College Savings Plan – 529 Savings Plans
Saving for your children’s education is a selfless act. We know you love your children, and we know you want to support their dreams and interests. Your spending habits will determine how much contributions you can put away for your kids.
What is a 529 Plan?
A 529 Plans is designed for college saving and is generally operated by states or educational institutions. These plans can be opened at any time and kept until needed. You can open a 529 Plan in any state, depending on the requirements. 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.
Many 529 Plans have a minimum contribution limit such as $50. By starting small and scheduling for monthly, automatic contributions you can start to build your future student’s college savings into your budget.
As your infant grows to a toddler and then goes on to elementary school, daycare costs decrease, and you can consider adding your newly found “raise” to your child’s college savings.You can also set aside some of your annual bonuses or other unexpected income sources such as a tax return toward your 529 to boost investment.
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.
529 Plans come in 2 forms: college savings plans & prepaid tuition plans.
1. 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.
2. 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.