secure from unforeseen incidences like bankruptcy.
- Funds can be transferred automatically into the 529 savings account.

Most states nationwide offer a 529 savings plan. However, every State has its own plan formation and benefits attained. You can certainly get a 529 savings plan in a different state, but it is advisable to first understand what you stand to gain in your own State. Compare the benefits, especially in regard to tax-advantages. This will put you in a position to make a better and more informed decision.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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