College
Savings 529
What
is a 529 Plan?
A
529 plan is a tax advantaged way to save for college and pay for
higher education expenses. Unlike some other savings vehicles, a 529
allows you to make sizeable contributions, often over $300,000. The
funds may generally be used for any qualified college or higher
education expense, including tuition, room, board, fees, books,
supplies and equipment. Tax benefits may be subject to certain
restrictions.
Money
in a 529 plan grows federal and state tax free. In addition, you can
withdraw the money without having to pay federal and—depending on
the plan and where you live—state income taxes, as long as it’s
used to pay for qualified higher education expenses. If the money is
used for other purposes, the earnings portion of a withdrawal is
subject to ordinary federal income tax, an additional 10% federal tax
and any applicable state income taxes.
Who
needs a 529 Plan?
Families
who are saving for their children’s college education, or adults
saving for a college education for themselves, may find that a 529
plan can be a key component of their education funding.
What
is covered in a 529 Plan?
Generally,
529 plans come in two forms: college savings plans and prepaid
tuition plans. College savings plans allow you to invest your money
in an account to pay for the beneficiary’s (student’s) higher
education expenses. Students can use the funds for qualified expenses
at accredited institutions in the U.S. and abroad. Conditions, such
as contribution limits, vary by plan. 529 savings plans are subject
to market risk and volatility. Accounts may lose or gain value.
Diversification does not assure a profit or protect against loss.
Prepaid
tuition plans allow you to "lock in" tuition rates at
eligible colleges or universities with a lump-sum investment or
monthly installment payments. In other words, since you are paying in
advance, you are avoiding potential tuition inflation down the road.
