529 PLANS

A college education comes with a big price tag. If you’re considering college for your child or even for yourself, it’s prudent to set aside money to cover the costs. Here’s what you need to know to use a 529 plan to maximize your college savings.

• A 529 plan permits individuals to save for college while minimizing the taxes on their investments. The number 529 actually comes from the IRS tax code where the tax advantages of the plan get spelled out. After investing in a 529 plan, you can withdraw the money for qualified education expenses without paying taxes on any gains.
• A qualified education expense is not limited to tuition. You can pay for fees, books and supplies, even room and board under certain conditions. Because state governments administer the plans, some states offer deductions or credits on your state income tax return for making a contribution to a 529 plan.
• While you can participate in another state’s 529 plan, remember that tax advantages for contributions may only be available in your home state. Currently there is no deduction or credit on a federal tax return at the time of contribution.
• A 529 plan can be transferred between beneficiaries, but it cannot be used by more than one beneficiary at a time. The transfer feature can be useful because unqualified withdrawals are both taxed at regular income rates and penalized by 10%. If you have more than one child, you can effectively roll any leftover funds to a younger sibling.
• Some states offer a prepaid tuition option as their 529 plan. A prepaid plan allows you to lock in today’s tuition costs, but it may restrict you to in-state schools. Before investing in a prepaid plan, try to make sure that the included options will cover the educational needs of the beneficiary.

Parents want to give their children every advantage, and higher education is a valuable benefit. The tax savings of a 529 plan can help stretch the dollars you have for a college education. Higher education and lower taxes, what a great combination!