What are the benfits of the 529 plan?

College is expensive regardless if you attend out of state, in state, private or public. No matter how you try to get around spending a lot of money, college costs add up. Think of it like this: first there is tuition, then room and board if you decide to dorm. Following that there are the costs of books, meal plans, social activities on campus, sororities and fraternity dues (if you pledge) - just to mention a few college costs. For these reasons alone planning ahead and starting a savings fund for college is extremely important. Some savings plans that you may be familiar with are savings accounts, annuities, and Savings Bonds. You can now add one more to that list: The 529 plan.

Here is a little history on the 529 plan. The 529 plan is an educational savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. Created in 1996, the 529 plan was named after a section of the internal revenue code.

Now the question stands, with so many other savings plans, why the 529 plan? What are its benefits? Any time you save for your child’s future you are taking a positive step in the right direction, but it is important to weigh your saving options. Which plan would work best for you? Here are some benefits of starting a 529 plan.

1.  Federal and state tax benefits. The money invested into the 529 plan is tax-deferred and when the money is withdrawn for the students college costs, the money comes out federally tax-free. Depending on the state you live in, there can be tax breaks as well but each state has its own set of rules so you must research into your specific state.
2. You retain control of the funds. The account is under your watch. Full control of withdrawals is in your hands.
3. A low maintenance way to save for college that is flexible. This plan does not require your full attention. Your investment is handled by professionals.

Creating and investing in a 529 plan is a great way to start the beginning of your child's future.  Not only will the money be there when your child or children need it, but the money that you have invested in the program can only be used for college expenses. If the money is used for any other reason than college education the money withdrawn is than subjected to federal and state tax as well as a 10 percent penalty fee which means that unless you have even more money than you previously invested to pay the taxes and penalty fees, you will most likely be smart and use the money for what it was intended to be used for. This eliminates the temptation to spend the funds on anything else but your child’s education. The 529 plan may also reduce the amount of student loans that need to be taken out, as well as home equity loans, and any other means that parents use to help pay for their child’s education. The 529 plan is a great way to plan head for the future, as well as ease the burden later on down the road when your child starts their journey toward their future career.
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