Saving for college comes with a lot of choices. What type of college fund is the right choice for your situation? Or will you just use a standard savings account to keep track of your college money. One type of college fund you should be aware of is the 529 plan. There are a lot of positive aspects to this type of fund that may sway you to use one. Take a look at some of the more essential aspects of it.
Tax Benefits
The 529 college savings plan is run very similar to a Roth 401(k) when it comes to tax benefits. The money being invested is after your tax contributions, so when you retrieve it, it cannot be taxed. It grows on a tax-deferred basis. When you use it for your college needs, the withdrawn money cannot be taxed. Around thirty states also offer an extra incentive to use this type of college fun. They offer state income tax deductions and state tax credits for contributions made to a 529 plan. See if your state is on the list of those lucky enough to get this extra perk.
Contributions
When and how much do I have to put into it? You should be looking at this with all types of funds. There is not a monthly payment requirement with the 529 plan. You will need to put in a certain amount when you open the account. This could be as little as twenty-five to open it. After that, the amount you add is up to you. You can put money in each month or put in lump sums only a few times throughout the year. The only time you may want to ask for advice is when you are adding large sums of money to it. If you plan to put in more than the annual gift tax exclusion, you will want to talk to your financial advisor.
Financial Aid
When looking into college, most want to know how different things will affect their eligibility for financial aid? A 529 plan will not affect it any more than a standard savings account. So having one will only be a benefit to the college student. In addition, the distributions from a 529 plan are not reported. This is helpful when trying to get support from programs like FAFSA.
Withdrawals
When you add money to your 529 plan, you are putting it away to use on school expenses. Once in, you cannot take it out without a penalty for any other reason. Qualified reasons would be things like tuition, books, room, and board. Other related expenses like purchases of a computer or other supplies would also be considered eligible expenses. The IRS has even added K-12 you to the approved list. Those who are going to private school can now use funds from a 529 plan to make payments.
Look into a 529 plan for your college savings. Prepare now for future education.