Scholarships and Grants Made Easy - 529 College Savings Plans Explained - College Financial Aid Advice
By Marjorie Salada
One great way to prepare your children or
grandchildren for college financially is to buy into a 529 college
savings plan.
There are 2 basic kinds and each one has its advantages - depending on
your needs - and
theirs. Here are some details about the 529 college
savings plan that will show you why it may be the option
you want to consider for your
future college student.
Two Types of 529 Plans Available
529 college
savings plans, which are simply managed mutual funds, are available in
two different forms in most states. All colleges may not have their own
plan but many of them do. Each 529 plan, however, will be either a
prepaid college plan or a college savings plan.A prepaid college plan
gives you the advantage of locking in the price of tuition for the year
of purchase. It does this by allowing you to buy segments of tuition at
the current rate. These plans only cover tuition and other fees, but
you often can buy room and board separately. The amount that can be
contributed may be limited according to the age of the beneficiary, and
state residency is usually required. Prepaid savings plans have an
advantage because they are guaranteed by the state. There is usually a
limited time during the year when you can enroll in the plan.The other
form of 529 plan is the college savings plan. These do not lock in the
price of tuition, and may not be guaranteed by the state. The funds in
a 529 college savings plan are available for all college expenses, and
you do not need to be a resident in that state to be eligible. More
than $200,000 can be put into this plan, and enrollment is open to any
time of year.Excellent Tax BenefitsThere are very good tax benefits for
those who contribute to a 529 college savings plan. This makes it an
ideal way to direct some of your assets into a tax shelter and still be
able to make the money available to loved ones who will need it later.
Here are some of the benefits:-Interest is tax free until
withdrawn-Withdrawals made for educational purposes are tax
free-Account holder controls assets-Beneficiary can be changed at any
time-Amounts of $60,000 per person can be contributed without gift
penalty once for a 5-year period-Money can be used at all accredited
colleges in the US (even some overseas)-Assets are protected from
bankruptcy-Most 529 plans have very low minimum deposits, which make
them affordable to most people.Although the money in a 529 plan remains
yours, it cannot be withdrawn and used forpurposes other than education
without a penalty. It becomes taxable and a 10% penalty is applied to
any earnings.529 Plans Are Available in All StatesAll states have some
form of 529 plans, and so does Washington, DC. This makes it very
convenient to get one when you are ready. It is to your advantage to
look at purchasing one in the state where the young person is most
likely to go to school.Each state can make some aspects of the plan
peculiar to that state. This means you will need to find out what the
differences are before you buy into a 529 plan. Most states do not have
an age limit before which the money must be used.Advantages of 529
Savings PlansOther college savings plans may only permit annual
deposits of up to $2,000 per year. The larger amount permitted by a 529
allows you better tax reductions and estate planning.Some pre-paid
plans may have a few benefits that the more general state college
savings plan offers does not include. This would be the fact that some
colleges may offer matching dollars if you take their prepaid 529 plan
and if the student actually does attend college there.Things To Watch
for In A 529 PlanWhen you look at the various 529 college savings plans
available, it is important that you compare the fees. Some plans have
fees (brokerage and maintenance) that may actually leave you with less
at the end of the year than when the year started - because of higher
interest rates. Plans that are offered by brokers are usually a little
higher than state offered plans.Finally, it is a better idea to keep
the 529 college savings plan in the name of the plan creator rather
than the student. This way, the money in the plan will not prevent the
student from getting other financial aid for which he or she may be
eligible.Paying for four-years of college is no easy task. College
costs have escalated in leaps and bounds from year to year! Taking
advantage of 529 college savings plans is a good idea for a number of
reasons -- including tax benefits. The less money one needs to take out
in student loans the better, because loans need to be repaid. Learn
about college student loans and all types of financial aid from Mark
Allen, who writes for the free website: FinancialAidFinder -- a one
stop resource for parents and students.Article Source:
http://EzineArticles.com/?expert=Mark_B._Allen
