529 Comparison

529 Saving And Its Benefits

In the present era of mounting college costs, saving for their child's higher education is a priority for most parents. It is indeed a big challenge for parents to send their children to college. A 529 savings plan is one of the best ways to save money for college education.

According to surveys, the tuition and related expenses of higher education both at public and private colleges are increasing at a rate of five to eight percent every year. This rate is much more than the general rate of inflation. It is very clear that saving for college and starting early is an imperative for parents. To put the rising costs into perspective, a child who is born in the year 2006 should plan on saving around $110,000 as entire expenditure for 4 years at a public college and around $300,000 for four years at a private university.

529 savings advantages

* Ability to make huge contributions which are tax-deferred: In 529 savings, anybody like parents, grandparents, friends or other relatives can contribute to a 529 savings plan. They can contribute up to $13,000 per child annually. This amount is gift tax-free in a 529 savings plan and may also qualify for a state tax deduction and deferral of taxes on the earnings.

* The donor is the owner of the account. The child does not have the right to withdraw money from the account. It is the investor who decides how much money to withdraw, when to withdraw and what the money will be used for. This 529 savings plan is totally different from a traditional savings account, where the student gets the charge of the money in the account after he reaches maturity.

* Tax-free earnings: All the earnings made on a 529 savings account are tax-deferred. Distributions are also exempt from federal and other taxes if the money is used for paying qualified college expenses. These expenses can be college tuition, fees, books, room, computer, etc.

* Not going to college? In case the child does not attend college, then the unused money that he had invested in the 529 savings can be rolled over to some one else's benefit.

* Not just for tuition unlike some other savings programs, the money invested in 529 savings plans can be utilized for all the college related expenses, not just tuition.

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