What kinds of college savings plans are available to me?
Have you started saving for your children’s education yet? You can start saving now for those exorbitant college expenses that will come later with a 529 college savings plan. A 529 college savings plan is a tax-advantaged investment plan designed to encourage saving for the future higher education expenses of a designated beneficiary (typically your child or grandchild). Every state in the U.S. now offers a 529 plan and all are different. You do not have to invest in the plan of the state in which you reside; however, there can be significant state tax advantages if you do, such as a state tax deduction, a matching grant, and scholarship opportunities, protection from creditors and exemption from state financial aid calculations.
There are two types of 529 plans:
- 529 Prepaid Tuition Plans – Available in 13 states, these allow for pre-purchase of tuition based on today’s rates and are then paid out at the future cost when the beneficiary is attending college.
- 529 Savings Plans - Earnings are based upon the market performance of the underlying investments, which typically consist of mutual funds. Savings plans may only be administered by states. 49 states and Washington, D.C. offer these savings plans.
There are numerous benefits to saving for college via a 529 plan:
- All money grows free of federal and state income tax.
- Withdrawals used for higher education expenses are exempt from federal income tax and some state income tax.
- Account holder has control of assets within program regardless of beneficiary’s age,
- Low monthly contribution limits, some states set as low as $15.
- Can change beneficiary within family.
- Money can be used at any accredited college in U.S. for tuition, fees, room, board, books, supplies and equipment.
- Can contribute via payroll deduction or automatic transfer.
- Assets protected from bankruptcy.
You can learn much more about the 529 options available to you by researching via the Internet, inquiring with your local credit union or speaking with your trusted financial advisor.