Being able to get a college level education is a worthwhile investment. Paying for college by saving a little every time goes a long way and it helps reduce reliance on debt such as student loans. A college education can open a lot of doors of opportunity for your child, grandchild, niece or nephew but with the steady increase of the cost of college education, it certainly is a great idea to begin saving for it early and regularly. And every chance of being able to add to that college fund helps. So, how do you do it? The best answer is by taking advantage of your state’s 529 College Plan. Read further for more information on the 529 basics as well as how to take advantage of it:So what exactly is a 529 College Plan?
- A 529 College plan is named after Section 529 of the United States Internal Revenue Code and is being administered by every state organization and agency.
- It is designed to encourage saving for the college education of a tax payer’s designated beneficiary; i.e. child or grandchild.
- All withdrawals by the person paying for college education expenses will be absolutely free from federal income tax. Several states even offer deferred state tax growth and even tax free withdrawals for those qualified college education payments or expenses.
- There are actually two types of 529 College Plans: The first is a Prepaid Tuition Plan (or in some states it is called a Guaranteed Savings Plan) that basically allows a person to pre-purchase a tuition fee at the current tuition rates that later on will be paid out when the designated beneficiary goes to college and start enrollment. This first type can be administered by either states or colleges themselves.
- The second type of 529 College Plan is called simply the Savings Plan and can only be administered by the state. Account earnings in this type of plan are based on the performance of your current underlying investments; which typically, are your mutual funds. Currently, Washington D.C. and 49 other states offer the Savings Plan. This type of plan offer a variety of age based options for investment wherein your underlying investment increases as your designated beneficiary gets closer to the time he or she enters college.
So now that you’ve run by the basic need to know, and now that paying for college wouldn’t that much of a burden anymore, how do you get a 529 College Plan? Below are some helpful how to’s:
- You can easily open a 529 College Plan by getting in touch with your state’s administrators of the program. There are websites that help you get in touch with the organizations and agencies involved as well as providing toll free numbers for further inquiries.And some other few things that you may need to know:
- Anyone can be a designated beneficiary regardless of the relationship to the person who set up the account. And anyone can open a 529 account – even grandparents can do it and name their grandchild as a beneficiary. There are even some states that allow corporations and non government organizations to open a 529 College Plan account.
- A person can open an account anytime. It’s never too late to save up for college. Even if your child or whoever your designated beneficiary is already in high school, you can still get qualified for a 529 College Plan.
Saving for the college education of your child is not only an act of love. It is an investment to your child’s bright future. And with the help of the 529 College Plan, saving and paying for college has never been easier.