a 529 plan to save for college has become one of the
most popular options for parents saving for their
children's college education. There are some major
reasons why. But first, you may be asking, "What
is a 529 plan?"
529 plan is an investment plan that exempts gains
from dividend income or capital gains from federal
taxes. If you are a resident of the state in whose
plan you are investing, you may be eligible for deductions
on your contributions. The funds in the plan have
to be used for education purposes such as tuition,
books and dorm rooms.
are two types of 529 plans.
first is the college savings plan where your contributions
grow an the investment vehicle, with the gains
from sales or dividends shielded from federal tax.
You can use the funds for any college in the country
that is accredited.
second is a prepaid state tuition plan that allows
parents pay for college at current prices.
Earnings on your 529 investments can be withdrawn
for education purpose and you will not have to pay
a dime of federal income tax.
All of the earnings in your 529 account (capital
gains and dividends) can be fully reinvested over
time, greatly increasing the power of compounding.
Since you don't have to pay taxes year after year,
your account can snowball and grow at a faster rate
than a regular taxable account.
You do not need to know everything about PE ratios
and balance sheets. Some of the most reputable money
management firms like Vanguard and T. Rowe Price
run the funds invest your money.
No matter what your income, or what state you live
in, you can invest in these plans. If you live in
a state where you do not like the options, you can
invest in another state's plan that has better investment
returns. The key here is that you have invested
in a 529 plan, it does not matter if it is not in
your state. However, you should know that if you
do invest in a state's plan that is not your primary
residence, you may not be able to deduct the contributions
to the plan from your state income taxes.
The money in your 529 plan can be used for any accredited
college, university or graduate school, AND trade
schools, vocational schools, as well as room, board,
books and other school related supplies!
of these plans have fees that I think are too high.
Examine the expenses of your state's plan. There have
been stories in the news of brokers charging huge
fees that are completely unnecessary.
have made changes changes in the money managers
or administrators. You may have invested in a 529
plan that has a great money manager and the state
may end up changing the company managing your money.
exempts these plans from federal taxes until 2010.
Congress may choose not to renew the tax benefits
in 2011. Unless the 529 tax breaks are renewed
for 2011 and beyond, be prepared to pay for taxes
on your investment if you do not use the funds by
that time. Even if the favorable tax treatment of
529 plans are not renewed in 2010, you should still
consider these plans because you get the tax benefits
anyway until that time.
another way to save for your children!
I first found out about Upromise I was so excited!
Why? Because you can save for your children's education
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Upromise, a portion of the money you and your friends
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much more will go into an account for your children's
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