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Advantages of 529 Savings Plans


529 saving plans help parents, guardians, or grandparents to save for their loved ones' higher education using the advantages of tax deferral and tax exemption. While there are other programs which allow for saving money for college, the 529 saving accounts are one of the best methods available. Here are a few of the advantages of saving through a 529 account.

* Tax benefits All investments in 529 savings plans are allowed to grow tax-deferred from federal taxes and in most cases, from state taxes also. Earnings on the invested amount are also tax-deferred and are not subject to capital gains tax. Withdrawals from the account, as long as used for qualified college expenses, will be exempt from federal income tax. In most cases, the investments and earnings are also deferred and tax free from state income taxes.

* More tax benefits Many states offer a tax deduction or even a tax credit on money invested into that state's 529 by taxpayers of the state. Check to see if your state offers a deduction, because this one benefit can make opening a 529 a worthwhile venture.

* Many investment options Many states offer a large number of investment options, sometimes ranging up to twenty or more choices. In many cases you can choose to have the investment manager keep track of the money, moving it to a more appropriate allocation as the beneficiary grows towards college age.

* Flexibility in contribution options Anyone can contribute to the 529 savings account. Friends and relatives are free to contribute on behalf of the beneficiary as long as the total for that person remains under the lifetime maximum, which varies from state to state, but is well over $100,000 up to almost $400,000.

* Control of owner over the account While other savings methods allow the beneficiary to control the money once a certain age has been reached, the money in 529 Savings plans remains in the control of the account owner, who decides when, why and how the money will be spent.

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