Saving for your child’s higher education is one of the most important investments you can make for his or her future. To facilitate savings at the faculty, a Qualified Tuition Program or Plan 529 has been established. Plan 529 is a federal income tax plan that is used exclusively for qualified education expenses.
Research shows that college education can lead to increased income and better job prospects. Unfortunately, rising tuition costs have become a budget issue for many families. Tuition prices have jumped so much that if you want your child to finish college without debt (or close to it), you better start saving.
The benefits of subsidizing faculties with 529 accounts are different. Below are a few reasons worth considering:
College is expensive. The sooner you start saving, the more time you have for your savings to work. Even saving small amounts will eventually create higher dividends.
Cover more than tuition. Account 529 can be used to pay for all costs associated with higher education, including textbooks, computers, and other necessary materials.
Use for technical education. In addition to studying at public or private colleges, 529 savings can be used for trade schools. These types of educational institutions are becoming very popular mainly due to the rising costs of traditional universities.
Tax breaks. The state of California offers tax growth suitable as well as a way to potentially reduce your taxable assets. Although contributions to the California plan cannot be deducted at the state or federal level, all investment growth is not subject to state and federal taxes, and part of the earnings for withdrawing the cost of qualified education is exempt from income tax. In addition, California 529 plans allow individuals to contribute up to $ 15,000 per year per account without incurring any federal gift taxes or using any of your lifetime gift tax amounts. IRS Publication 970, “Tax Benefits for Education,” explains how to calculate the taxable portion of a distribution. (Please contact your tax advisor regarding potential tax benefits).
Lower student debt. A savings account of 529 can ease the burden of student loans and reduce the amount borrowed.
Flexibility. There are two different types of 529 savings accounts. Plan 529 allows you to transfer money to different accounts within the plan. Keep in mind that each plan has its own rules, so do your homework before you make changes that could adversely affect your investment.
• Prepaid Tuition Plans – These plans allow you to subscribe to tuition with money paid out when a student enrolls in college. These subscribed curricula are usually managed by government organizations or the faculties and universities themselves. The funds in these types of plans usually cannot be used for room and food.
• Savings plans – Most of these plans invest in mutual funds, certificates of deposit and depend on the return on investment of these assets.
With many financial institutions, you can open 529 savings accounts online in less than 5 minutes. To know what each state has to offer and compare and contrast plans, visit http://www.collegesavings.org or http://www.savingforcollege.com.
Investing in your child’s 529 advanced education plan has a number of benefits. But, as with all savings plans, it is best to start early while your student is a toddler to reap the maximum benefits from your investment.