College is expensive – plain and simple. There really is no way around it. If you have children that plan on going to college, you will most likely need to support them financially in some way. A great way to do this is by opening a 529 college savings plan. If you have started to look into the ways to save for your child’s college fund, chances are you have heard of 529 college savings plans. These accounts are a great way to save for qualified education expenses. Plus they come with tax benefits!
If you are thinking about starting to save for children education expenses, a 529 plan might be right for you. Here, we will detail all you need to know.
What is a 529 college savings plan and how do they work?
A 529 plan is simply a type of savings account that allows for parents, grandparents, or guardians to help someone pay for college. These plans can also be used for other post-secondary schooling. Anyone may establish a 529 plan and name anyone as the beneficiary. Beneficiaries can include children, grandchildren, relatives, friends, and even yourself! This means that you can create the plan, put money into it, and pay your own qualified education expenses from it. Sounds like a win win!
As with most savings plans, the account holder will choose among different investment options. These investments can include stocks, bonds, and mutual funds. The account is managed by a third-party and withdrawals can be made at any time to pay for qualified education expenses for the beneficiary.
What are the benefits of a 529 college savings plan?
The most popular benefit of a 529 plan is that they offer tax free income on investments. Not sure what this means? Well, this means that any interest, dividends, or capital gains accumulated in the account will be tax free. They are only tax free if the funds are for qualifying education expenses. These expenses include fees such as tuition, books, and even room and board.
However, you should be aware that schools will most likely take the amount in a 529 plan into consideration when determining students financial aid package. This means that a 529 plan will most likely reduce the eligibility for need based financial aid.
How do you set up a 529 plan?
There are a couple different ways to set up a 529 college savings plan. The first way is to purchase one through a broker. 529 plans purchased through a broker are subject to additional fees though. In most cases, the account holder will pay a load fee. A load fee is basically commission that is paid to the broker. In addition to these fees, you may have to pay annual distribution fees, maintenance fees, asset management fees, and more.
Another way that you can open a 529 plan is by investing in a direct-sold college savings plan. These plans are offered through different states and are for residents and non residents. This method is a great alternative to a broker purchased college savings plan. The benefit of this method is that you do not have to pay any broker associated fees.
To learn more about these plans visit College Savings Plan Network’s website.
529 College Savings Plan – Summary
Are you wondering if a 529 plan right for you? The best way to answer this is by sitting down with your accountant or financial advisor. You should take your entire financial picture into consideration when deciding whether or not to open up this type of college savings account.
If a 529 college savings plan is right for you, it can be a great tool to help pay for future educational expenses for yourself or others.