College Investing: 529 Savings Plans

529 Savings Plans 101

529 savings plans are classified as either prepaid or savings accounts. These special investment plans are specifically for education purposes. An ideal plan for parents who are worried about college expenses for their kids in the future.

A 529 savings plan is a no brainer. You invest money into an account, whenever you want, and it accumulates interest gradually thus increasing the amount one puts in.

Why a 529 Savings Plan?

The greatest beneficial factors of a 529 savings plan are the tax breaks, complete control over the account as the parent, and the ability to use the account for one's own education.

The 529 savings plan is exempted from taxes. When you withdraw the money for your child's education, none of the money is taken out for taxes. The growing account due to interest will also still remain safe from taxing.

As a parent, you have complete control over the account. Even if the 529 savings account is for a child, the child cannot withdraw money from it himself. Only the parent has authorization to withdraw funds, since it is the parent who invested the money into the account in the first place.

The 529 savings plan is not just limited for children, it can also branch for yourself. Just as this plan is for education purposes...is the only way you can make one anyway. This plan is great for adults who want to go back to college, creating for themselves a stable tax exempted school fund.

The Benefits Of A Prepaid Plan

The benefits of a prepaid 529 plan is that if you pay a set percentage of a college's tuition, that percentage is PERMANENT. The great thing about this is that with rising college costs, in the long run, your paying less.

In this scenario, you paid $10,000 out of a $20,000 tuition 5 years ago. Tuition now has risen to $30,000. Well even with the $10,000 increase, you still keep the %50 percentage you payed at first. So you gained $5,000!

Another great benefit is that if a recession occurs and the college tuition drops, one keeps the set tuition amount. Even if the prepaid amount is more than the college's tuition.

Planning Ahead

Make sure your state has 529 savings plans first of all. Then see the policies of this plan. Some states are taking off the set percentage benefit of the savings plan, thus the account is not as beneficial as it was.

Also see if there are other flexible savings plans akin to the 529 savings plan in your state. 529 savings plans are great, but there may be other plans that could prove even more profitable and beneficial with ones circumstances.

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spooon 8 years ago from Texas

Also take note some states have tax savings. Remember to pick one with lower fees as some have fees that will really eat into your return.

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