College Savings Tips: The Basics of the 529 Plan Ms. Bels Thursday, September 26, 2013 The Connect, The Receipt, Your Money and You As a child grows up, parents oftentimes think of what he or she will choose as a career choice. But, in order to become that doctor or lawyer, parents understand that the only way to get there is to attend college and/or graduate school. The downside of this thought, however, is the amount of money it is going to take to send their child to college. When money becomes involved, this is when parents seem to get stressed out. Parents, stop worrying though. If you didn’t know, there are ways in which you can start now saving for your kids college future. For some folks, the way to do that is through a ESA (education savings account) or a 529 Plan (a qualified tuition program). Although either savings option is good, in this post we’re going to give you the basics on how a 529 Plan work. Earnings accumulate on a tax-deferred basis Distributions from a 529 Plan are tax and penalty free Parents or guardians can prepay college expenses at eligible education institutions Contributions made to a 529 Plan are higher than that of ESA 529 college savings plan allows parents to start saving immediately after a child is born No income restrictions Designated beneficiary (or child) can be changed by a qualified family member Maximum contribution amounts vary per state; but are limited to what is actually needed to fund the beneficiary’s education expenses Unused funds can be rolled over, transferred, and changed to a new designated beneficiary; but only by a qualified family member Tax deduction options vary per state Contributions can be invested in annuities or mutual funds “Qualified Education Expenses” includes: enrollment fees, tuition, book, supplies, equipment, academic tutoring, uniforms, room and board, transportation, and fees associated with a special needs student; contributions used for expenses may be subject to a 10% early distribution or income tax penalties For more detail information on the 529 Plan, visit www.collegesavings.org.
