When asked what’s most important, parents say their children’s’ future is way up on the list. But when asked how their college savings plans are going, many have not made it a priority. Your kids aren’t getting any younger (and sometimes it seems as if the years are flying by). If you haven’t done so already, now is the time to start planning; when your kids are ready for college, you’ll be glad you did. One option is a 529 plan, which some have called the “401(k) for college savings.”
Tax-free BenefitsNamed for Section 529 of the Internal Revenue Code, these are college savings plans offered by states (or colleges) that provide important tax advantages. Many financial experts consider 529 plans to be one of the best ways for most individuals and families to save for college. Here’s how they work:
• You
invest your money in the 529 plans’ investment options, which are professionally managed and designed to balance risk and return, depending on the investments you select.
• You may get a
state income tax deduction, depending on whether your home state offers its taxpayers with state tax and other benefits for investing in that state’s or, in some circumstances, in another state’s 529 plan.
• Earnings are tax-deferred. Your money has the potential to grow faster, because there are no taxes on the investment income or capital gains.
• Here’s the best part:
Withdrawals are free from federal tax, as long as the money is used for “qualified education expenses,” which includes tuition, room and board (with limitations), books, supplies, fees, and equipment required for enrollment.
• The
money can be withdrawn and used to pay “qualified education expenses” at any eligible educational institution in the U.S. and abroad.
Do research and talk to your financial advisor to find the plan that suits you best.
Types of 529 Plans529 plans are usually categorized as either savings or prepaid plans.
Savings Plans work much like a 401(k) or IRA by investing your contributions in mutual funds or similar investments. The plan will offer you several invest¬ment options from which to choose. Your account will go up or down in value, based on the performance of the particular option you select.
Prepaid Plans let you pre-pay all or part of the costs of an in-state public college education. They may also be converted for use at private and out-of-state colleges. The Independent 529 Plan is a separate prepaid plan for private colleges.
Talk to your financial advisor or contact a state plan:
PA Plan
www.nowu529.comNJ Plan
www.njbest.comUpromise
www.upromise.com