Saving for college with a 529 Plan is a great way to help offset higher education expenses. A 529 Plan is a plan designed to help individuals save for higher education expenses for a designated beneficiary.
Although contributions are not deductible from the donor's federal income tax amount, many states provide state income tax deductions for all or part of the contributions of the donor. Beyond the potential state income tax deduction possibilities, a prime benefit of the 529 plan is that the principal grows tax-deferred and distributions for the beneficiary's college costs are exempt from tax.
Another advantage of a 529 is that the donor maintains control of the account. In most cases, the named beneficiary has no rights to the funds. Most plans even allow the donor to reclaim his or her funds at any time, no questions asked. However, the earnings portion of the "non-qualified" withdrawal will be subject to income tax and an additional 10% penalty tax.
Qualified Expenses:
1. Tuition, fees, books, supplies and equipment required for study at any accredited college, university or vocational school in the United States and at some foreign universities.
2. The money can also be used for room and board, as long as the fund beneficiary is at least a half-time student. Off-campus housing costs are covered up to the allowance for room and board that the college includes in its cost of attendance for federal financial-aid purposes.
Qualified education expenses do not include student loans and student loan interest.
A 529 Plan can be a very good strategy to save for college with a definite tax advantage. However, a lot of 529 plans simply invest in mutual funds, and we see what has happened to those in the last the year.
It is important to monitor your 529 plan and when the student is within 2 to 3 years of college, it may be wise to talk to plan provider about safer or more conservative investments within the 529 plan.
Although contributions are not deductible from the donor's federal income tax amount, many states provide state income tax deductions for all or part of the contributions of the donor. Beyond the potential state income tax deduction possibilities, a prime benefit of the 529 plan is that the principal grows tax-deferred and distributions for the beneficiary's college costs are exempt from tax.
Another advantage of a 529 is that the donor maintains control of the account. In most cases, the named beneficiary has no rights to the funds. Most plans even allow the donor to reclaim his or her funds at any time, no questions asked. However, the earnings portion of the "non-qualified" withdrawal will be subject to income tax and an additional 10% penalty tax.
Qualified Expenses:
1. Tuition, fees, books, supplies and equipment required for study at any accredited college, university or vocational school in the United States and at some foreign universities.
2. The money can also be used for room and board, as long as the fund beneficiary is at least a half-time student. Off-campus housing costs are covered up to the allowance for room and board that the college includes in its cost of attendance for federal financial-aid purposes.
Qualified education expenses do not include student loans and student loan interest.
A 529 Plan can be a very good strategy to save for college with a definite tax advantage. However, a lot of 529 plans simply invest in mutual funds, and we see what has happened to those in the last the year.
It is important to monitor your 529 plan and when the student is within 2 to 3 years of college, it may be wise to talk to plan provider about safer or more conservative investments within the 529 plan.