Things That You Should Know About 529 Funds529 funds is the money that is kept aside by parents for the future education of their child. It is an investment plan where parents start saving money for their child's education at an early stage when their child is very young. 529 funds are managed by the state where the investor resides. Some plans are also operated by the educational institutes. 529 funds are designed to aid families save funds for future college costs. 529 funds are named after the section 529 of the Internal Revenue Code. The plan participants i.e. you are showered with various tax benefits if you apply for 529 funds. 529 funds are categorized as prepaid funds and savings plans. Some 529 funds have elements of both. Some states offer both plans. Every state has at least one of the two 529 plans. The rules of the plan are formulated by the state. It is entirely up to the state whether it will offer both the plans or just one 529 plan. Educational institutes can offer 529 prepaid plan. These institutes cannot offer 529 savings plan. Benefits of a 529 college funds savings plan * 529 plans offer huge tax breaks If you put money in a 529 college saving plan then your funds grow tax-free till the time you keep the money in the program. When the time comes for withdrawing money for your child's higher education you get 529 funds without any federal taxes. You don't have to pay taxes on your principal amount as well as on your earnings. There are some states that levy tax on the earnings; for example, Alabama. But most of the states don't impose any taxes on earnings as well as principal amount. * You have proper control on your money With 529 funds, you are in charge of your transactions. You can decide when to withdraw money and how much to withdraw. Unlike 529 funds, in the custodial account, your child gets control of the money when he reaches maturity. In a 529 account you are in control of the money and not your child. * 529 funds are flexible in use You can easily open numerous accounts for any person regardless of his age. You can start these accounts for each of your kids and even your own self if you are planning to study. Grandparents can open accounts for their grand children. You can have 529 funds for each child in a different state. Another advantage is that you can have more than one 529 accounts for a single child. This will be helpful if your ward requires more than $290,000 for educational expenditure. This is the case when the student joins MD, MBA or other expensive courses. Another big advantage of 529 funds are that if your child does not go for higher education or does not use full amount of money in the account then you can pass on the 529 funds over to some other person. |