What are the benefits of 529 college saving plan
If you are looking for an education investment plan then a 529 Plan would be ideal for you. Once you invest in this plan, you are securing your child’s future as a stipulated amount of money is set aside. This money is usually used for your child’s future education and it is allowed to grow till it matures. This investment plan is tax free and the federal government would not tax it if you use the money only for higher education purpose. This money would be taxable if it used for any other purpose other than education.
Investing in 529 Plan is good investment to secure your child’s future
In case you fall into a labyrinth of debt then your child’s educational expenditures won’t be a head ache for you. Then you can devote your precious time for debt negotiation services and pave the way to come out of it.
The two types of 529 plans are as follows:
a) Savings plan: The higher educational expenditures that include tuition fees, boarding expenses, books and computer expenses and mandatory expenses too comes under this saving plan. There are many investment choices associated with this plan.
b)Prepaid plan: This plan is mainly used for tuition fee and to carry the expenses of education of the state public colleges. Independent 529 Plan is a different prepaid plan for private colleges.
The educational institutions give a 529 prepaid plan but does not suggest a 529 savings plan.
How 529 college saving plan is beneficial?
- Tax Saving:
529 plan is used for educational expenditure for instance tuitions, books and boarding. This plan is also a tax savings plan. There are many states that gives a tax reduction when one invest money in this 529 plan this is one of the advantage of this plan.
- Control over the account:
Even if the beneficiary attains the age of 18 years the account would be in the name of the donor. This would prevent from the misuse of money as the fund is not being transferred in the name of the beneficiary. There is one investment plan called United Gifted to Minor Act where the money gets transferred once the recipient steps into his adulthood. Here the recipient might use it for other purpose instead of higher educational expenses. The parents have no control over the account once it is transferred in the name of the beneficiary. But in a 529 plan the donor has all right to control the account.
- Flexibility of the 529 Plan:
The name of the beneficiary can be changed if he goes against education as the 529 plan bestows all the power on the donor. There are two investment packages in a 529 plan that is i) Fixed Allocation
ii) Enrollment based
The policy holder has the option of making a choice from these two investment packages and employs that suits him best. The policy holder can change the investment plan or can even shift to some other investment programs. The beneficiary of the account can be changed any time. At the initial days the 529 plan asks for minimum contribution. There is no age or income to enroll in this plan.
- For Estate Planning purpose:
The money saved for 529 plan can be used as estate planning tool. This money can be utilized for future use if one feels the urgency to exercise it. When the amount is not used for the purpose of educational expenses then tax is levied on it and a federal tax penalty of 10% is charged on the money.
