529 Savings Plans - Painless College Savings
Financial aid, scholarships, and even grants are a few ways to fund a college education but sometimes even these aren't enough. If you're a parent who's responsible for paying for college, a savings account can help.
The 529 savings plan is one option for parents who want to save for their child's education. 529 savings plans are different than most savings accounts because the investment is allowed to grow without any tax deductions.
The internal revenue service views 529 savings plans differently than other assets, which means you can build a large savings account quickly without paying taxes upon withdrawal.
Key Benefits of a 529 Account
A 529 account is an attractive option for parents for a number of reasons:
1. You control the entire account. You designate specific withdrawal dates on the account and can transfer the funds to another account if you change your mind about where the cash needs to go. This allows flexibility with your finances without incurring penalties or paying extra fees. As a parent setting up a 529 savings plan, this gives you more control over the transactions than a custodial or other joint account.
2. Your money will only be used for education-related expenses. If you have difficulty controlling your finances and organizing savings for a specific purpose, the 529 savings plan requires you to use the funds only for college. This can make it much easier to save and build that balance.
3. A 529 savings plan will not affect your financial aid status. Since the 529 account is considered an asset of the parents, most students will still qualify for financial aid if they need it.
Ultimately, any contributions to the 529 savings plan will be considered a ‚Äògift' to the recipient on your income tax return. This makes it very simple to organize your income tax schedules, and means you will not have to pay a single dollar on the total amount you've saved - in some cases this savings can be as much as 30% of the original dollar amount.
Choosing the Right 529 Savings Plan
There are many 529 account investment companies and managers available. Choose one that is in your state since some do allow you to deduct various amounts from your state tax bills. You'll need to find a funding group that has a favorable company history, as well as proof of experience in the industry. Every state has different guidelines, restrictions, penalties, and fees for the 529 account, so it's a good idea to review as many options as possible. Reviewing the contracts and agreements in detail will also ensure you understand all policies and protect your investment.
Saving money for a child's education can be challenging, but there are many financial options available to make the entire process much smoother. The 529 savings plan helps you save a large sum of money specifically for your child's education and enjoy substantial tax breaks in the process.