March 3, 2008

Eight Things You Should Know about 529 Plans

By Dana Joseph

Whether you’re a parent, an aunt or uncle, or a grandparent, news of the rising cost of a college education is sure to cause you concern. You probably already know that you want the young student in your life to attend college later, but you might be worried about how he or she will pay for it. Opening a 529 college fund may be the answer to your dilemma.

Created by the Internal Revenue Service, a 529 college fund provides a way for taxpayers to save for a family member’s college education while sheltering the income from that savings from taxation. Upon opening the account the taxpayer will name the young student in their life as the beneficiary of the fund. Then, when money is withdrawn to pay for the beneficiary’s qualified education expenses, no tax is due on the earnings of that account.

If you think there could be some college expenses in your future, there are some important facts you need to know about 529 Plans:

1. You can open a 529 college fund for anyone. That includes you child, your friend’s children, or even yourself.

2. You can change beneficiaries if your original beneficiary no longer needs the proceeds of the college fund.

3. Earnings from a 529 college fund aren’t taxable as long as they are withdrawn to pay for the beneficiary’s qualified education expenses.

4. Owning a 529 savings plan in your own state may bring you other tax benefits, such as a deduction for your contributions on your state income tax return.

5. If your open a 529 savings plan in one state and your plan’s beneficiary chooses to attend a school in a different state, you may still be able to transfer all or some of the plan’s benefits to another state.

6. Money held in a 529 savings plan may be invested in mutual funds, much like money held in a 401(k).

7. Many plans allow you to make contributions through direct deposit with amounts as small as $15 each month.

8. You may be able earn additional contributions to your 529 savings plan through the Upromise savings program. Details can be found at Upromise.com.

Starting a 529 savings plan is a solid choice to help you prepare for your or your loved ones education expenses. Be sure to check out the different plans available to you and start your plan soon to maximize your savings.

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One Response to “Eight Things You Should Know about 529 Plans”

Frugal Babe » Archive » Posts I Liked This Week Says:
March 5th, 2008 at 8:30 pm
[...] Things we need to know about 529 plans. This is a good one for me, as we’ll be opening a 529 sometime later this year for our little one who will be arriving in May. [...]