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Fund Education Through 529 Plans


Education is the key to unlock the doors of success! But the question haunting every parent is how to afford higher education for your child? Since everyone can't win enough college scholarships to pay for college, the next best answer is a planned course of savings. Right now, 529 plans are the most popular educational saving plans in the United States. They allow you the opportunity to save for a college education, while saving money on taxes at the same time.

The 529 plans can be used to pay not only for tuition, but also for other educational expenses like mandatory fees, room & board, books and even a computer, if required by the university. Of course, there are other programs available to you for assisting with the costs of higher education, like UTMA or Coverdell Education Savings Accounts, but these can not stand up to the benefits offered by the 529 plans.

529 plans provide many tax advantages to investors. These plans are designed to assist your savings for future education expenses. The legal term for 529 plans is Qualified Tuition Plans (QTP). These 529 plans are sponsored by states, educational institutes, or by state agencies as authorized by Section 529 of the Internal Revenue code.

Basically there are two types of 529 savings plans. These are: (1) prepaid tuition plans and (2) College saving plans. All the states in the USA sponsor at least one of the two saving plans. A few states provide both these plans.

There are specific tax advantages offered for investing in 529 plans. Earnings in these plans will not be subject to payment of federal tax and will grow tax-deferred. In many cases these plans are not subject to state taxes, as well. Bear in mind though, if you need to take out your money from a 529 plan and fail to use it on qualified college expense, you will be liable for income taxes on the earnings, as well as an extra ten percent federal tax penalty. Additionally, if you used a State tax deduction when making your deposits, these may be subject to recall and payback and any earnings in the account may also be subject to state taxes. So think long and hard before taking out money for a non-educational purpose.

Several states even provide matching grants if you are putting your money in a 529 plan. Each state has it's own rules for these grants, usually taking income into account. Some of the states participating in a match program are Arkansas, Colorado, Kansas, Louisiana, Maine, Missouri, Nevada, North Dakota, Rhode Island, Texas, Utah and West Virginia.

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